JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : ROBOWASH PTY LTD -v- ROBOWASH FINANCE PTY LTD [2001] WASC 112

Corporations Law - Application for leave to rely on matters that could have been raised on an application to set aside statutory demand on winding-up application - Application for discovery - Turns on own facts

Asian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59

Bank of Australasia v Hall [1907] HCA 78; (1907) 4 CLR 1514

Geraldton Building Co Pty Ltd v Woodmore (1992) 8 ACSR 585

Kekatos v Holmark Construction Company Pty Ltd (1995) 13 ACLC 1581

Master Paving Pty Ltd v Heading Contractors Pty Ltd (1997) 15 ACLC 1025

Re Flagstaff Silver Mining Company of Utah (1875) LR 20 Eq 268

Re Quintex (No 3) (1990) 2 ASCR 627

Re RHD Power Services Pty Ltd (In Liq) (1990) 3 ACSR 261

Re Third Lojebo Pty Ltd [1982] VicRp 36; (1981) 6 ACLR 409

Taylor v ANZ Banking Group Ltd (1988) 6 ACLC 808

Taylor v Powell [1993] FCA 87; (1993) 10 ACSR 174

Texel Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 62; (1993) 11 ACSR 535

Williams v NCSC (1990) 2 ACSR 131

1 MASTER SANDERSON: This is the defendant's application brought under s 459S of the Corporations Law for leave to oppose an application to wind-up the defendant on the ground that the company could have relied upon if it had made an application to set aside the statutory demand and for discovery. The winding-up proceedings have quite a history and it is appropriate to recount that history to put this application in context. Throughout these reasons I will refer to the plaintiff as "Robowash" and the defendant as "Finance".

2 On 7 May 1999 Robowash served on Finance a statutory demand for an amount just over $89,000. By originating application dated 28 May 1999 Finance applied to set aside the statutory demand. The application was brought under s 459G - Finance alleging that there was a bona fide dispute as to the amount of the demand.

3 On the first return of Finance's application Robowash claimed that there was no application properly on foot. It was alleged that certain pages of annexures to the affidavit filed and served in support of the application to set aside the statutory demand were missing. That being the case it was said that there had not been compliance with s 459G and that an application had been brought within the 21 days mandated by the section. No extension of time to bring the application was possible and therefore the statutory demand must stand: see David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 13 ACLC 1572.

4 On 21 July 1999 and 10 August I heard argument on this question and on 17 August 1999 I determined that even if the pages of the annexures had been omitted there was a valid application on foot: see Robowash Finance Pty Ltd v Robowash Pty Ltd [1999] WASC 134. From this decision Robowash sought leave to appeal. The application for leave to appeal and the appeal were heard on 11 November 1999. On 19 December 2000 the Full Court published reasons granting leave to appeal and allowing the appeal: see Robowash Pty Ltd v Robowash Finance Pty Ltd [2000] WASCA 409. The effect of this decision was that no application to set aside the statutory demand had been brought by Finance within time. There was, therefore, a presumption of insolvency.

5 On 16 March 2001 Robowash issued a winding-up application. On 20 April 2001 Finance issued this application. By consent it was agreed that this application should be dealt with prior to the hearing of the winding-up application. Based upon what was said by Spigelman CJ in Switz Pty Ltd v Glowbind Pty Ltd [2000] NSWCA 37; (2001) 19 ACLC 532 at 543, that is clearly the correct approach.

6 The facts relevant to this application are straightforward and can be summarised by quoting from the affidavit of Eric Lindsay Bolto sworn 20 April 2001. Mr Bolto says (par 7 through to par 12):

"7 Although the defendant has not traded since 12 October 1995, it has been maintained as an active 'shell' company should appropriate business opportunities arise for it to undertake.

8 The defendant has complied with the Corporations Law in respect of the lodgement of all required returns and notifications to the Australian Securities & Investments Commission (ASIC). Annexed and marked 'E' is a copy of an ASIC summary of documents lodged by the defendant which I verily believe to be true.

9 The defendant has no assets and no liabilities, but has the ability to raise finance should that be required.

10 The costs incurred in maintaining the defendant since October 1995 have been paid by me or at my direction.

11 The defendant has the ability to raise finance from me or at my direction should finance be required to engage in business activities, or to meet any valid debts the defendant may incur as and when they fall due.

12 I crave leave to refer to my affidavit, annexure 'A', wherein I depose to there being a genuine dispute as to the existence of the alleged debt of $89,174. The issue of liability has not been determined on the merits."

7 During the course of submissions both counsel examined exhaustively the decision in Zan Holdings Pty Ltd v Bayview Holdings Pty Ltd (1997) 15 ACLC 1238 and the decision of the Full Court in that case on appeal (Bayview Holdings Pty Ltd (In Liq) v Zan Holdings Pty Ltd, unreported; FCt SCt of WA; Library No 980585; 19 October 1998), the decision of Austin J in Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 17 ACLC 456 and the decision in Switz (supra). In particular attention was directed at the apparent differences between the approach of the Full Court of this Court in Bayview Holdings and the New South Wales Court of Appeal in Switz. However, in my view, in this case it is of no consequence which of those two approaches is adopted.

8 During the course of his submissions - albeit with some reluctance and in reply - counsel for Finance conceded that if Finance could not on the hearing of the winding-up application challenge the debt of $89,174 then it would be insolvent. Mr Bolto says in his affidavit that he will meet any "valid" debts incurred by Finance. Although he does not say so directly, by implication he does not regard the debt claimed by Robowash as "valid". That interpretation of the evidence was accepted by both counsel. Once that point is reached, by any measure, the challenge to the debt the subject of the statutory demand is "material" as that word is used in s 459S(2). That then enlivens the discretion under s 459S(1).

9 In opposition to the application counsel for Robowash raised two main arguments. First it was said that the evidence of Mr Bolto discloses that Finance is insolvent in any event. It has no assets of its own out of which it can meet any debts and is dependent upon the support of Mr Bolto. On those facts Robowash says that Finance is insolvent: see in particular Flavell v Day (1984) 9 ACLR 502 at 503. With respect, that argument misses the point. It is not to be determined at this application whether or not Finance is insolvent. It may be at the winding-up hearing Robowash's argument will be accepted and no consideration of whether or not there is a bona fide dispute as to the debt of $89,000 will be relevant. But that does not alter the fact that given the position adopted by Finance - that it is insolvent if the $89,000 is included in its liabilities - the debt is material.

10 The second main argument put by counsel for Robowash was that the debt of $89,000 was said not to be owing, that Mr Bolto would meet any valid debts and therefore on the case put by Finance it was solvent. All that had happened was that by failing to issue a valid application to set aside the statutory demand, Finance had missed the opportunity to dispute the claim for $89,000. In other words, it was the company's view that it was in fact solvent and it should not therefore be afforded the opportunity to now challenge the debt of $89,000.

11 This convoluted reasoning smacks of the kind of "forensic game" referred to by Spigelman CJ in Spitz (at par 51 to par 56 and in particular, at par 55). In any event the foundation of the argument was cut away once counsel for Finance conceded - and properly conceded - that if Finance was not entitled to dispute the debt of $89,000 then it was insolvent.

12 It is apparent that s 459S(1) embodies a discretion which allows the court to grant leave in certain circumstances. In Paliflex, Austin J said (at 481):

"In my opinion the exercise of the discretion to grant leave under s 459S(1) involves three considerations, namely:

(i) preliminary consideration of the defendant's basis for the disputing the debt which was the subject of the demand;

(ii) an examination of the reason why the issue of indebtedness was not raised in an application to set aside the demand, and the reasonableness of the party's conduct at that time; and

(iii) an investigation of whether the dispute about the debt is material to proving that the company is solvent."

13 During the course of his submissions counsel for Finance spent considerable time on the first of these considerations. I do not propose to go through the evidence in detail. But two significant features emerged. First, it is clear that Finance does not have in its possession copies of all documents relevant to the alleged debt. Secondly, from the documents that are available it is clear that there is a real question about whether all amounts claimed by Robowash and included in the $89,000 are indeed owing.

14 Lest there be any misunderstanding I have deliberately refrained from any detailed examination of the evidence led by Finance seeking to establish there is a genuine dispute as to this debt. As I understand the approach adopted by Austin J in Paliflex any such detailed consideration would be inappropriate. That must be reserved for the winding-up hearing. It is clear from a cursory examination of the evidence that there is some basis upon which it might be said that there is a bona fide dispute as to this debt. It certainly could not be said that the argument put by Finance is hopeless. Once that position is reached the first of the considerations as to discretion is satisfied and the court need go no further.

15 In my view the other two factors set out by his Honour in Paliflex fall in favour of Finance. This is not a case where the application to set aside the statutory demand was not brought because of some wilful neglect or indifference on the part of Finance. They were undone by what counsel for Robowash referred to as a "technicality". I have already dealt with the question of whether the dispute as to the debt is material. In my view it clearly is.

16 In all the circumstances then I am satisfied that this is a case where I should exercise my discretion and grant leave under s 459S.

17 As part of its application Finance sought an order for discovery. It was submitted that the evidence showed Finance did not have in its possession all relevant documents, that these documents were in the possession of Robowash and that Finance could not adequately present its case that there was a bona fide dispute as to the $89,000 unless it had access to the necessary documents. In dealing with this application it must be remembered what it is that Finance has to establish to satisfy the court that the debt of $89,000 should not be included in its liabilities when the court assesses whether or not it is insolvent. The test is the same as that to be found in s 459G - Finance must show that there is a bona fide dispute as to the debt. If Finance is able to establish that it does not have all the necessary documents, that further relevant documents exist and that it cannot fully assess Robowash's claim without access to those documents, then it will have established that there is a bona fide dispute as to the debt. In other words, by establishing circumstances that justify an order for discovery Finance would have established enough to show a bona fide dispute. No order for discovery is necessary for Finance to achieve its aims.

18 I have reservations about whether or not it is ever appropriate to order discovery when dealing with the statutory demand regime. By virtue of O 81G r 1(2) the rules relating to discovery (O 26) may in certain circumstances be relied upon. This case, however, is not one where an order for discovery would be appropriate.

19 I will hear the parties as to the precise form of order and as to costs.