Smith v Offermans [2015] QCA 55

APPEAL AND NEW TRIAL - PROCEDURE - QUEENSLAND - WHEN APPEAL LIES - FROM DISTRICT COURT - BY LEAVE OF COURT - where the applicant was a director of a Company placed into liquidation - where the respondent liquidator obtained summary judgment against the applicant in relation to an insolvent trading claim - where the applicant sought leave to appeal - whether the primary judge erred in finding no real prospect of defending the claim and no need for a trial

CORPORATIONS - MANAGEMENT AND ADMINISTRATION - DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION - OFFICERS OF INSOLVENT CORPORATIONS - DUTY TO PREVENT INSOLVENT TRADING - where the Company had a payment plan with the Deputy Commissioner of Taxation (DCT) as at 28 February 2012 - where there was evidence that payments were made under the payment plan until June 2012 - whether the Company was insolvent at 28 February 2012 given the payment plan then in existence - whether the alleged insolvent trading debt was proved to have been incurred during the alleged period of insolvency - whether it was established that the DCT was shown to have suffered loss or damage in the amount alleged because of the Company's insolvency - where the liquidator did not depose to that matter and there was evidence of some minor recovery by the liquidator

Corporations Act 2001 (Cth), s 95A, s 588G, s 588M

Uniform Civil Procedure Rules 1999 (Qld), r 166(4), r 292

ACI Operations Pty Ltd v Bawden [2002] QCA 286, cited

Australian Beverage Distributors v The Redrock Co (2008) 26 ACLC 74; [2008] NSWSC 3, considered

Cape York Airlines Pty Ltd v QBE Insurance (Australia) Limited [2009] 1 Qd R 116; [2008] QSC 302, cited

Deputy Commissioner of Taxation v Salcedo [2005] 2 Qd R 232; [2005] QCA 227, cited

Edenden v Bignell [2007] NSWSC 1122, cited

In the matter of Ashington Bayswater Pty Limited (in liq) [2013] NSWSC 1008, considered

LCR Mining Group Pty Ltd v Ocean Tyres Pty Ltd [2011] QCA 105, cited

Pickering v McArthur [2005] QCA 294, cited

Re Newark Pty Ltd (in liq) [1993] 1 Qd R 409, cited

Smith v Ash [2011] 2 Qd R 175; [2010] QCA 112, cited

Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; (2001) 39 ACSR 305; [2001] NSWSC 621, cited

Turco & Co Pty Ltd v Pendella Holdings Pty Ltd; In the matter of Pendella Holdings Pty Ltd [2010] FCA 213, considered

Verhagen v Millard [2013] QCA 122, cited

[1] MARGARET McMURDO P: I agree with Philippides JA's reasons for granting leave to appeal and allowing this appeal and with her Honour's proposed orders.

[2] MORRISON JA: Mr Smith ran a steel fabrication company, which was successful for a time. It ceased trading on 21 November 2012, and was ordered to be wound up in insolvency on 4 October 2013.

[3] In February 2012, and until June 2012, the company was able to pay all its creditors as and when their debts fell due. That included the Australian Taxation Office (ATO), which had agreed to a repayment arrangement for the debt owed to it.

[4] Monthly repayments under the arrangement with the ATO, each $18,000, were made in February, March, April and May. There was no payment in June 2012, when Mr Smith sought to vary the arrangement with the ATO, and no payment thereafter. The ATO did not respond until 16 November, when it delivered a garnishee notice directed to the company's bank. Mr Smith became aware of the notice on 21 November 2012 and the company immediately ceased trading.

[5] Mr Offermans was appointed liquidator. He brought proceedings for relief under s 588M(2) of the Corporations Act 2001 (Cth), saying that:

• Mr Smith knew or should have known that there were grounds for suspecting the company was insolvent between 28 February 2012 and 4 October 2013;
• during that time the ATO's debt of $138,211 was incurred; and
• the ATO had suffered loss and damage in that amount because there would be a nil return in the winding up.

[6] On an application for summary judgment under rule 292 of the Uniform Civil Procedure Rules (Qld), the learned primary judge gave judgment for $138,211. His Honour's central findings were that:

The repayment arrangement with the ATO; was insolvency conceded?

[8] Mr Smith went to some lengths to set out the trading history of the company, and that it paid all creditors, other than the ATO, as and when their debts fell due under the company's normal trading terms. As for the ATO, Mr Smith deposed that as at 28 February 2012 there was an agreed repayment arrangement to which the company adhered, until June 2012. As part of that wider narrative Mr Smith said the company "was able to pay, and did pay in a timely way, all of its other creditors during the 2012 calendar year, other than the DCT".[4]

[9] That there was an agreed repayment arrangement with the ATO was conceded by counsel for Mr Offermans.

[10] Where there is a binding arrangement with a creditor, under which the original time for payment is deferred, the debt is not due and payable on the original date.[5] The fact of repayment under an arrangement with the ATO does not, of itself, evidence insolvency.

[11] These findings were in error.

The ATO debt - when it was incurred and the deemed admission

[12] The ATO's proof of debt alleged that the total as at 4 October 2013 was $297,963.77. It did not say when the debt was incurred, how much the debt was as at 28 February 2012, or why the total was so different to the claimed debt of $138,211.

[13] There was a bare assertion by Mr Offermans that the debt was incurred during the period 28 February 2012 and 4 October 2013,[6] and the proof was exhibited without any explanation.

[14] Paragraph 9 of the Statement of Claim asserted that the debt was incurred in the insolvency period. Paragraph 7 of the Amended Defence denied that allegation "as being untrue for the following reasons", and then set out two reasons. The first was that the debt was not incurred in the insolvency period. The second was that there were insufficient particulars as to the amount of the debt and how it was incurred in the insolvency period.

[15] For the reasons given by Philippides JA, there was no deemed admission. The primary judge's conclusion to the contrary was a determining factor in his finding that the debt was incurred in the insolvency period. I agree with what Philippides JA has said in paragraphs [58] and [59] of her reasons.

[16] Section 588M(1)(b) requires, as part of the cause of action, that the person to whom the debt is owed "has suffered loss or damage in relation to the debt". Mr Offermans pleaded that the ATO suffered loss and damage "in relation to [its] debt", because there would be a nil return in the winding up.[7]

[17] However, no proof of the loss or damage to the ATO was tendered before the primary judge. Mr Offermans did not depose that there would be a nil return. It could not be assumed, in the absence of proof, that the ATO would suffer loss or damage equal to the total of its debt.[8]

[18] It was an error to find that loss or damage was proven.

[19] For the reasons above there are errors in the primary judge's findings. The question remaining is whether an appeal is necessary to correct a substantial injustice. For the reasons given by Philippides JA in paragraphs [66]-[67] that question should be answered in the affirmative.

[20] For the reasons expressed above I agree with the orders proposed by Philippides JA.

[21] PHILIPPIDES JA: Background The applicant, Jeffrey Smith, was, at all relevant times, a director of Reotech Services Pty Ltd (the Company), which was placed into liquidation. The respondent, Dennis Offermans, was appointed as liquidator of the Company and brought a proceeding as first plaintiff (together with the Company as second plaintiff) against the applicant in the District Court. The proceeding included a claim, pursuant to s 588M(2) of the Corporations Act 2001 (Cth) (the Act) in the sum of $138,221 for insolvent trading, in respect of which summary judgment was granted. The applicant seeks leave to appeal against that decision.

[22] Considerations relevant to the exercise of the discretion in favour of granting leave include whether an important point of law or question of general public importance is involved or whether an appeal is necessary to correct a substantial injustice to the applicant and there is a reasonable argument that there is an error to be corrected (ACI Operations Pty Ltd v Bawden [2002] QCA 286; Smith v Ash [2010] QCA 112; [2011] 2 Qd R 175).

[23] In the present case, leave was sought on the basis that the appeal raises important points of law and matters of general significance concerning s 588M(2) of the Act, having commercial ramifications for directors generally. It was also submitted that leave ought to be granted because the decision was attended by sufficient doubt to warrant review and, additionally, that it was necessary to correct a substantial injustice arising from errors of law made by the primary judge. In that regard, it was submitted that the present matter was only one component of litigation which remained to be determined, in circumstances where the applicant raised as a concern his inability to meet the judgment awarded from liquid funds. The respondent, on the other hand, contended that the issues raised by the applicant only concerned factual findings made by the primary judge in the course of exercising a discretion, which was not shown to have miscarried. Nor was any important principle of law or justice involved or any matter of general importance raised.

[25] In respect of the insolvent trading claim, it was relevantly alleged in the statement of claim that:

• the Company was placed into liquidation pursuant to a Court order made on 4 October 2013 and in the process of being wound up (paras 2 and 3);
• the Company was insolvent for the period 28 February 2012 to 4 October 2013 in that it was unable to pay its debts for that period (para 4);
• there were reasonable grounds for suspecting that the Company was so insolvent (para 5);
• the applicant was aware for the period 28 February 2012 to 4 October 2013, that there were reasonable grounds for suspecting that the Company was insolvent as alleged (para 6) and, alternatively, a reasonable person in the applicant's position would have been so aware (para 7);
• during the period from 28 February 2012 to 4 October 2013, the Company incurred a debt to the Deputy Commissioner of Taxation (DCT) for unremitted taxation in the amount of $138,211 (the insolvent trading debt) (para 9);
• the applicant failed to prevent the Company from incurring the insolvent trading debt in contravention of s 588G of the Act (paras 10 and 11);
• the DCT suffered loss and damage in relation to the insolvent trading debt because of the Company's insolvency, in that, as at 5 May 2014, no return could be expected in relation to the insolvent trading debt (para 12);
• the insolvent trading debt was wholly or partly unsecured (para 13);
• in the circumstances, the respondent was entitled to recover from the applicant as a debt due to the Company and pursuant to s 588M(2) of the Act, an amount equal to the amount of the loss or damage suffered by the DCT (para 14); and
• the amount of the loss or damage suffered by the DCT was $138,221 (para 15).

[26] By para 2 of his amended defence, the applicant denied that the Company was insolvent during the period alleged or at any time prior to 21 November 2012. In that respect, it was asserted, , that:

[32] The primary judge was guided by the decision in Deputy Commissioner of Taxation v Salcedo [2005] QCA 227; [2005] 2 Qd R 232 as to the approach to be taken in respect of an application for summary judgment under r 292 of the Uniform Civil Procedure Rules 1999 (Qld) (the UCPR). His Honour identified that the Court is called upon "to determine whether the respondent to the application has established some real prospect of succeeding at a trial" and that there is a need for a trial. The question was not whether the defendant's case was hopeless or bound to fail but whether there existed a real, as opposed to a fanciful, prospect of success.

[33] The application for summary judgment on the insolvency claim was resisted on two principal grounds:

• (a) that there was insufficient evidence of insolvency during the relevant period and that a real prospect of defending that allegation was shown on the material; and
• (b) there was no evidence as to how the alleged debt of $138,211 was incurred in the insolvency period and that it was a debt "as at 28 February 2012 or at any time prior to 4 October 2013", such that the summary judgment application failed.

[34] The primary judge dealt with the first issue as follows:

"The defendant asserts that the company was not insolvent notwithstanding the fact that the company had entered into a payment plan with the [DCT] by which it had agreed to pay monthly amounts to the [DCT] by instalments of some $18,000 per month.

It is asserted on behalf of the defendant that payments pursuant to the payment plan were made until June 2012 and that the defendant then engaged a firm of accountants to seek a revision of the monthly payment plan and that as the [DCT] had previously been willing to work with the second plaintiff to arrange and vary payment plans the conclusion that the company was insolvent should not be drawn.

The defendant has sworn an affidavit in which he deposes first, that as at February 2012 the [Company] was significantly indebted to the Australian Taxation Office and had entered into the repayment plan with that office. Second, that having made repayments pursuant to the plan the [Company] was obliged to attempt to negotiate a revised payment plan with the Australian Taxation Office. And third, that the [Company] was able to pay, and did pay in a timely way, all of its other creditors during the 2012 calendar year. The creditors other than the [DCT] is what is meant by that statement.

It seems to me that the plaintiff's submission that the third of those statements really concedes the question of insolvency of the [Company] over the relevant period and further concedes the defendant's knowledge of the [Company's] insolvency is correct. It cannot be said that a company which has to enter into a repayment plan to deal with then outstanding indebtedness is able to pay its debts as and when they fall due. Nor can it be said that a reasonable person with knowledge of those facts would not have suspected that the [Company] was insolvent throughout the relevant time.

As was pointed out in the Supreme Court of Victoria in a case of ASIC and Elliot and others [2003] Victorian Supreme Court 123 at para 378, while (sic) the commercial reality that a creditor might allow some latitude in time for payment of debts does not warrant the conclusion that the debts are not payable at the time that is contractually stipulated or that they will, thereafter, only become payable on demand being made." (emphasis added)

[35] The primary judge then dealt with the second issue as follows:

"Mr Offermans has sworn to the amount without disclosing anything in the nature of a calculation. Whilst that might initially appear inadequate I note the amount is significantly less than the total amount of indebtedness to the [DCT] and is in that way generally consistent with the allegation that there was a significant amount owing at the commencement of the relevant period.

Paragraph 9 of the statement of claim asserts that during the period from 28 February 2012 to 4 October 2013 the [Company] incurred a debt in respect of unremitted taxation in the sum of $138,221. Mr Offermans, in his affidavit, swears to familiarity with the books of the company and to the truth of that allegation. I'm inclined to think that that is sufficient evidence.

However, there is another matter to consider. It seems to me that a proper reading of paragraph 7 of the amended defence of the defendant is that the amount is admitted. That is so because the denial is not accompanied by a direct explanation as is required by the rules. A direct explanation of the sort required by the rules must say why the amount is denied and not simply repeat the allegation that it is denied. It cannot be a sufficient basis or explanation for a denial that the allegation is insufficiently particularised. In that situation the rules require that paragraph 7 of the amended defence be treated as an admission.

When I raised this matter of the defendant's pleading there was no suggestion that there was any intention to amend the pleading and no suggestion that an adjournment was required to further consider the state of the pleadings. In that situation it is appropriate to treat the paragraph I have identified as an admission and on that basis I am satisfied that the defendant has no real prospect of successfully defending the insolvent trading claim and that there is no need for a trial in respect of that claim."

[36] Having made the findings outlined in relation to the insolvent trading claim, the primary judge ordered that, "in respect of paragraphs 9 to 15 of the statement of claim", there be judgment in the sum of $138,221.

[37] As is evident, the respondent's claim for insolvent trading pursuant to s 588M(2) of the Act, as pleaded in paras 9 to 15 of the statement of claim, was for $138,221 as the loss or damage suffered by the DCT as a result of the applicant's conduct in contravention of s 588G(2). Section 588M(2) provides:

"The company's liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage."

[38] The cause of action under s 588M(2) of the Act, however, is premised on s 588M(1) being established, which relevantly requires proof of the following:

"(a) a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and

(b) the person (in this section called the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency;

[39] Section 588G of the Act relevantly provides:

"588G Director's duty to prevent insolvent trading by company

(1) This section applies if:

• (a) a person is a director of a company at the time when the company incurs a debt; and
• (b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and
• (c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and
• (d) that time is at or after the commencement of this Act.

(2) By failing to prevent the company from incurring the debt, the person contravenes this section if:

• (a) the person is aware at that time that there are such grounds for so suspecting; or
• (b) a reasonable person in a like position in a company in the company's circumstances would be so aware.

[40] As the respondent accepted, to establish a contravention of s 588G(2) of the Act, the respondent was required to prove that:

• (a) the applicant was a director when the Company incurred the debt of $138,221;
• (b) the debt was incurred during the alleged period of insolvency from 28 February 2012 to 4 October 2013;
• (c) there were reasonable grounds for suspecting that the Company was insolvent at that time; and
• (d) the applicant was then aware (or a reasonable person in his position would then have been aware) that there were reasonable grounds for suspecting that the Company was insolvent.

[41] Significantly, the respondent's counsel conceded[9] that, given the manner in which the claim was pleaded in paras 9 to 15 (reflected in the order made by the primary judge), proof that the Company was insolvent as at 28 February 2012 and that the debt was incurred in the pleaded period of insolvency (from 28 February 2012) were fundamental to the claim.

[42] The proposed grounds of appeal may be distilled to the following grounds of error, namely that the trial judge erred in finding:

• (a) that the Company was insolvent as at 28 February 2012;
• (b) that a debt of $138,221 was incurred during the pleaded period of insolvency (including the finding that the applicant was deemed, by para 7 of the amended defence, to have admitted the same);
• (c) that the applicant had or reasonably ought to have had the requisite knowledge of insolvency as alleged by the respondent;
• (d) that the amount of the loss and damage suffered by the DCT for the purposes of s 588M(2) of the Act was $138,221; and
• (e) that there was no real prospect of successfully defending the claim and no need for a trial.

Was the Company insolvent as at 28 February 2012?

[43] A company is insolvent if it is unable to pay its debts as and when they fall due: s 95A of the Act.

[44] The applicant deposed that, as at 28 February 2012, the Company's only substantial creditor was the DCT, but that, as of that date, the Company had a payment plan and was complying with it, "such that the only amounts due and payable to the DCT by [the Company] were monthly amounts of $18,000" (para 7). He further deposed that between 14 February and 28 May 2012, the Company paid all trading creditors and made the "agreed $18,000 monthly payments for February to May 2012" (para 8). The applicant argued that, based on the arrangement with the DCT, the Company could not be shown to have been insolvent between February and June 2012. A copy of the Company's bank account showing the relevant payments was exhibited to the affidavit.

[45] The evidence of insolvency relied upon by the respondent was contained in paras 6 to 8 of his affidavit. The respondent deposed to having examined in detail the books and records of the Company and, in particular, its financial books and records and stated, by reference to those books, that for the relevant period, the Company was unable to pay all its debts as and when they became due and payable. Exhibited to the respondent's affidavit were the Company's balance sheets as at 28 February 2012, 30 June 2012 and 30 June 2013. Although not addressed in the affidavit, the balance sheet for 28 February 2012 indicated:

[46] A company's balance sheet is not determinative of the issue of insolvency, however, and I note that, notwithstanding the position as revealed in the balance sheet as at 28 February 2012, the undisputed evidence before the primary judge was that the Company was able to make the agreed monthly payments of $18,000 in the period from February 2012 to May 2012.

[47] The respondent contended that the applicant's own affidavit supported the respondent's contention that the Company was insolvent during the alleged period. The respondent placed emphasis on the applicant's statement in para 15 of his affidavit that, "the [Company] was able to pay, and did pay in a timely way, all of its other creditors during the 2012 calendar year, other than the DCT". It was submitted that that statement amounted to a concession that the Company was insolvent over the relevant period. That submission reflected the contention put to and adopted by the primary judge.

[48] The respondent further argued that, in any event, the matters alleged in para 2 of the amended defence and asserted in the applicant's affidavit, denying insolvency because of the existence of a payment plan were:

• (a) in fact indicative of the Company's insolvency; a submission which mirrored the primary judge's finding that it "cannot be said that a company which has to enter into a repayment plan to deal with then outstanding indebtedness is able to pay its debts as and when they fall due"; and
• (b) insufficient to discharge the evidentiary onus that shifted to the applicant upon the respondent having made out a prima facie case for summary judgment before the primary judge (LCR Mining Group Pty Ltd v Ocean Tyres Pty Ltd [2011] QCA 105 at [22]).

[49] As to whether the statement in para 15 of the applicant's affidavit amounted to a concession as alleged by the respondent, I note that it followed that part of the applicant's affidavit which chronicled events from June 2012 (when payments under the payment plan ceased and attempts were made unsuccessfully to renegotiate the payment plan) until the time when the Company ceased to trade in November 2012. The statement was also to be read in the context of paras 7 and 8 of the applicant's affidavit that, as at 28 February 2012, the Company's only substantial creditor was the DCT, to whom it was making payments pursuant to a payment plan until June 2012. The statement in para 15 of the affidavit therefore accorded with the applicant's submission that the Company was not insolvent until (at least) June 2012 when it ceased to pay the $18,000 monthly payments.

"(iv) the commercial reality that creditors will normally allow some latitude in time for payment of their debts does not, in itself, warrant a conclusion that the debts are not payable at the times contractually stipulated and have become debts payable only upon demand;

(v) in assessing solvency, the court acts upon the basis that a contract debt is payable at the time stipulated for payments in the contract unless there is evidence, proving to the court's satisfaction, that:

• there has been an express or implied agreement between the company and the creditor for an extension of the time stipulated for payment; or
• there is a course of conduct between the company and the creditor sufficient to give rise to an estoppel preventing the creditor from relying upon the stipulated time for payment; ..." (citations omitted)

[53] As to the proposition advanced by the respondent that the applicant did not put forward sufficient evidence of the arrangement with the DCT, it overlooks the fact that the existence of the arrangement for monthly payments of $18,000 and the payments to June 2012 in compliance with the agreement were not disputed by the respondent in its reply (see para 2(d)). That was also the subject of an oral concession.[10] The existence of a payment plan as at 28 February 2012, and that payments were being made in accordance with it to June 2012, were pertinent to the issue as to whether the Company was insolvent in the period to June 2012. The mere fact of a payment plan could not be said to have amounted to a concession of insolvency as found by the primary judge. Nor was it alone a sufficient basis for insolvency to be inferred.

[54] In those circumstances, contrary to the finding of the primary judge, there was, in my view, evidence before the Court which indicated that there was a real prospect of defending the claim on the basis that, as at 28 February 2012, the Company had an arrangement in place concerning payment of its debt, pursuant to which payments of $18,000 were due on a monthly basis, such that the Company was not insolvent as at 28 February 2012 as alleged.

Indebtedness of the Company to the ATO during the pleaded period of insolvency

[55] Even assuming no error in the finding that the Company was insolvent as at 28 February 2012, the applicant argued that there was insufficient evidence as to when the alleged debt of $138,221 was incurred and that it was not demonstrated by the respondent that it was incurred during the pleaded period of insolvency.

[56] The respondent exhibited to his affidavit a proof of debt in the amount of $297,963.77, which was particularised as being a "Running Balance Account deficit debt in respect of BAS amounts as at 4 October 2013". However, while the proof of debt indicated the quantum of the indebtedness as at 4 October 2013, it did not assist in identifying when the debt of $138,221 was incurred and, importantly, that it was not incurred prior to 28 February 2012.

[57] It was accepted, therefore, that the sole evidence on the matter of when the debt of $138,221 was incurred was contained in para 11 of the respondent's affidavit, where he deposed that the debt was incurred during the period from 28 February 2012 to 4 October 2013. Although expressing some initial reservation, the primary judge accepted that that was sufficient evidence to establish the allegation. His Honour was influenced in that determination by his finding that para 9 of the statement of claim, which alleged the debt was incurred in the insolvency period, was the subject of a deemed admission by the applicant by virtue of para 7 of the amended defence. Contrary to the finding of the primary judge, I do not consider that para 7 constituted a deemed admission. Para 7 was accompanied by a direct explanation for the applicant's belief that the respondent's allegation was untrue which met the requirement of r 166(4) of the UCPR. As was explained in Cape York Airlines Pty Ltd v QBE Insurance (Australia) Ltd [2008] QSC 302; [2009] 1 Qd R 116 at [28], the requirement that a party provide a direct explanation for the belief that an allegation is untrue compels the responding party to expose and formulate, at an early stage of the proceeding, its rationale for a joinder of issue on a particular allegation. The applicant's position was clear enough. The direct explanation was that the Company did not incur a debt as alleged and that the application was not provided with sufficient particulars to respond further. The applicant's case did not involve the advancement of a positive case such which would require identification on the pleadings (see at [37]). The primary judge's conclusion that the debt was shown to have been incurred during the alleged period of insolvency, insofar as it relied on a deemed admission, proceeded on an erroneous basis.

Knowledge of the applicant/reasonable person of the Company's insolvency

[60] The applicant submitted that the primary judge erred in not finding that there was a real prospect of defending the claim on the basis that the applicant lacked the requisite knowledge of insolvency and that a reasonable person in his position would also lack such knowledge because he had a reasonable expectation that there would be a further negotiation of the debt after June 2012. The difficulties, already referred to, in establishing that the Company was insolvent as at 28 February 2012 and that the debt was incurred in the insolvency period render this issue otiose.

Whether DCT was shown to have suffered loss or damage in the amount claimed

[61] A further issue raised by the applicant concerned the absence of proof of the requirement specified in s 588M(1)(b) of the Act that "the person ... to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency".

[62] In order to recover compensation pursuant to s 588M(2), the respondent was required to show that the DCT had suffered loss or damage because of the Company's insolvency and establish the quantum of that loss or damage. The allegation in paras 14 and 15 of the statement of claim, that the DCT had suffered loss or damage in the amount claimed, was denied as outlined above.

[63] I note that, while the issue was not raised below, it concerned a matter that required no further evidence to be adduced and raised an important matter of law as to the proof required by s 588M. In those circumstances, I consider that the Court should, in the exercise of its discretion, allow the matter to be raised before this Court.

[64] The applicant placed reliance on Edenden v Bignell [2007] NSWSC 1122 at [30], where Barrett J said:

"This section does not allow recovery of the amount of the creditor's debt as such. Rather, it is a provision allowing recovery of compensation measured by reference to loss or damage suffered by the creditor in relation to the debt because of the debtor's insolvency. In some cases - perhaps most cases - this will be the equivalent of the amount of the debt... In others - for example where a proof of debt is admitted and a substantial payment is made to all creditors rateably - the relevant loss or damage may be less than the amount of the debt. There may perhaps be circumstances in which the amount of the loss or damage exceeds the amount of the debt."

[65] The applicant argued that, the respondent simply failed to depose to the question of whether or not the DCT had actually suffered loss and damage due to the Company's alleged insolvency, whether in the sum of $138,221 or some other amount. The respondent neither swore to, nor exhibited, any report to creditors disclosing his professional opinion that no alterative avenues for any dividends, bar causes of action against the applicant, existed. It was submitted that such evidence was required, especially given the applicant's evidence in paras 19(b) and 27 of his affidavit (which was not contested) that, following the Company going into liquidation, the liquidator took possession of an unencumbered asset (a Holden HSV vehicle), able to be realised for the benefit of creditors of the Company and potentially reducing the alleged loss and damage. It was thus contended that without such evidence, a requirement of s 588M of the Act, necessary to sustain a judgment, was not satisfied. The submission is clearly correct. It was essential to establishing the claim for compensation in the sum of $138,221 that the respondent deposed, as at the time of the claim, what the quantum of the loss suffered was. It could not simply be assumed to be the same as the debt owed to the DCT, especially given the evidence that there had been some recovery by the liquidator.

[66] While the mere fact that error can be detected in a judgment below may not be itself sufficient to justify the granting of leave to appeal (ACI Operations Pty Ltd v Bawden [2002] QCA 286 at 3), in the present case, in addition to the errors identified in the primary judge's reasoning, it is evident that the respondent entirely failed to put forward evidence, as required by s 588M(1)(b), to establish that loss or damage was sustained by the DCT in the amount alleged. The issue whether a summary judgment obtained in the absence of such proof should be permitted to stand, raises an important matter warranting leave to appeal.

[67] On a summary judgment application where a defendant is at risk of being shut out of defending a claim, it is incumbent on the applicant for judgment to prove all of the matters necessary to establish the claim. In addition to the respondent failing to prove an essential and disputed aspect of his claim concerning the matter addressed by s 588M(1)(b) of the Act, the applicant in this appeal has demonstrated that there is a real prospect of defending the claim and that there should be a trial in relation to the other issues dealt with above; that is as to whether the Company was insolvent as at 28 February 2012 and whether the debt was incurred during the insolvency period as alleged. For those reasons the appeal should be allowed.

[68] The orders I would propose are:

1. Leave be granted to appeal.
2. The appeal be allowed.
3. The orders of 25 July 2014 be set aside and, in lieu thereof, order that the application for summary judgment filed 4 July 2014 be dismissed.
4. The respondent pay the appellant's costs of and incidental to the application for summary judgment and the application for leave to appeal and the appeal.

[1] This was so even though there were no particulars or calculation of the debt, and the ATO's proof in the winding up was for an un-particularised sum, as at 4 October 2013, of $297,963.77.

[3] Pickering v McArthur [2005] QCA 294 per Keane JA at [3], McMurdo P and Dutney J agreeing; Smith v Ash [2010] QCA 112; [2011] 2 Qd R 175, per Fraser JA at [50]. The former criterion under s 118, that there be an important point of law or question of general or public importance, remains a sufficient, but not a necessary, prerequisite to a grant of leave to appeal: ACI Operations Pty Ltd v Bawden [2002] QCA 286; Verhagen v Millard [2013] QCA 122, at [14].

[4] Paragraph 15 of Mr Smith's affidavit - AB 59.

[5] Re Newark Pty Ltd (in liq) (1993) 1 Qd R 409, at 414-415; Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213, at 225; Australian Beverage Distributors v The Redrock Co [2008] NSWSC 3; (2008) 26 ACLC 74; Turco & Co Pty Ltd v Pendella Holdings Pty Ltd; In the Matter of Pendella Holdings Pty Ltd [2010] FCA 213.

[6] Paragraph 11 of Mr Offermans' affidavit - AB 18.

[7] Paragraph 12 of the Statement of Claim - AB 86.

[8] Edenden v Bignell [2007] NSWSC 1122 at [30].