Woodgate v Garard Pty Ltd

Supreme Court of NSW|2012-11-28|Before: White J

Judgment 1HIS HONOUR: This is an application under s 459P of the Corporations Act 2001 (Cth) for an order that the defendant company be wound up in insolvency. The application relies on a failure by the company to comply with a statutory demand. The defendant did not receive the statutory demand upon which the application is based. It denies that the statutory demand was served. It also contends that, in any event, the winding up application should be dismissed because the plaintiffs do not have standing as creditors. Although the statutory demand described the plaintiffs' claim as a claim in debt, the defendant submits that it is clear that the claim is not one for debt but for damages for an alleged breach of contract. It also says that there is a genuine dispute as to whether or not it is liable to the plaintiffs as claimed in the statutory demand. The plaintiffs say that because no application was made to set aside the statutory demand within the required period of 21 days, it is not open to the defendant to rely upon such grounds. 2The first issue to be decided is whether the statutory demand was served by being delivered to the registered office of the defendant. If it was not so served, the plaintiffs raise an alternative contention based upon the acknowledged service of the originating process and supporting affidavit for the present application. Those documents annexed the statutory demand dated 25 June 2012 and an affidavit of service of that demand. The plaintiffs say that even if the demand had not been served in the days following 25 June 2012, it was served on 22 August 2012, and that as no application was made within 21 days of the latter date to set aside the demand, there is a presumption of insolvency. 3A further issue is whether the defendant can rely upon the grounds that the winding-up application is an abuse of process because the liability asserted by the plaintiffs is not a liability in debt and because the asserted liability is genuinely disputed. The defendant submits that it is entitled to raise those grounds of abuse of process irrespective of whether or not those grounds can be raised consistently with s 459S of the Corporations Act. It says, in any event, that s 459S does not preclude it relying on those grounds because it could not have relied upon them to set aside the statutory demand as it never received the statutory demand. 4There are also questions as to whether or not there is a genuine dispute about the defendant's asserted liability to the plaintiffs and whether that is a liability in debt or in damages.

Plaintiffs' claim is genuinely disputed and is for damages 5The defendant carries on the business of providing electrical contracting services. From about January 2007, it was engaged by the plaintiffs to provide electrical and air conditioning services at the plaintiffs' home in Old Northern Road, Glenorie, which was in the course of construction. There is a dispute as to whether or not the defendant completed the work it was engaged to perform, and whether the work it did perform is defective or adequate. 6On 25 June 2012, the plaintiffs signed a statutory demand addressed to the defendant. The demand stated: "1. The company owes Ian and Sheryl Hookham of [xxxx-xxxx] Old Northern Road, Glenorie, NSW, 2157 ('the creditor') the amount of $52,000.00, being the amount of the debt described in the schedule. 2. Attached is the affidavit of Sheryl Hookham, dated Monday 25th June 2012 verifying that the amount is due and payable by the company." 7The schedule described the debt as follows: "Description of Debt Amount of Debt Payment for goods and services not completed from May 2007 to June 2012 27 May 2007 $38,000.00 29 May 2007 $9,000.00 4 June 2007 $17,000.00 4 October 2007 $40,030.66 28 February 2008 $53,423.95 $127,454.61

Incomplete services component $17,000.00 $17,000.00 Payment for services not received From June 2008 to June 2012 24 June 2008 $35,000.00 $35,000.00 Total $52,000.00" 8Mrs Hookham swore an affidavit of 25 June 2012 that relevantly stated that she was the creditor named in the statutory demand "... in respect of the debt of $52,000.00 owed by TOMIC INDUSTRIES PTY LTD to the Creditor relating to monies owed for Payment for services not received from date June 2007 to June 2012". In fact, it is the plaintiffs' case that the defendant had ceased to provide services prior to August 2009. 9In her evidence, Mrs Hookham contended that the work to be done pursuant to a quote for air conditioning was not completed and that losses were suffered as a result of a conflict between the defendant and a company called Pioneer International that, I understand, was the supplier of air conditioning units. She said, by way of example, that some units were not installed correctly and were still faulty, that some units were withheld by Pioneer because of an unpaid account owed by the defendant, that some air conditioning unit fans were incorrectly mounted, causing compressors to blow out and resulting in the incurring of repair costs, and that damage to the building was caused as a result of the defective work. She attached a long list of defects which were said to have been found with the defendant's work, which she said cost significant time and funds to be paid to other tradespeople to make them good. She deposed that the job was left incomplete and that completion was funded by other tradespeople. 10It is clear from the evidence of Mr Tomic, from the defendant, that these allegations are disputed. He was cross-examined for some period. The effect of the cross-examination was only to demonstrate that there is a genuine dispute about the plaintiffs' claims. For its part, the defendant says that it did the work it was contracted to do, and that it has a claim in debt against the plaintiff for $42,244.75, being the difference between the total payments received for the job of $205,654.61, and invoices rendered of $247,899.36. 11It is clear that the statutory demand is not a claim for a debt that is presently due and payable. It is not a claim for moneys paid for a consideration which has wholly failed. Rather, it is a claim that payments made in June 2007 and June 2008 were for goods and services which were only incompletely supplied or were defectively supplied. That is a claim for damages for breach of contract. 12Notwithstanding that the statutory demand does not claim a debt that is due and payable, it nonetheless purports to do so, and it is a statutory demand within the definition in s 9 of the Corporations Act. It was not disputed that if the demand had been served, as it had not been complied with within 21 days, and as no application was made to have the demand set aside, the presumption of insolvency would arise pursuant to s 459C(2)(a) of the Corporations Act.

Service of the statutory demand 13The plaintiffs read an affidavit of service of the statutory demand of Mrs Hookham. She deposed that on 25 June 2012 at 3pm the statutory demand, together with her accompanying affidavit, sworn on 25 June 2012, were served by posting such demand and the accompanying affidavit by ordinary post at the post box directly outside the Cherrybrook Post Office at Cherrybrook shopping centre. She deposed that the envelope was addressed to the company at its registered office "Tomic Industries Pty Ltd C/O City and Suburban Taxation and Accounting Management, Level 1/32 Burwood Road, Burwood, NSW, 2134". This is the registered office of the defendant. Her affidavit evidence did not clearly state that it was she, personally, who served the statutory demand by post in the way described. Nor did she give evidence of having paid the appropriate postage by affixing the necessary stamps or by franking the envelope. 14However, I gave the plaintiffs leave to adduce evidence orally in relation to evidence of service by post. Mrs Hookham gave sworn evidence not only that she personally completed the addressing of the envelope and the insertion of the records of documents in the envelope addressed to the defendant at its registered office, but that she also affixed the appropriate stamps to pay the postage. I accept her evidence of having posted the statutory demand and accompanying affidavit on 25 June 2012. 15Such service by post is permitted pursuant to s 109X of the Corporations Act. Section 29 of the Acts Interpretation Act 1901 (Cth) provides in substance that where an Act authorises a document to be served by post, then the service shall be deemed to be effected by properly addressing, prepaying and posting the document as a letter and unless the contrary is proved to have been effected at the time which the letter would be delivered in the ordinary course of post. 16In the absence of evidence as to when delivery in the ordinary course of post would be effected, s 160 of the Evidence Act 1995 (NSW) applies to presume, unless there is evidence sufficient to raise doubt about the presumption, that the article is received at the specified address on the fourth working day after having been posted. 17The question is whether there is evidence to displace the presumption that the statutory demand was delivered in the ordinary course of post, which may be taken to be after four business days. 18The defendant relies on the evidence of Mr Satyendra Sinha, who is the principal of City & Suburban Taxation & Accounting Management, the accountant for the defendant. He deposed that prior to his being shown a copy of the statutory demand by Mr Craig Higginbotham, the solicitor for the defendant, he had never seen it. The statutory demand was never received by him. However, service of the statutory demand will be effective if it was received at the registered office of the defendant, that is the office of City & Suburban Taxation & Accounting Management at Level 1, 32 Burwood Road, Burwood, whether or not it was seen by any person having responsibility for dealing with it. 19In this case neither Mr Sinha, nor Mr Tomic saw the statutory demand until after service of the originating process for the winding-up of the defendant. 20Mr Sinha deposed that his usual practice in respect of collection of mail addressed to his practice is that a junior office member collects all mail addressed to his practice from the post office at Burwood. From May 2012 that person was a Ms Brianna Newans. Mr Sinha deposes that his practice has two postal addresses, namely that street address and a post office box. He deposed that it is the usual practice of his junior to attend the Burwood Post Office at 10am on each day and collect the post. The junior's usual practice is to return to the office and to hand to Mr Sinha all the mail addressed to City & Suburban Taxation, or all of the mail addressed to 32 Burwood Road, Burwood, or all of the mail addressed to the post office box. He then personally sorts out the mail, to separate mail addressed to the practice and mail addressed to clients of the practice for whom the practice provides a registered office. 21Mr Sinha deposes that if he receives any mail addressed to any of his clients for whom he is acting as a registered office, then either on the day of receipt or the following day, he forwards it to the client for their attention. He personally maintains a mail register for the practice which he uses to carry out the sorting process. The registry is kept for all outgoing mail. There is no entry in the mail register recording any document having been sent from the practice to the defendant in the relevant period after 25 June 2012 except for other documents such as April and May BAS statements. It is established that Mr Sinha did not receive the statutory demand and did not forward it to the defendant. The question is whether this evidence is also sufficient to displace the presumption that the letter was delivered in the ordinary course of post. 22No evidence was called by the defendant from Ms Newans to depose to how she dealt with mail collected from the post office prior to its being handed over to Mr Sinha. Nor is there evidence that all mail that is addressed to the street address of the practice is collected by the office junior at or about 10am on each working day and taken back to the office. It is consistent with Mr Sinha's evidence that if mail is not ready to be so collected at 10am, it might nonetheless be delivered in the ordinary course of post by Australia Post during the course of the day. There is no evidence as to how mail delivered by those means is dealt with in the office. It does not appear that any record is kept that logs the mail delivered to the office, or collected from the post office, as distinct from a register of mail that is forwarded to clients of the practice. 23In cross-examination Mrs Hookham said that she had provided her return address on the back of the envelope. The statutory demand was not returned to its sender. It is likely, therefore, that it was either collected by Ms Newans and taken to the office, or it was delivered by Australia Post to the office at 32 Burwood Road. I do not consider that the evidence as to how Mr Sinha dealt with the mail that had been collected by Ms Newans in the morning and provided to him establishes, on the balance of probabilities, that the letter was not delivered in the ordinary course of post. 24Therefore, I conclude that the statutory demand was validly served and is taken to have been served four business days after 25 June 2012. That creates a presumption of insolvency.

Position if statutory demand not served, except as annexure to originating process 25Therefore, it follows that the alternative case put by the plaintiffs in relation to service of the statutory demand does not arise. However, in case I am wrong in my first conclusion, I should deal with the plaintiffs' alternative contention. 26As I have said, the plaintiffs say that the statutory demand was in any event served when the originating process and supporting affidavit was served. Those documents were admittedly received by the defendant on 22 August 2012. The statutory demand was an annexure. 27I do not accept the plaintiffs' submission that service of the originating process and supporting affidavit that annexed the statutory demand was service of the statutory demand for purposes of s 459E of the Corporations Act. What was conveyed by the document served on 22 August 2012 was that the plaintiffs contended that a statutory demand had already been served as a result of its having been posted on 25 June 2012. 28The document which was served as an annexure to the originating process and affidavit in support was not itself service under s 459E. The defendant would not have thought that it would be entitled to apply to have that demand set aside, because the plaintiffs' contention was that the time for so doing had expired. 29In any event, even if service of the originating process and supporting affidavit, which included the statutory demand as an annexure, was service of the statutory demand for the purposes of ss 459E and 459G, it could only create a presumption of insolvency after a further period of 21 days. Such a presumption would not establish that the defendant was insolvent at the time the winding-up application was made. 30Moreover, the plaintiffs' argument that service of the statutory demand was effected on 22 August 2012 appears to me to be inconsistent with the decision of Palmer J in Woodgate v Garard Pty Ltd [2010] NSWSC 508; (2010) 78 ACSR 468; (2010) 239 FLR 339, followed by Gardiner AsJ in Surdex Steel Pty Ltd v GB Manufacturing Pty Ltd [2012] VSC 90; (2012) 260 FLR 383. Palmer J held that, having regard to s 459Q, a party can rely upon failure to comply with a statutory demand only if the time for compliance has expired during the three months ending on the day when the application for winding up was made, although it could rely upon any of the other five insolvency events specified in s 459C(2)(b)-(f) if the event has occurred either during the three-month period before the winding-up application is filed or after filing it and before the hearing (at [59]).

Availability of other grounds to oppose winding-up 31As I have concluded that the statutory demand was served four business days after 25 June 2012, I turn to the other grounds upon which the defendant opposes the winding-up application. For the reasons I have given, I am satisfied that there is a genuine dispute as to the asserted liability of the defendant for having breached its contract or contracts with the plaintiff. It is also clear that the claim which the plaintiffs make is not a claim for a presently payable debt, but a claim for damages. The plaintiffs are not creditors, but contingent creditors, of the defendant. If it is open to the defendant to oppose the winding-up application on the grounds of genuine dispute, and the fact that the plaintiffs' claim is not a claim for debt, then the plaintiffs would need to seek leave to make the application pursuant to s 459P(2). If it is open to the defendant to raise these grounds, then no such leave would be given because a winding-up proceeding is not the proper forum for determining a genuine dispute as to such a liability or as to a debt (Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527; 22 ACLC 955 at [60]-[81]; (2004) 185 FLR 130). 32Counsel for the defendant submitted that it was open to his client to raise such matters on the basis that the winding-up application is an abuse of the process of the Court, irrespective of whether or not such grounds were allowed to be raised by s 459S. Counsel submitted that this was in accordance with the judgment of Gummow J in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 279 where his Honour said: "No doubt, in some circumstances, the new Pt 5.4 may appear to operate harshly. But that is a consequence of the legislative scheme which has been adopted to deal with perceived defects in the pre-existing procedure in relation to notices of demand. It also may transpire that a winding up application in respect of a solvent company is threatened or made for an improper purpose which amounts to an abuse of process in the technical sense of that term, as explained in Williams v Spautz. However, in an appropriate case, injunctive relief may then be available to the company in a court of general equity jurisdiction." (Footnotes omitted.) 33In my view that submission fails to take account of the limitations imposed by Pt 5.4 on the ability of a company to rely upon grounds that, but for the provisions concerning statutory demands, would have been available as grounds of challenge to a winding-up application as an abuse of process. It was regarded as an abuse of process for a person claiming to be a creditor to bring a winding-up application if the asserted debt was genuinely disputed. It is well established that the result of the amendments made in response to the Harmer Committee Report is that the ability of a company to raise such grounds is now determined by s 459S (House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 21 ACSR 527 at 529-530; (1996) 14 ACLC 1536; Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 17 ACLC 467 at 479; (1999) 199 FLR 179; (1999) 42 ATR 309; Braams Group Pty Ltd v Miric [2002] NSWCA 417; (2002) 171 FLR 449; 44 ACSR 124 at [30]-[47]). 34Section 459S provides: "459S Company may not oppose application on certain grounds (1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground: (a) that the company relied on for the purposes of an application by it for the demand to be set aside; or (b) that the company could have so relied on, but did not so rely on (whether it made such an application or not). (2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent." 35In this case the defendant did not give any evidence as to its solvency. No application was made for the grant of leave under s 459S for the defendant company to rely upon the grounds that the plaintiffs were not creditors and that the asserted debt was genuinely disputed. Leave could not have been given under that section because, in the absence of any evidence as to solvency, the Court could not be satisfied that either of such grounds would be material to proving solvency. 36The question is whether it is necessary for the defendant to obtain such leave. In my view, it is not. Relevantly, s 459S(1)(b) provides that insofar as an application for a company to be wound up in insolvency relies upon a failure by the company to comply with the statutory demand (which is this case), the company may not, without the leave of the Court, oppose the application on a ground that the company could have relied on for the purposes of an application by it for the demand to be set aside, but did not so rely on. 37 The authorities establish that the words "on a ground...that the company could have so relied on", refer to a ground that was actually available to be asserted by the company according to the facts and circumstances that existed at the relevant times (Perpetual Nominees Ltd v Masri Apartments Pty Ltd (2004) 49 ACSR 719; (2004) 22 ACLC 975 at [9]-[12]; Grant Thornton Services (NSW) Pty Ltd v St George Wholesale Distributors Pty Ltd [2008] FCA 1777 at [13]-[14]; and Willard King Organisation (1978) Pty Ltd v CT Franchises Pty Ltd [2009] NSWSC 97; (2009) 69 ACSR 612 at [8]-[15].) 38As Barrett J said in the last case at [15], referring to the facts of that case: "The defendant was not able to initiate such an application within the time allowed by s 459G(3) because the statutory demand did not come to its notice within that time. It follows that, on the basis stated by Austin J [in Perpetual Nominees Ltd v Masri Apartments Pty Ltd] and Perram J [in Grant Thornton Services (NSW) Pty Ltd v St George wholesale Distributors Pty Ltd] ..., s 459S will not preclude reliance by the defendant on those grounds upon the hearing of the winding up application." 39To put it shortly, the defendant could not have relied on the grounds that the plaintiff is not a creditor and that there is a genuine dispute about the asserted liability for the purposes of an application to set aside the statutory demand, because it had no opportunity to do so. That was because, through no fault of the defendant, it had not received a statutory demand and did not know or have the means of knowing that it needed to make the application to set the demand aside. 40In Perpetual Nominees Ltd v Masri Apartments Pty Ltd, Austin J said at [12] that to construe s 459S(1)(b) in this way does not contradict or undermine the legislative policy standing behind Pt 5.4 of the Corporations Act. His Honour said: "The legislative policy is that the provisions relating to the setting aside of a statutory demand are to be a complete code for the resolution of disputes about the subject matter of the demand, thereby preventing disputes about the underlying debt from being contested at the hearing of the winding up application: Switz, at 672 [39]. But that policy assumes that the debtor company has the opportunity to make an application, within the prescribed time limit, to set the demand aside. Such an opportunity will exist if the statutory demand is both properly served and comes to the notice of the company's directors in a timely fashion. Arguably, the opportunity will also exist if, although the directors did not in fact discover the existence of the statutory demand within the time limit, they would have done so if they had acted reasonably in the superintendence of the collection of mail from the company's registered office. Where, however, it is established on the evidence that the directors of the company did not become aware of the existence of the statutory demand until after the expiration of the 21-day period, and they have acted reasonably with respect to superintendence of the collection of mail from the company's registered office, the case is one where the company could not, in a factual sense, have relied on any of the grounds available to challenge the demand within the time period. In such a case, fairness requires that the company be permitted to raise those issues at the only hearing available to it, namely the final hearing of the application for winding up, even though to that extent one reverts to the old practice which the Harmer reforms were intended to reverse." 41That is the present case. It could not be said that the directors of the defendant failed to act reasonably in the superintendence of the collection of mail from the company's registered office (compare Grant Thornton Services (NSW) Pty Ltd v St George Wholesale Distributors Pty Ltd). 42It follows that the defendant is entitled to contest the plaintiff's standing and is entitled to raise the ground that there is a genuine dispute as to the liability asserted by the plaintiff. Whilst this does not stop the presumption of insolvency from arising, as I have said earlier in my reasons, the Court will not permit an alleged creditor, whose debt is genuinely disputed, to proceed with a winding-up application, if the circumstances are such that the company is entitled to raise such a dispute at the hearing of the winding-up application. 43The court only has jurisdiction to wind up a company, relevantly for this case, on the application of a creditor. If the applicant for winding up has no standing to bring the application, then the court has no power to make the winding-up order even if the company is insolvent. The court will not permit the winding-up process to be used as the forum for determining the applicant's status as a creditor. The reasons for these conclusions were explained in Tokich Holdings Pty Ltd v Sheraton Constructions, particularly at [67] and following. 44For these reasons, I order that the originating process be dismissed. [Parties addressed on costs.] 45Pursuant to rule 42.1 of the Uniform Civil Procedure Rules, costs will follow the event unless the court otherwise orders. The plaintiff has succeeded on one of the grounds which was argued, but I do not consider that to be a severable or dominant ground which would warrant an adjustment to the prima facie position that costs follow the event. The circumstance that the winding-up application was properly brought because the plaintiffs did not know that the statutory demand had not been received is not a sufficient reason for making anything other than the usual costs order. I order that the plaintiffs pay the defendant's costs of the proceedings. 46Exhibit A can be returned forthwith. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 December 2012

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