CP York Holdings Pty Ltd v Food Improvers Pty Ltd

[2009] NSWSC 409

CITATION:	CP York Holdings Pty Ltd v The Food Improvers Pty Ltd [2009] NSWSC 409
HEARING DATE(S):	14/05/09
JUDGMENT DATE :	14 May 2009
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
EX TEMPORE JUDGMENT DATE:	14 May 2009
DECISION:	Statutory demand reduced. Time for compliance extended.
CATCHWORDS:	CORPORATIONS - winding up - winding up in insolvency - application for order setting aside statutory demand - bulk of debt undisputed - defendant accepts that part of debt paid - plaintiff contends that there is "some other reason" why demand should be set aside - reliance by plaintiff on various matters indicating that plaintiff should be able to pay soon and going to prejudice and inconvenience to plaintiff if demand not set aside - such matters not related to "some other reason" ground
LEGISLATION CITED:	Corporations Act 2001 (Cth), Part 5.4, ss 459G, 459H, 459J(1)(a), 459J(1)(b), 459S
CATEGORY:	Principal judgment
CASES CITED:	Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3 Chippendale Printing Company Pty Ltd v Deputy Commissioner of Taxation (1995) 55 FCR 562 David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41 Fire & All Risks Insurance Ltd v Southern Cross Exploration NL (1986) 10 ACLR 683 Hall Brothers Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302 KW & KM Quinn Investments Pty Ltd and Deputy Commissioner of Taxation [2004] QCA 91 Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24 Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 132 FLR 300 Re Presha Engineering (Aust) Pty Ltd (1983) 1 ACLC 675 Switz Pty Limited v Glowbind Pty Ltd (2000) 48 NSWLR 661
PARTIES:	CP York Holdings Pty Limited - Plaintiff The Food Improvers Pty Limited and John Stephen Bax - Defendants
FILE NUMBER(S):	SC 1011/09
COUNSEL:	Ms J E Richards - Plaintiff Mr R Alkadamani - Defendants
SOLICITORS:	Cordato Partners Lawyers - Plaintiff Haywards Solicitors - Defendants

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

THURSDAY 14 MAY 2009

1011/09 - CP YORK HOLDINGS PTY LIMITED v THE FOOD IMPROVERS PTY LIMITED & ANOR

JUDGMENT

1 The plaintiff makes application under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand served on it by the defendants. The statutory demand is dated 15 December 2008. It relates to debts totalling $533,557.73 which are judgment debts arising from orders of the Federal Court of Australia plus interest thereon.

2 It is common ground that part of this amount has been paid or otherwise satisfied or credited and that the balance remaining is $426,364.78. The plaintiff does not assert the existence of any dispute about this balance of $426,364.78. It accepts that that amount is due and payable to the defendants. Nor does the plaintiff contend that it has any offsetting claim. There is, accordingly, no reliance on any part of s 459H in relation to the s 459G claim.

3 Rather, the plaintiff relies on s 459J and specifically s 459J(1)(b). The scope and effect of that provision were described by Gummow ACJ, Heydon, Brennan and Kiefel JJ in DeputyCommissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41 at [24]:

“This provision, set out earlier, authorises the Court to set aside a statutory demand if it "should be set aside" for "some other reason" than that provided in par (a) of s 459J(1), namely apprehended substantial injustice because of a defect in the demand.”

4 In relying on s 459J(1)(b), the plaintiff puts forward several matters to which I must now refer. First, the plaintiff points out that its liability under the Federal Court orders was a joint and several liability imposed upon both the plaintiff and another company, Triad, in circumstances, it seems, where Triad had a significantly larger interest in the subject matter of the proceedings. That notwithstanding, the orders created joint and several liability and, unfortunately for the plaintiff, Triad became insolvent and is now in liquidation. As a result, the plaintiff has been left to bear the financial burden alone without contribution by Triad.

5 Second, the plaintiff refers to the fact that it has given the defendants security for its indebtedness in the form of a second and unregistered mortgage of two properties at Annandale. In that way it has showed itself to be attentive to its obligation.

6 Third, the plaintiff has already paid a substantial part of the overall liability it incurred as a result of the Federal Court proceedings which, in its totality, exceeded the amount in the statutory demand. The demand, I should say, covered very predominantly costs orders. The plaintiff adds that it has made this substantial payment again without contribution by Triad.

7 Fourth, the plaintiff has led evidence from which it asks the Court to conclude that funds sufficient to enable it to pay the balance of the indebtedness in full will be received by it soon, although exactly when this might be is not precisely stated. On this, I am bound to say that the evidence does not really go beyond showing that the plaintiff has an entitlement as an income beneficiary under the Virgo Trust of $627,449.76 in respect of the year to 30 June 2008. The evidence does not permit me to make any finding about the extent to which and time at which this entitlement may be satisfied by payment.

8 Fifth, the plaintiff says that the defendants have not suggested that recovery by them would take place any sooner if the plaintiff were wound up.

9 Ms Richards, who appeared for the plaintiff, sought to make good her central submission based on s 459J(1)(b) by drawing an analogy with cases under previous legislation concerning adjournment of a winding up application. In particular, she referred to Re Presha Engineering (Aust) Pty Ltd (1983) 1 ACLC 675 and Fire & All Risks Insurance Ltd v Southern Cross Exploration NL (1986) 10 ACLR 683. Each of these was a case in which a court called upon to determine a winding up application adjourned the hearing on the footing that the defendant company's financial position looked likely to improve in such a way that winding up might be avoided. There was, in other words, an exercise of the court's undoubted power, which still exists, to hold off making a winding up order even when grounds for making such an order have been shown.

10 As Mr Alkadamani submitted on behalf of the defendants, however, it is a mistake to seek to import into the present debate thinking relevant to the court's clear discretion to hold off making a winding up order even though grounds for a winding up have been established. And this is particularly so where the principles concerned pre-date the enactment of the present Part 5.4.

11 Part 5.4 seeks to ensure that questions about statutory demands are determined separately from a hearing of a winding up application. The objective is to ensure that the result of a creditor's attempt to obtain the benefit of a presumption of insolvency through service of a statutory demand should be known – and definitively known – before the hearing of any winding up application.

12 The statutory provisions as a whole and s 459S in particular aim to confine issues about the effectiveness of the statutory demand to s 459G proceedings heard and determined in advance of the winding up hearing so that that hearing, when and if it subsequently occurs, will proceed on the basis that there is (or, as the case may be, is not) an established but admittedly rebuttable presumption that the company concerned is insolvent.

13 The Part 5.4 regime has elements of rigidity to it. It is in some ways unforgiving. Both Gummow J in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 and Spigelman CJ in Switz Pty Limited v Glowbind Pty Ltd (2000) 48 NSWLR 661 referred to aspects of the harsh operation of the statutory provisions. As their Honours noted, these are deliberate aspects of the statutory intention and purpose.

14 It is with the purpose of Part 5.4 in mind that one approaches s 459J(1)(b). The question posed by that provision is whether there is some good reason beyond and separate from those with which s 459H and s 459J(1)(a) are concerned for setting aside a statutory demand. Section 459J(1)(b) confers a remedial jurisdiction.

15 The Court of Appeal of the Australian Capital Territory described the provision in Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3 as follows (at [27]):

“What is contemplated by s 459J(1)(b) is a discretion of broad compass which extends to conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice: Hoare Bros Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302 at 317 to 318.”

16 In that case, the creditor had agreed to withdraw the statutory demand but later reneged on its agreement. Those circumstances were seen as coming within the relevant concept of unconscionability.

17 Section 459J(1)(b) will operate where the person serving a statutory demand has "engaged in conduct that was unconscionable or an abuse of process or had given rise to substantial injustice", these being words of Black CJ, Einfeld, Sackville JJ in Hall Brothers Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302 at 317 to 318 which were also applied by the Queensland Court of Appeal in KW & KM Quinn Investments Pty Ltd and Deputy Commissioner of Taxation [2004] QCA 91.

18 Both counsel referred to the decision of the Court of Appeal in Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24. The Court of Appeal there observed that substantial injustice has been confirmed by case law as a criterion for setting aside a statutory demand. It was emphasised, however, that injustice must be judged by reference to the purpose that Part 5.4 is intended to serve. Thus, Santow JA observed (at [35]:

“There being no defect in the demand, reliance was placed upon whether there be ‘ some other reason ' as would satisfy s459J(1)(b). The claimants contend that such reason cannot be based simply on some need to bring to the relationship between the parties some broad form of perceived fairness or reasonableness. Rather there must be ‘ sound or positive ground or good reason ’ to set aside the statutory demand for ‘ some other reason ’, which was consistent with the legislative intent of Pt 5.4 of the Act: Portrait Express (Sales) Pty Limited v Kodak (Australasia) Pty Limited (supra) at 757 per Bryson J; Kezarne Pty Limited v Sydney Asbestos Removal Services Pty Limited (1998) 29 ACSR 11 at 18 per Austin J. It is the claimants’ contention that the reasons given by the trial judge do not satisfy the latter requirements but are indeed based upon some broad form of perceived fairness or reasonableness.”

19 Also pertinent are the observations of Young J, CJ in Eq (at [57] to [61]):

“[57] I agree with Santow JA and with his reasons. I merely wish to add one or two observations.

[58] Although the wording of s 459J(1)(b) of the Corporations Act appears wide, its context and history requires reading it down to encompass in general terms only cases where the Court is satisfied that injustice will be caused unless the demand is set aside because of a defect relating to, but not in, the demand, see Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11 at 17.

[59] In Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746, 757, Bryson J truly said that the discretionary power under s 459J(1)(b) should not be activated ‘unless the decision to do so is supported by some sound or positive ground or good reason which is relevant to the purposes for which the power exists’.

[60] It is not possible to set out fully the cases that might fall within s 459J(1)(b) nor if it were possible would it be wise to do so. The sort of case that will be covered will include gross defects in supporting affidavits and documentation and where the alleged creditor has made statements or representations relating to the statutory demand which have reasonably induced a change of the alleged debtor's position.

[61] A judge is not at liberty to set aside a demand under s 459J(1)(b) merely because he or she subjectively considers it fair to do so.”

20 It is particularly relevant to refer in this present case to another observation of Santow JA in the Meehan case. His Honour made it clear that the relevant concept of injustice for the purposes of s 459J(1)(b) is not concerned with the personal position or the personal circumstances of the party served with the statutory demand. His Honour said (at [52]):

“Indeed, it is an error of principle to invoke as a test ‘ substantial injustice to the party seeking to set aside the statutory demand’ for the purpose of subparagraph (b) of s459J(1) when this is solely based on the position of the party subject to the statutory demand. Rather one must look at the relative position of both parties against the objectives of Pt 5.4. That is why the more general formulation of Bryson J in Portrait Express is to be preferred as an approach; that is, setting aside a statutory demand under s459J(1)(b) where there is proper reason viewed in the circumstances of the parties taking into account the purposes of Pt 5.4. The claimants have an undisputed order for costs arising out of what the Court of Appeal characterised as futile proceedings brought by Glazier.”

21 As was made clear by both Santow J, with whom Tobias J agreed and Young CJ in Eq, the touchstone is that identified by Bryson J in Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 132 FLR 300. Bryson J said that the court should not act under s 459J(1)(b) in the absence of “some sound or positive ground or good reason which is relevant to the purposes for which the power exists". The power exists to maintain the integrity of the Part 5.4 process. It should be used as necessary and appropriate to counter attempted subversion of the statutory scheme. And as Young CJ in Eq said, subjective notions of what is fair play no part.

22 In the present case, the bases upon which the plaintiff contends for the exercise of the s 459J(1)(b) power are in no way related to the due administration of Part 5.4 or any need to protect its provisions from abuse or distortion. The plaintiff is indebted to the defendants. It does not dispute the indebtedness. The defendants have taken steps towards obtaining payment or, in default of payment, the benefit of a rebuttable presumption of insolvency that they can use if and when they decide in the short term to move for a winding up order. The plaintiff admits that it cannot pay. It hopes to be able to pay at some time in the not too distant future. It has informed the defendants of that hope. They are not prepared to relinquish their steps towards obtaining the benefit of a presumption of insolvency.

23 There is simply no ground on which the court can properly intervene to forestall the result the defendants legitimately seek. It cannot look solely to inconvenience and discomfort or worse that the plaintiff may be experiencing or expects to experience. It must, as Santow JA said at [52] of his judgment in Meehan, look at the relative position of both parties against the objectives of Part 5.4. The due obtainment of those objectives will be served by allowing the unfolding course of events to unfold.

24 I should mention in conclusion, two points. The first is that the plaintiff contends that it is solvent, and that that is a material consideration at this point. The evidence before me does not enable me to conclude one way or the other on the matter of the plaintiff's solvency, but even if the plaintiff is solvent, that is something that has no bearing on the decision faced by the court under s 459J(1)(b). The reasons were succinctly stated by Lindgren J some 14 years ago in Chippendale Printing Company Pty Ltd v Deputy Commissioner of Taxation (1995) 55 FCR 562. I need not repeat them.

25 The second point is that, if and when the defendants institute winding up proceedings, it will be open to the present plaintiff as defendant there to run the arguments about grant of time or indulgence that it inappropriately sought to run here.

26 In the result, therefore, the plaintiff has not made out any case for relief under s 459J(1)(b) by way of an order setting aside the statutory demand. Rather, and in view of what I said at the start of these reasons, the case resolves itself into one in which there is a genuine dispute about the amount of the debt with the result that, in terms of s 459H(2) the "substantiated amount" is $426,364.78, and since that is greater than the statutory minimum of $2000, the appropriate course is for the court to make an order under s 459H(4).

27 I order that the statutory demand dated 15 November 2008 served on the plaintiff by the defendants be varied by reducing its amount to $426,364.78:

(a) by omitting from paragraph 1 “$533,557.73” and inserting instead “$426,364.78”; and

(b) by adding at the end of the schedule “less acknowledged payments or credits of $107,192.95 to leave a revised total of $426,364.78”.

28 I declare that the statutory demand has had effect, as so varied, from when the statutory demand was served on the plaintiff.

29 I order that the plaintiff pay the defendant’s costs of the proceedings.

[Submissions]

30 I decline to award costs on the indemnity basis.

31 I order that the period for compliance with the statutory demand be extended so as to end 21 days from today.

Note on revision of ex tempore judgment: When judgment was delivered orally on 14 May 2009, the figure “$406,419.64” was included in paragraph 2 (twice) and paragraph 26, as well as in paragraphs (a) and (b) of the order in paragraph 27. An order under the slip rule was later made to change this to “$426,364.78” (also, “15 November 2009” was corrected to “15 December 2009” in the order in paragraph 27 and, in paragraph (b) of that order, “$107,049.49” was corrected to “$107,192.95”).

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