D&M (Australia) Pty Ltd v Crouch Developments Pty Ltd - [2009] WASC 283

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: D&M (AUSTRALIA) PTY LTD -v- CROUCH DEVELOPMENTS PTY LTD [2009] WASC 283

CORAM: MASTER SANDERSON

HEARD: 15 SEPTEMBER 2009

DELIVERED : 24 SEPTEMBER 2009

FILE NO/S: COR 136 of 2009
COR 137 of 2009

BETWEEN: D&M (AUSTRALIA) PTY LTD (ACN 102 773 722)
Plaintiff
AND
CROUCH DEVELOPMENTS PTY LTD (ACN 008 897 676)
Defendant

Catchwords:

Corporations law - Applications to set aside statutory demands - Money paid into trust account to secure arbitration award - Whether 'some other reason' why demands ought be set aside

Legislation:

Corporations Act 2001 (Cth), s 459J(1)(b)

Result:

Demands set aside

Category: B

Representation:

Counsel:

Plaintiff: Mr J G Abberton
Defendant: Mr B P Wheatley

Solicitors:

Plaintiff: Lavan Legal
Defendant: Mossensons

Case(s) referred to in judgment(s):

Cockatoo Dockyard Pty Ltd v Commonwealth of Australia [No 3] (1995) 35 NSWLR 689
Eumina Investments Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454
Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452
Process Machinery v ACN 057 260 590 [2002] NSWSC 45
Quadwest Developments Pty Ltd v Thi [2009] WASC 54

MASTER SANDERSON: This was the return of two applications by the plaintiff to set aside statutory demands. At the conclusion of the hearing I indicated to the parties I would set both demands aside. I said I would publish reasons for doing so. These are those reasons.
There was no dispute between the parties as to the facts. The summary which follows is taken from the two affidavits of Kevin Chen, each of which was sworn 3 July 2009. Mr Chen is not a director of the plaintiff. He says he has been assisting the plaintiff in management of its building works at 1 Dunedin Street, Mount Hawthorn. Mr Chen says the directors of the plaintiff do not speak English, are residents overseas and they provide him with relevant instructions.
The defendant served two statutory demands on the plaintiff. The first demand dated 15 June 2009 is for an amount of $19,739.50. That demand appears as annexure KC1 to Mr Chen's affidavit sworn in support of the application in COR 137 of 2009. The second demand is dated 16 June 2009 and appears as annexure KC1 to Mr Chen's affidavit sworn in COR 136 of 2009. That demand is for an amount of $419,992.91. So the total amount demanded from the plaintiff by the defendant is just under $440,000.
It is common ground that the plaintiff engaged the defendant to construct certain works on a property owned by the plaintiff in Mount Hawthorn. A dispute arose in relation to these works. The contract anticipated an arbitration to resolve disputes and in early 2008 the defendant commenced arbitration proceedings against the plaintiff. The matter was heard before an arbitrator from 23 March ‑ 27 March 2009. On 7 May 2009 the arbitrator issued his interim award. The amount of the award was $419,992.91 in favour of the defendant. On 1 June 2009 the arbitrator issued his final award which was for $19,739.50. It is these two awards which are the subject of the demands.
On or about 28 May 2009 the plaintiff effectively appealed against both awards. These appeals are brought under the provisions of the Commercial Arbitration Act 1985 (WA). The defendant filed a notice of appearance to both appeals and neither has been yet heard or determined.
On 18 April 2008 the defendant lodged a caveat over the property upon which it was constructing the works as it was entitled to do under the building contract. As the plaintiff wanted to sell all or part of the property, it sought to have this caveat removed. No agreement could be reached between the parties. The plaintiff applied to this court for an order removing the caveat. On 28 July 2008 Beech J made the following orders in CIV 1667 of 2008:
1.Within seven days of the plaintiff depositing into a joint interest‑bearing account to be set up in the names of the solicitors for the plaintiff and the defendant the sum of $535,000, pending the final determination of the arbitration brought by the defendant as claimant against the plaintiff as respondent, the defendant withdraw the caveat dated 18 April 2008, lodged in respect of the land being the whole of the land contained in Certificate of Title vol 2616 folio 542.
2.There be liberty to apply on 24 hours written notice. (emphasis added)
The sum referred to in par 1 of his Honour's orders was duly deposited in a joint interest‑bearing account where it presently remains. Subsequent to the arbitrator handing down his final determination the defendant did not make use of the liberty to apply provision granted by his Honour. Nor did it seek to register the judgment as a judgment of this court. Rather, it issued the statutory demands.
The plaintiff's position was that as it had effectively secured the amount claimed by the defendant by the deposit of funds into a joint trust account it was entitled to have the demand set aside. In making that submission reliance was placed on s 459J(1)(b) of the Corporations Act 2001 (Cth) - the plaintiff saying this was a case where there was 'some other reason' why the demand ought be set aside. In making this submission, counsel relied upon two cases. The first of these was the decision of Emmett J in Eumina Investments Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454.
The facts in this case can be summarised in this way. Eumina Investments Pty Ltd (Eumina) owed Westpac Banking Corporation (Westpac) $42,000. This debt was owed under a Federal Court order that required Eumina to pay Westpac's costs in certain proceedings. These proceedings had been dismissed but without prejudice to Eumina's right to bring further proceedings. Eumina did indeed bring further proceedings in the New South Wales Supreme Court. The claim was dismissed. Eumina took the matter to the Court of Appeal and lost. It then lodged an application for special leave to appeal to the High Court.
Before the special leave application was heard, Westpac served a statutory demand. Eumina applied to the Federal Court for an order setting aside the demand. Eumina raised a number of arguments. First, it said it had a 'genuine claim' against Westpac within the meaning of s 459H(5) of the Corporations Act. Emmett J determined that, as a result of the decision at first instance in the New South Wales Supreme Court and on appeal, Eumina had no claim against Westpac and, until the first instance decision was set aside, no other court could consider Eumina's claim. The only bona fide claim that Eumina had against Westpac was Eumina's claim for special leave to appeal. Even assuming Eumina had reasonable prospects of success on appeal if leave was granted, that established only that the claim for special leave could be characterised as a genuine claim. The first instance decision conclusively determined as between Eumina and Westpac that there was no money recovered by Eumina arising out of the proceedings in the New South Wales Supreme Court. Therefore Eumina did not have a genuine claim against Westpac within the meaning of s 459H.
However, Emmett J was satisfied that Eumina could have the demand set aside under the provisions of s 459J(1). His Honour said:
It is, in my opinion, appropriate for a Court to exercise the discretion conferred by s 459J(1)(b) where the Court is satisfied that there is an appeal based on reasonable and arguable grounds which, if successful, would result in the existence of an offsetting claim. The expression 'reasonable and arguable grounds' is suggested by the decision of the Full Court in Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148.
…
However, in an application under s 459J(1)(b), it may be appropriate to draw a distinction between the relevance of an appeal to a genuine dispute and the relevance of an appeal to an offsetting claim. Where there is an appeal against a judgment debt which gives rise to the statutory demand and there is no stay, whether or not the stay has been sought, there may be some substance in the conclusion that setting aside the statutory demand is a de facto stay. The appropriate course, in such a case, may be for the company to apply for a stay to the court which entered judgment.
Where, however, there is an appeal from a decision dismissing a possible offsetting claim, there is no dispute as to the debt which gives rise to the statutory demand as is the case here. There may be no basis for seeking a stay of the order made … On the other hand, no application for a stay could be made in respect of the order of [the Supreme Court of New South Wales] or the order of the Court of Appeal. There is, therefore, no mechanism available to the Company in the present circumstances, other than s 459J(1), to prevent the consequences of the presumed insolvency which would follow from non‑compliance with the statutory demand (459 ‑ 460).
His Honour then went on to set aside the statutory demand conditional upon Eumina paying into court the amount of the demand. There are two important elements to his Honour's decision. First, it is important that the setting aside of the demand should not act as a de facto stay of execution. Eumina had no way of obtaining a stay from any court in relation to the costs order. So it was not attempting to achieve something by the back door when it had not actually pushed at the front door. Second, the setting aside of the demand was conditional upon the payment into court of the amount of the demand. His Honour was not satisfied that it was enough in the circumstances simply to show that Eumina had on foot an application which might affect its indebtedness to Westpac.
The second case relied upon by the plaintiff was my decision in Quadwest Developments Pty Ltd v Thi [2009] WASC 54. This case involved an arbitration award. After the award was made the plaintiff (in that case) sought leave to appeal. The defendant did not attempt to register the judgment under s 33 of the Commercial Arbitration Act but issued a statutory demand. Relying upon the decision of Emmett J in Eumina, I was satisfied the demand ought be set aside conditional upon the plaintiff paying the amount of the demand into court.
In the Quadwest Developments case the plaintiff had no way of approaching the court to obtain a stay of the enforcement of the arbitrator's award. Unless and until the award was registered as a judgment of the court there was no basis upon which a stay could be obtained. What is clear is that if an application were to be made for registration of the arbitrator's award as a judgment there is a discretion to refuse such registration. The circumstances when there might be such a refusal was set out by Rolfe J in Cockatoo Dockyard Pty Ltd v Commonwealth of Australia [No 3] (1995) 35 NSWLR 689. His Honour suggested two preconditions must be present to refuse registration. First, there must be an appeal on foot and second, there must be a reasonable prospect of that appeal succeeding. Whether or not those two preconditions are present is something that would have to be determined in the course of an application to register the award. For present purposes, what is important is the fact that there is a discretion to refuse registration. In the Quadwest Developments case I was satisfied as there was an appeal on foot and provided the amount of the award was paid into court, the statutory demand ought be set aside under s 459J(1)(b).
It is to be noted that this case offers a further variation on the theme. An amount greater than the arbitrator's award is held in a joint trust account. Furthermore, the order of Beech J anticipated the money would only be held in the trust account until the arbitrator had made his final decision. It did not anticipate the money being held in the trust account until any appeal against that decision was resolved. On the face of it at least the defendant would be entitled to have paid out to it the amount the arbitrator found it was entitled to receive. (Of course I make no final determination on that question - that is a matter to be determined in other proceedings.) The defendant has not seen fit to use the liberty to apply reserved in Beech J's orders or any other mechanism to obtain payment to it of the amount of the arbitrator's award.
In opposition to the applications the defendant made a number of submissions. First, it was said the affidavits of Mr Chen in support of the applications contained hearsay evidence and was inadmissible. In my view, there is no substance in that argument. Although Mr Chen is not a director of the plaintiff he clearly has firsthand knowledge of the facts giving rising to the dispute. He gives direct evidence of all relevant matters. There is no dispute as to the facts and Mr Chen's affidavits clearly alert the defendant to what the plaintiff says are the relevant facts.
The second argument put was that the affidavits of Mr Chen did not address the issue of the demands being set aside under s 459J(1)(b). Rather, it was said the affidavits were drawn on the basis that there was a genuine dispute as to whether the debts were payable. As there was no basis for saying there was a genuine dispute the affidavits did not sufficiently alert the defendant to the basis of the plaintiff's claims and therefore could not support an application brought under any section other than s 459G.
In my view, there is no substance in this submission. In making his submission counsel for the defendant relied on a number of decisions, in particular the judgement of Barrett J in Process Machinery v ACN 057 260 590 [2002] NSWSC 45. In his judgment Barrett J dealt with what is sometimes referred to as the 'Graywinter principle'. This is a reference to the decision of Sundberg J in Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452. After quoting from that case his Honour said:
The reasoning in Graywinter Properties with respect to disputed debt must mean that, in a case where it is sought to set aside the statutory demand on one of the other bases of objection provided for in the statute (that is, offsetting claim, a defect in the demand productive of substantial injustice requiring the demand to be set aside and 'some other reason why the demand should be set aside'), the affidavit must at least disclose facts showing the substance of the allegations relevant to the ground in question. In a genuine dispute case, the affidavit would necessarily disclose facts showing the substance of the allegations relevant to that dispute. In a case in which it was sought to rely upon a defect productive of substantial injustice, the affidavit would disclose facts showing the substance of the allegations relevant to both defect in the demand and the injustice that would flow from the defect if the demand were allowed to stand. In a case asserting 'some other reason why the demand should be set aside', the affidavit would disclose facts showing the substance of the allegations relevant to that other reason [15].
In my view, even adopting what was said by Barrett J in the Process Machinery case, these affidavits satisfy those requirements. It is true Mr Chen says in his affidavits he believes there is a genuine dispute. But Mr Chen's opinion is irrelevant and in fact those paragraphs would be liable to be struck out. What the affidavits do is disclose the relevant facts. Whether those facts are sufficient to warrant the demands being set aside is to be determined by the court. The fact the applications may refer to a section of the Corporations Act other than the section eventually relied upon is not of significance. Even if the originating process was to be subjected to the same rules as applied to a pleading, the reference to one provision of a statute rather than another would be of no significance. The defendant's argument on this point must fail.
Finally it was that there was sufficient difference between this case and the Quadwest Developments decision to refuse to set aside the statutory demands. In my view, if anything the plaintiff's position in this case is stronger than the plaintiff's position in Quadwest Developments. Here, not only is the amount of the demands secured by the payment into the joint trust account but the defendant may (and I emphasis 'may') have a present entitlement to have the amount of the award paid out to it. That, with respect, would seem a better course than issuing a statutory demand and resisting the demand being set aside.
For these reasons I was satisfied the demands ought be set aside. I will make orders to that effect and hear the parties with respect to costs.