Fleuris Pty Ltd v Asian Century Holdings

[2000] HCATrans 156

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P21 of 2000

B e t w e e n -

FLEURIS PTY LTD

Applicant

and

ASIAN CENTURY HOLDINGS INC

Respondent

Application for a stay

GAUDRON J

(In Chambers)

TRANSCRIPT OF PROCEEDINGS

FROM PERTH BY VIDEO LINK TO CANBERRA

ON FRIDAY, 14 APRIL 2000, AT 3.29 PM

Copyright in the High Court of Australia

MR D.H. SOLOMON:   If it please your Honour, I appear for the applicant. (instructed by Solomon Brothers)

MR J.C. VAUGHAN:   If it please the Court, I appear for the respondent. (instructed by Freehill Hollingdale & Page)

HER HONOUR:   Yes, thank you.

MR SOLOMON:   Your Honour, this is an application pursuant to the Court’s inherent jurisdiction to grant a stay pending the hearing of a special leave application.  There is a judgment given in the Full Court on 15 March this year and an application for special leave lodged on 23 March.  The decision, as will be apparent from the papers, reversed the decision at first instance given by Master Sanderson of the Supreme Court in which the learned Master made an order setting aside a statutory demand served pursuant to provisions of the Corporations Law.  The stay we seek will have the effect of leaving Master Sanderson’s order intact, pending determination of the special leave ‑ ‑ ‑

HER HONOUR:   One understands that, but this is not exactly a case where the subject matter of the appeal will disappear, that is if a stay is not granted, is it?  There was no actual determination of the substantive rights of the parties by these decisions, was there?

MR SOLOMON:   Well, the effect in substance is this, your Honour, that the Full Court has held that the determination of an application to set aside a statutory demand is a final determination of that matter, that lease.

HER HONOUR:   It may well be a final determination of that matter, but it is not a final determination of substantive rights and liabilities.  It is no determination at all of substantive rights and liabilities.

MR SOLOMON:   The point is, your Honour, as mentioned in paragraph 3 of the outline, the practical effect is that the applicant now faces a winding‑up application and, indeed, that has been filed yesterday.

HER HONOUR:   It has been presented, yes, which you can resist.  You can resist it on the grounds that you are not insolvent.

MR SOLOMON:   That is all.  We cannot resist it on the grounds that there was a genuine dispute about the particular amount claimed.

HER HONOUR:   That is right.  You can resist it on the grounds that you are solvent.

MR SOLOMON:   Yes.

HER HONOUR:   And, with leave, you can raise these very matters that were raised before if it is relevant to a question of solvency.  Is that not right?

MR SOLOMON:   Yes, only if they go to solvency.

HER HONOUR:   Yes.

MR SOLOMON:   But the effect in substance is that this is a species of summary judgment.  We can no longer dispute ‑ ‑ ‑

HER HONOUR:   But it is not a species of summary judgment.  It does not determine the rights and liabilities.  Now, I have had great difficulty in understanding the basis of your resistance to the statutory demand, but if it is on the basis that there was a variation of the terms of the contract, you could bring proceedings to have that determined, could you not?  If it is not on the basis of a variation of the terms of the agreement, on what basis is it resisted?

MR SOLOMON:   Well, your Honour, what we would have done is that if the respondent had pursued the claim in the ordinary way, we would have defended the claim.  That is, we would have an ‑ ‑ ‑

HER HONOUR:   On what grounds?

MR SOLOMON:   We would have defended it on the grounds that there is no entitlement to require us to repay this money until the applicant does what it agreed to do and that is to provide a standby letter of – sorry?

HER HONOUR:   On the basis that the contract does not reflect the terms of the agreement?

MR SOLOMON:   On the basis that there is no document that even reflects a contract before the court.  What there are are some ‑ ‑ ‑

HER HONOUR:   Very well, then you can seek rectification.  It is within ‑ ‑ ‑

MR SOLOMON:   But we cannot now even argue that before the court unless it shows solvency.

HER HONOUR:   Excuse me.  It has always been within your power, if you had some right, vis‑a‑vis the respondent to this application, to take proceedings to assert that right.  If you were entitled to rectification of the agreement, you could have brought proceedings to that end.  If you were entitled to an estoppel, you could seek declarations, could you not?

MR SOLOMON:   Yes.  We are a party facing a claim at the suit of a creditor who is essentially a defendant.

HER HONOUR:   No.

MR SOLOMON:   We have not faced those proceedings at all.  The plaintiff has chosen to not pursue us for a debt.  It has simply chosen to issue a statutory demand.  The provisions of the Corporations Law require that what accompanies a statutory demand is either a judgment or an affidavit, and where the plaintiff chooses to not sue in the ordinary way, if there is any type of genuine dispute, they are simply not entitled to the benefit of a presumption of insolvency based upon a matter where there is a genuine dispute.  The Master was happy that we showed a genuine dispute, and if that had remained, we would have then faced proceedings in the ordinary way from the respondent to recover a disputed debt.  Now, with respect, in those circumstances, it is not appropriate to require of us to start proceedings for rectification ‑ ‑ ‑

HER HONOUR:   Well, it may not be appropriate to demand of you, but you are, in effect, seeking a stay of an order that does not finally determine rights and obligations.

MR SOLOMON:   Well the Full Court has held otherwise.

HER HONOUR:   Nor does it determine whether or not you are insolvent.  Now, what I am trying to put to you is this is a very different type of case from that which ordinarily comes before this Court for a stay application, and I am asking ‑ ‑ ‑

MR SOLOMON:   That is right, but – all right.

HER HONOUR:   Yes.

MR SOLOMON:   Well, what it does, your Honour, is finally determine whether we are to be subject to a presumption of insolvency based upon this claim and in  ‑ ‑ ‑

HER HONOUR:   Yes, but not an irrebuttable presumption.

MR SOLOMON:   No, that is not correct, with respect.  We cannot rely on anything which was raised to show a genuine dispute, unless it shows solvency.  That is the effect of section 459(2).  To suggest that this does not finally ‑ ‑ ‑

HER HONOUR:   Yes, and if you cannot show solvency, why should there be a stay?

MR SOLOMON:   Why?  Because what we would like to show is we had a genuine dispute as to whether this debt is payable or not, and the Master held we had a genuine dispute.  It ought to proceed in the ordinary way of litigation.

HER HONOUR:   The question is ultimately, are you solvent or insolvent?

MR SOLOMON:   No, the question is, can we demonstrate – let me put it this way, your Honour, if we were to say that we do not presently owe this debt, then we could show solvency, but that is not what section 459S allows us to do.  We have to show solvency outside of this particular claim, which we have never had a proper chance to litigate.  The Full Court has gone against a stream of authority in the particular court, as well as in other courts in Australia.  It has determined with the most flimsy basis that we could never, ever, have had a defence to this claim.

HER HONOUR:   Yes, well, I understand your attacks on the decision of the Full Court, but the question is, what do you say are the principles relevant to a stay of a decision of this kind and how do you satisfy them?

MR SOLOMON:   All right, I will deal with that immediately, your Honour. It is simply that if one goes to the text of section 459S(2) of the Corporations Law, saying:

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.

Now, what is the leave that is spoken about?  It is, on an application to wind up in insolvency, we cannot oppose the application on a ground that we relied on for the purposes of an application.  So, we then are limited to having to show solvency in order to even dispute this claim.  We face a presumption that we are insolvent by reason of the Full Court’s finding when we have never, ever had a trial at all.  We do not have a judgment, we have an affidavit, and what we have put in in answer plainly gave rise to a genuine dispute. 

In substance, what we say is the subject matter of the litigation actually, in substance and effect, is the applicant as a company not in liquidation.  We stand to suffer a form of summary execution in the sense that we will go into liquidation with a liquidator appointed based upon a debt which has never been tried before a court and in circumstances where the law says that that is not to happen if there is a genuine dispute.  So, in substance and effect, what is the subject matter that is at peril?  It is as a corporate entity, our life.  We stand to go into liquidation.  That is the whole purpose of this summary procedure on statutory demand.

HER HONOUR:   If you are insolvent, you misstate it.  You stand to go into liquidation if you are insolvent.

MR SOLOMON:   Yes, but we cannot simply dispute this debt.  We cannot now dispute the debt.  It begs the question of are we solvent having regard to the disputed debt, or are we solvent without having regard to it?  We cannot now rely on the defence unless, outside of what has been found, we are solvent.  So we have lost the ability to determine our solvency without regard to whether or not we presently owe the money claimed.  That is the problem for us, your Honour, that we have to satisfy the test in 459H(2) in a winding up application; whereas, what is the relief that is going to be granted if we got special leave and succeeded?  The relief that would be granted to us is that we would simply have the statutory demand set aside.  That means we defend a winding‑up application with no presumption of insolvency.  If the respondent wishes to pursue us, they must prove insolvency without any presumption.

How it might be asked in terms of what was said in the case I have mentioned in the list, the decision of his Honour Justice McHugh in Advance Building Systems v Ramset Fasteners where he referred to earlier authority, quite apart from the test being the loss of the subject matter, if there is a significant impediment on the ability of the High Court to grant the relief sought, then that is another basis for a stay.  The relief that would be sought in this matter is to set aside the statutory demand so that we do not face liquidation based upon a presumption that we owe the debt.

HER HONOUR:   But, Mr Solomon, you do have a further problem in this.  What is the point of a stay?  I mean, we talk about a stay of execution.

MR SOLOMON:   Yes.

HER HONOUR:   There is no question of staying the execution of this.  All that happened was that a decision was set aside.  Now, I dare say that there is some law that entitles you to restrain the presentation of a petition if it is presented in bad faith, is that not right?

MR SOLOMON:   Yes, but we cannot come within that.  All I am saying in substance on that ‑ ‑ ‑

HER HONOUR:   If you cannot come within that, then you cannot come within that.

MR SOLOMON:   It is not a matter of bad faith.

HER HONOUR:   But it is not a question of staying the execution of this judgment.  That takes you nowhere. 

MR SOLOMON:   It is staying the effect of it.  It is simply staying the effect of it, your Honour.

HER HONOUR:   Yes, I understand the way you put it, but I am suggesting that it is not the sort of judgment that is stayed, that is capable of a stay.  You have to have some other form of relief.  What is ‑ ‑ ‑

MR SOLOMON:   That may be right, with respect, if the Master’s judgment had not been in our favour, but because the effect of this judgment is to reverse the Master, if we simply stay the Full Court’s order, we are left with the protection of the first instance decision, and that is that the statutory demand remains set aside, and that means we do not face winding up based upon that statutory demand.  Now, that is appropriately described as a stay.

If one wanted to say that there is another basis for it, that would be an injunction to restrain prosecution of the winding‑up application on the grounds that we have an application for special leave to appeal pending before this Court.  That is just a matter of form and semantics.  It would achieve exactly the same result whether you say one is staying a Full Court order which then has the effect that the decision below will stand pending the determination for special leave, or whether we brought an application for an injunction to restrain presentation of the winding‑up application, or now it is presented to restrain prosecution of that application pending hearing, is simply a matter of form.  The same effect would be that ‑ ‑ ‑

HER HONOUR:   No, it is not a matter of form and it does not help your case to present the argument in that way. 

MR SOLOMON:   All right, well, all I could say then, with respect, is that the inherent jurisdiction that is being dealt with here – Justice Brennan noted that it is an inherent jurisdiction in the Jennings Construction decision.  The reason it is inherent is because the statutory jurisdiction under section 77U of the Judiciary Act only arises where there is an appeal in place and not a special leave application – that in my respectful submission, as an aspect of inherent jurisdiction, that jurisdiction is as wide as the circumstances that may arise may require.  Whether in substance it is called a stay of execution or whether in a particular case it is a stay of the effect of a Full Court order which will have the effect that we do not face the prospect of a winding‑up application which would not have been possible under the Master’s order, the inherent jurisdiction is wide enough to make an order that the circumstances of the particular matter require, and that, therefore, there is an inherent jurisdiction to make the order we seek which is simply to stay the effect of the Full Court’s order which will leave the Master’s order in place pending further order of this Court.

There is no warrant, with respect, to limit the inherent jurisdiction to disable the Court from granting whatever relief may be appropriate in the widest possible myriad of factual circumstances and types of judgments that may be subject to challenge in a special leave application.  With the breadth of that possible jurisdiction there is a jurisdiction that is a question of whether your Honour accepts, with respect, that it is appropriate to exercise.

The only other points I can make on the submission, your Honour, is that, again, as I think I have said, in substance and effect, we face a dramatic change in our position and we cannot get the relief we seek if we do not get the stay, because the relief we seek is to not face a winding‑up application based upon a dispute which has never been adjudicated fairly or justly, and that there was plainly material before the Full Court that demonstrated there was a genuine dispute.  Other authorities, as I have mentioned in the submission, show that.  In the written outline, your Honour, I have gone into some details about that in paragraph 5 of the outline.

HER HONOUR:   Yes.

MR SOLOMON:   The question is whether you want me to develop that at this time.

HER HONOUR:   Well, I have already indicated to you I find some difficulty in understanding the basis on which you say there is a dispute.

MR SOLOMON:   All right, well, I will deal with that briefly.  The facts as dealt with in paragraph 5 show that there was a rather complicated arrangement, that the respondent ‑ ‑ ‑

HER HONOUR:   Yes, but there is a letter, is there not, which records some agreement?

MR SOLOMON:   Yes.  It does, but it is not a formal contract and no one would ever construe it as a formal contract.

HER HONOUR:   Nobody says that there has to be a formal contract, but it does, on its face, appear to be a contract.

MR SOLOMON:   Yes, but then we have an affidavit ‑ ‑ ‑

HER HONOUR:   OK, well, no, stop there.  I understand the facts.  The question is, do you say those letters are a sham?

MR SOLOMON:   No, your Honour, what we have is this ‑ ‑ ‑

HER HONOUR:   Do you say they do not record the real terms of the agreement?

MR SOLOMON:   Yes.

HER HONOUR:   Then that is a matter for rectification, is it not?

MR SOLOMON:   No.

HER HONOUR:   Why not?

MR SOLOMON:   It is a matter where – because they are plainly not complete.  The contract is partly written and partly oral.  One cannot even make ‑ ‑ ‑

HER HONOUR:   I presume, Mr Solomon, you have some basic knowledge of elementary contract law, do you?

MR SOLOMON:   Yes, your Honour.

HER HONOUR:   Good.  Do they misrecord the terms of the agreement?

MR SOLOMON:   They do not completely record the terms of the agreement.

HER HONOUR:   Very well, then.  Do you say that those terms were later varied?  Do you say the provision whereby you apparently agreed to pay on demand misrecords the agreement that was then made, or do you say that provision was subsequently varied?

MR SOLOMON:   There is nothing wrong, with respect, your Honour, from having a document that says one will pay on demand, coupled with an oral term that says demand will not be made until a certain time.  Now, what paragraph 18 ‑ ‑ ‑

HER HONOUR:   Very well, very well.  Then, do you say that that oral term was made later or it was simply not recorded in the agreement?

MR SOLOMON:   It is page 29 of the appeal book before the Full Court and it is paragraph 18 of Mr Lukin’s affidavit in support of the application before the Master to set aside the statutory demand.  It is paragraph 18.3 and 18.4 in which he deposed that Mr Ho Swee Huat, who was a director of the present respondent,

told me he would arrange the loan –

that is a loan to repay this loan –

through OUB –

an overseas bank called the Overseas United Bank –

to whom a Standby Letter of Credit from –

another bank –

would be satisfactory, particularly in light of his and the respondent’s previous relationship –

and it is then said that, 18.4:

the loan transaction was completed after ‑ ‑ ‑

HER HONOUR:   I do not know that I have that document, as such?

MR SOLOMON:   You should have a file marked “Bundle of Materials for Applicant’s Stay Application” and under tab 5 there is a complete copy of the appeal book that was before the Full Court, and it is page ‑ ‑ ‑

HER HONOUR:   I was in general terms aware of the evidence, but does that evidence go to say that the contract was later varied?

MR SOLOMON:   No, before, it is paragraph 18.4 on page 29, your Honour, of the ‑ ‑ ‑

HER HONOUR:   Page 59?

MR SOLOMON:   Page 29, there are numbers up at the top right in that book.

HER HONOUR:   Yes.

MR SOLOMON:   Paragraph 18.3 I just read, and the answer to your Honour’s question is paragraph 18.4:

the loan transaction proceeded after, and in light of, these discussions.

HER HONOUR:   Yes, well  ‑ ‑ ‑

MR SOLOMON:   And:

the applicant relied on the assurance given by Ho Swee Huat that the respondent would arrange the Standby Letter of Credit –

The point was we were to borrow money ‑ ‑ ‑

HER HONOUR:   Are you asserting, then, an estoppel?

MR SOLOMON:   Indeed, indeed.

HER HONOUR:   Very well.

MR SOLOMON:   It could be put in three different ways, your Honour.  The contract partly ‑ ‑ ‑

HER HONOUR:   No, I do not want you to tell me how it could be put.  I want you to tell me how it is put.

MR SOLOMON:   All right.  Well, it is put this way:  that the contract is partly written and partly oral, number one; further or alternatively, that there is an estoppel; further or alternatively, that there is misleading or deceptive conduct.  All of those matters ‑ ‑ ‑

HER HONOUR:   Very well, it has at all stages been open to you to institute proceedings to give effect to those claims, has it not?

MR SOLOMON:   Well, I am not so sure that it is at this stage appropriate for a defendant in this country to start proceedings to enforce such an estoppel.

HER HONOUR:   You are not a defendant, you are a corporation who has received a statutory demand and you are presently an applicant for extraordinary relief in this Court.

MR SOLOMON:   Well, my answer, your Honour, is simply this.  We never faced a claim.  We faced a statutory demand.  We opposed it and we opposed it successfully and it was set aside and we then faced an appeal from a decision to set it aside rather than a claim and there is no occasion, with respect, for us to start proceedings to pursue an estoppel which is defensive against a claim which has never been pursued in properly constituted proceedings to determine that issue.

The statutory demand procedures are not appropriate to determine that issue.  Once there is a genuine dispute, the matter should simply be that the statutory demand is set aside.  If the claimant wants to rely on insolvency, they prove insolvency without that debt and they pursue it otherwise.  So, with respect, your Honour, there was no occasion, in fairness, for us to start proceedings to assert a defensive estoppel.

HER HONOUR:   It was not a question whether there was occasion.  There was a question whether there was opportunity and I take it there is both opportunity to assert at least some of those claims by way of independent action.  There is an opportunity to resist the winding up, albeit perhaps on limited grounds, and these are matters that bear upon both the question as to the principles applicable to a stay of an order of the kind in question and as to the appropriateness of the grant of a stay.

MR SOLOMON:   All right.  Well, with respect, I can only say this to that.  We have faced a statutory demand under a Code which requires the court to set it aside if there is a genuine dispute.  When we face that, what is the appropriate response if we want to show a genuine dispute is to start the proceedings that are laid down in the Corporations Law to show a genuine dispute.  That is what we did and we succeeded.  Now, that was done quickly and summarily.  At all times after that we were facing nothing except an appeal from that decision and what is the appropriate response to a party who receives a statutory demand supported by affidavit and not by a judgment is to take the proceedings that the Code requires, to set aside the statutory demand.

With respect, it would not be an appropriate response to suggest that what a party served with a statutory demand should do is start separate full‑blown proceedings unless and until the summary procedure in the Corporations Law is resolved, that is – and the summary procedure is to resolve is there a genuine dispute or is there not?  If there is no genuine dispute, then we face winding up.  We oppose the statutory demand by bringing the proceedings that the Corporations Law warrants and there is no occasion to start substantive proceedings on our part.  With respect, that is the way the Corporations Law should be construed.

HER HONOUR:   No, there was none then but I am talking about the period, the opportunity to do so in lieu of approaching this Court for a stay of proceedings in circumstances in which the finding against you is that there is not a genuine dispute.

MR SOLOMON:   Well, your Honour, I would have great concern that that would amount to a collateral attack on the Full Court’s order.  That because the Full Court has, in fact, reversed a decision setting aside the statutory demand, the statutory demand stands.  Section 495S is mandatory.  It prevents us relying upon the grounds that were used to oppose the statutory demand and short of us bringing this ‑ ‑ ‑

HER HONOUR:   Unless relevant to the question of insolvency.  Unless with leave ‑ ‑ ‑

MR SOLOMON:   I am sorry?

HER HONOUR:   Unless with leave if they are relevant to the question of solvency.

MR SOLOMON:   That is right.

HER HONOUR:   Yes.

MR SOLOMON:   That is right.  There is a limit on our ability to now defend the winding‑up application which is in 459S(2).

HER HONOUR:   Yes, but there is still nonetheless an opportunity, if you bring yourself within the terms of the Act.

MR SOLOMON:   That is defending the winding‑up application.

HER HONOUR:   Yes.

MR SOLOMON:   The point is whether we can bring separate proceedings to try and enforce ‑ ‑ ‑

HER HONOUR:   And in circumstances in which it is said there is no genuine dispute you are faced with written documentation.  You do not assert that those documents should be rectified.  You do not assert that there should be an injunction to restrain the presentation of a petition.  You do not bring proceedings in the Federal Court asserting false and misleading conduct, which you assert to be the case, and yet you seek a stay against a finding of lack of genuineness and I am putting to you that this is not the sort of thing which ought to attract the grant of a stay if there are other courses open.

MR SOLOMON:   Well, all I can say, your Honour, is the other courses that you are mentioning involve us pursuing substantive proceedings which may and should never have been necessary.  If the correct decision was that there was a genuine dispute, then we would not have to pursue such proceedings to try and pursue a defensive equity as a plaintiff or anything of the sort.  We simply would not face what we now face.

So that would really, with respect, go right against the spirit of this part of the Corporations Law, which is to provide a summary method by which genuinely undisputed debts can form the subject of a winding‑up application, but if there is a genuine dispute then they cannot, and there is a procedure laid down to bring an application, if one is served with such a notice, to test whether it is genuine or not.  If it is genuine, that should be the end of it.  The right to rely on the statutory demand is gone.

Now, we did that.  We then face an appeal which in itself, with respect, is somewhat extraordinary.  The appeal has taken many, many months.  The person who served the statutory demand has not gone away and sued us in the ordinary way.  We have acted reasonably, with respect, in opposing the appeal.  We are not satisfied with the Full Court’s order and we simply want, if there is a special leave point, for the High Court to articulate what should happen under this particular section of the Code, of the Corporations Law, and to say that what we should do is to go away and start substantive proceedings and seek an interim or interlocutory injunction to restrain the presentation of the winding‑up application, which would necessarily cut across the very terms of section 459S.

My concern is that is a collateral attack and we could not pursue it, quite apart from whether the Court ought to require that substantive proceeding, rather than simply determine finally whether or not the Full Court was right in deciding there was no genuine dispute, and the fact that there is even a possible argument there raised on the affidavit as to those possible remedies on all of the other authorities should be enough to entitle us to a holding that there is a genuine dispute and that if this respondent wants to ‑ ‑ ‑

HER HONOUR:   Well, you are trespassing again into the merits of the appeal or the application for special leave rather than the application for a stay.

MR SOLOMON:   Well, that is true but if we do not have the stay, the application for special leave is essentially nugatory because what we face is a winding‑up application with a presumption against us which is what we are seeking to have, whether we should face that or not, is what we are seeking to determine on the special leave application.  We will not be able to be granted the relief we want if we face ‑ ‑ ‑

HER HONOUR:   Well, that much is obvious.  That much is obvious.

MR SOLOMON:   Yes, and, your Honour, to the extent I have to show a possibility of merit with the special leave application to get the stay, I do not mean to ‑ ‑ ‑

HER HONOUR:   Yes.  Well, if you are dealing with that, please go on.

MR SOLOMON:   I do not mean to transgress into trying to argue the special leave application.  I am only dealing with it to the point of showing there is some merit in the application.

HER HONOUR:   Very well.

MR SOLOMON:   So what the facts show, your Honour, from that paragraph 18 is this, that it was a complicated transaction which was outlined.  We were borrowing money from the respondent and the respondent – and we were to invest it on a long‑term basis in a company that we are both interested in, that is in shares.  So we are in a sense borrowing short and lending long and what is arranged is that they will arrange us to take out a long‑term loan from a foreign bank to repay them and then we will then owe the money to the foreign bank.

The foreign bank requires a stand‑by letter of credit from them in order to give us the loan to pay them back.  We are sent the loan agreement and we sign it and send it back but they have not given the stand‑by letter of credit that is required to be given to the bank that will lend us the money to pay them back and yet they simply serve a statutory demand and we say in the paragraphs I have shown to your Honour and the papers showed as well that there was no doubt that we were sent a form of stand‑by letter of credit.  We asked them and we asked them in writing to get on with it.

They do nothing and then months and months later, we having signed the loan agreement, they serve a statutory demand and we say, “Well, please, hang on a moment.  You agreed to provide a stand‑by letter of credit which would enable a loan to us to pay you back.  We have used the money and dealt with it on a long‑term basis so it is not readily liquid money.”  And they are the assurances that are deposed to.  Surely that was a genuine dispute.  You cannot determine it simply on these brief affidavits and nor in a Code that requires the court to go no further than find a genuine dispute.

If they find a genuine dispute, they must set aside the statutory demand.  That is what 459J says.  That is as far as these short proceedings go.  Instead, the Master found that.  One judicial officer agrees with us.  The Full Court has made effective final determination of this matter so that we now cannot rely upon the matters that are raised in the affidavit unless it goes to solvency and our simple point, your Honour, is without the stay we

cannot get the relief we want.  It is appropriate for the High Court to articulate clearly what is the appropriate response of first instance or intermediate appellate courts in dealing with these applications.

We have differing decisions now and this is probably at the high‑water mark of how you can find no genuine dispute in circumstances as we have here and the inherent jurisdiction is appropriately invoked and to require us to go away and pursue original proceedings in another jurisdiction and seek an injunction is, one, inappropriate with the summary intentions of that part of the Code; secondly, it creates great difficulty in the collateral attack on the Full Court’s judgment; and what is appropriate is to say, “Well, why should there not be a stay?”, which is what I said at the end of the submissions.

We applied to Justice Ipp, who was a member of the Full Court.  He declined the application and we have gone to the court from which we are bringing this application first.  We have satisfied that.  We have a respondent who, faced with a decision of a Master to set aside the statutory demand, did not go away and institute proceedings against us to pursue this debt, but chose to appeal over a period of nearly a year, cannot be said to face any real significant detriment through us having a stay until we can at least get a decision from the High Court as to whether the High Court will grant a special leave.

As I have said in the submission, I certainly would not oppose an order for expedition of the special leave application.  If we do not get special leave, fine.  That is the end of it.  We then are stuck with 459S(2) or we are stuck with significant problems of collateral challenge if we pursue separate proceedings, but the balance surely lies in our favour to have a stay at least long enough that we do not face a winding up based upon this summary determination.  If it please your Honour, I do not think I can take it any further.

HER HONOUR:   Yes, thank you, Mr Solomon.  Mr Vaughan, do you have anything to say?

MR VAUGHAN:   Your Honour, just a couple of comments in addition to my written submissions.  I would just like to draw your Honour’s attention to 459C of the Corporations Law which contains the statutory presumption of insolvency arising from a failure to comply with a statutory demand and it says in subsection (2) of that section that the statutory presumption arises effectively for the three‑month period prior to the institution of the winding‑up application.  So there is a limited window of opportunity, if I can put it like that, for the current respondent to make use of that statutory presumption.

There is then, your Honour, in 459R, a statutory requirement that an application for winding up be determined within six months of its institution.  Now, the time limit in 459R can be extended by order of the court and it can be extended more than once, but that is the background, your Honour.  If my learned friend is right and the order which he is seeking special leave to appeal from is amenable to a stay, and we say it is not, then we will be left in an invidious position.  As things currently stand, a statutory demand is effective and a failure to comply with it has occurred.

If we are prevented from a proceeding without more and my learned friend fails to obtain special leave, where do we stand then?  The failure to comply with a statutory demand has occurred just recently, in April.  Let it be assumed that the special leave application might be heard sometimes after six months.  We would be out of time.  If we had not already started a winding‑up application, we would be out of time for making that application on that statutory demand because a failure to comply would have long since occurred and the three‑month period would have elapsed.

Similar comments could be made in relation to the six‑month period.  We would be able to get extensions then.  So it is not true to say, in our submission, that we are not harmed by a stay and we do submit that, as his Honour Justice Finkelstein has said in the Gourmet Sausage Case, that this is not an order which is amenable to a stay.  There is simply nothing to stay.  There is no further action to be taken apart from taxing costs and my learned friend does not appear to take any point about that.

In respect of the merits of the application, your Honour, my learned friend has addressed you at length on that but, in essence, we say the position is very simple and the Full Court has found it to be simple.  The Full Court found that there was no evidence which was admissible that could give rise to any of the assertions which have been made on behalf of the present applicant and on that basis there was no genuine dispute.  Now, my learned friend can address you at length as to what he thinks his case is, but the evidence is discussed at length by their Honours in the Full Court and it is quite clearly demonstrated that what is sought to be asserted by the present applicant is not founded on evidence and this is a typical example of a court simply examining what is put before it and determining, your Honour, whether or not – another way of putting it, is there a serious question to be tried?  In my submission, there is no dispute as to the law.  The Full Court in this case does not differ from recent decisions and I can you to the actual ‑ ‑ ‑

HER HONOUR:   No, I do not think that is necessary, Mr Vaughan.

MR VAUGHAN:   Yes, I am obliged to your Honour.  So our position is simply that there is no difference in the law as stated by the Full Court and

as, indeed, applied by the Full Court.  There is, in fact, simply no evidence to found the assertions made by the present appellant.  There is no differing decisions.  There is no reason why this case should attract the interest of the High Court at all, bearing in mind that that is what my learned friend has to establish in obtaining his application for special leave.  What we have at present is a statutory demand which is valid and is found to be so and we are entitled simply to rely on it.

My learned friend, as your Honour has pointed out, has other remedies.  He can – I am not suggesting he should, but he can seek adjournments of the winding‑up petition until after the hearing of his special leave application.  He could, as your Honour has suggested, seek injunctions and none of those are extraordinary and all of them have been referred to in the cases which are on both my learned friend’s list and my list of authorities.  In our submission, there is no reason for this Court to assist the present applicant and certainly not to grant a stay when to do so would cause prejudice to the respondent.  If it please your Honour.

HER HONOUR:   Yes, thank you, Mr Vaughan.  Anything in reply, Mr Solomon?

MR SOLOMON:   Yes, very briefly, your Honour.  If you have the Corporations Law there ‑ ‑ ‑

HER HONOUR:   Yes, I have it.

MR SOLOMON:   ‑ ‑ ‑ just the point about prejudice.  The important section here is section 459K.  That provides:

A statutory demand has no effect while there is in force under section 459H or 459J an order setting aside the demand.

Master Sanderson’s order, I think I said earlier it was 459J.  I made a mistake.  It is 459H(3) that requires the court to set aside the demand.  So the point is when you read 459H(3) with 459K and then the period ‑ ‑ ‑

HER HONOUR:   I do not think it is 459H(3).

MR SOLOMON:   With 459K.

HER HONOUR:   Yes.

MR SOLOMON:   The point is Master Sanderson had made an order setting aside the demand and 459K says that the “demand has no effect while there is in force” an order.  I am seeking a stay of the effect of the Full Court’s order which would leave Master Sanderson’s order in situ. 

The result is time is not running under 459K if the stay is granted because the period that my learned friend referred you to in 459C(2), which provides that:

The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application is made:

(a)  the company failed (as defined by section 459F) to comply with a statutory demand –

that is 459C(2)(a).  The statutory demand had no effect during the period that Master Sanderson’s order was in place because of 459K and if a stay were granted that effect will continue, that is time will not run against them.  So the order I am seeking would have the effect of the Full Court’s order not have effect; Master Sanderson’s order will continue.  That will mean 459K ‑ that the statutory demand does not have effect and time does not run under 459C.  So the prejudice that my learned friend suggests, in fact, does not exist.  The stay would itself cure that.

Of course, the other side of that coin is that any other relief granted by another court in original jurisdiction such as granting of an injunction or otherwise cannot have the statutory effect of 459K.  This is a Code and the only type of order which can have the effect that section 459K refers to is an order under 459H or 459J, which is what Master Sanderson made and which, if we get the stay of the effect of the Full Court’s order, would continue.  There is no jurisdiction in original jurisdiction otherwise than under this Code to prevent the effect that my learned friend mentioned, that a stay would cause him no prejudice.  As it please the Court.

HER HONOUR:   Having regard to the nature of the decision which is the subject of the application for special leave, and which decision is not determinative of substantive rights and issues, and having regard also to the consideration that that decision does not automatically result in the company being placed in liquidation, it is not appropriate, in my view, to stay the effect of the Full Court order if, indeed, that can be done, pending the hearing and determination of an application for special leave.  Accordingly, the application for a stay is refused. 

Should the costs be costs of the application?

MR VAUGHAN:   My submission, your Honour, is that the costs be the respondent’s costs in the application or the respondent’s costs in any event.

HER HONOUR:   I am minded, I think, Mr Vaughan, in view of the nature of the decision – I think it is appropriate that it be costs in the application.  We will see how it works out then.

MR VAUGHAN:   If it please your Honour.

HER HONOUR:   You do not oppose that, do you, Mr Solomon?

MR SOLOMON:   No, your Honour, with respect, it is entirely appropriate.

HER HONOUR:   Thank you.  The costs of this application will be costs of the special leave application. 

The Court will now adjourn.

AT 4.21 PM THE MATTER WAS CONCLUDED