Gryst v Dromana Estate Ltd - [2008] FCA 1148

FEDERAL COURT OF AUSTRALIA
Gryst v Dromana Estate Limited (ACN 090 000 276), in the matter of Dromana Estate Limited [2008] FCA 1148
CORPORATIONS – Ch 5 Pt 5.4 of the Corporations Act 2001 (Cth) – s 459P application to wind up in insolvency – operation of s 459C(2)(a) presumption of insolvency – whether statutory demand ‘stale’ – application summarily dismissed
Federal Court of Australia Act 1975 (Cth) s 31A(2)
Corporations Act 2001 (Cth) ss 459A, 459B, 459C(2)(a), 459F, 459G, 459P
Federal Court Rules O 20 r 5
Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd (2008) 243 ALR 207 cited
David Grant & Co Pty Limited (rec apptd) v Westpac Banking Corporation (1995) 184 CLR 265 cited
Pinn v Barroleg Pty Ltd (1997) 138 FLR 417 applied
Deputy Commissioner of Taxation v Tixana Pty Ltd (2003) 202 ALR 401 applied
Hardel Property Holdings Pty Ltd v Allmark Property Management Pty Ltd (2008) 26 ACLC 122 cited
Re Turf Enterprises Pty Ltd [1975] Qd R 266 cited
Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) (2004) 185 FLR 130 cited
Ford’s Principles of Corporations Law
IN THE MATTER OF DROMANA ESTATE LIMITED (ACN 090 000 276)
WILLIAM FAIRLEIGH GRYST v DROMANA ESTATE LIMITED
(ACN 090 000 276)
No SAD 78 of 2008
FINN J
6 AUGUST 2008
ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

SAD 78 OF 2008

IN THE MATTER OF DROMANA ESTATE LIMITED (ACN 090 000 276)

BETWEEN:

WILLIAM FAIRLEIGH GRYST
Plaintiff

AND:

DROMANA ESTATE LIMITED (ACN 090 000 276)
Defendant

JUDGE:

FINN J

DATE OF ORDER:

6 AUGUST 2008

WHERE MADE:

ADELAIDE

THE COURT ORDERS THAT:
1.The originating process be dismissed.
2.The defendant file and serve submissions on costs and any affidavit on which it intends to rely on or before Monday, 11 August 2008.
3.The plaintiff file and serve submissions on costs and any affidavit on which he intends to rely on or before Monday, 25 August 2008.
4.The defendant file and serve any reply on or before Monday, 1 September 2008.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

SAD 78 OF 2008

IN THE MATTER OF DROMANA ESTATE LIMITED (ACN 090 000 276)

BETWEEN:

WILLIAM FAIRLEIGH GRYST
Plaintiff

AND:

DROMANA ESTATE LIMITED (ACN 090 000 276)
Defendant

JUDGE:

FINN J

DATE:

6 AUGUST 2008

PLACE:

ADELAIDE

REASONS FOR JUDGMENT

The present interlocutory process seeks orders including the summary dismissal under s 31A(2) of the Federal Court of Australia Act 1975 (Cth) or else the stay or dismissal under O 20 r 5 of the Federal Court Rules of an application made under s 459P of the Corporations Act 2001 (Cth) to wind up the defendant company, Dromana Estate Limited. It is unnecessary for me to refer to further alternative orders proposed.
BACKGROUND
Statutory Demand Proceedings
On 29 November 2007 the plaintiff served a statutory…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2008] FCA 1148
Decision Date: 6 August 2008

CaseChat Overview and Summary

The interlocutory process in Gryst v Dromana Estate Ltd involved a dispute between the plaintiff, Gryst, and the defendant, Dromana Estate Limited. The plaintiff sought to wind up the defendant in insolvency under the Corporations Act 2001 (Cth) on the basis that the defendant had failed to comply with a statutory demand. The defendant opposed the winding up application on the grounds that the statutory demand was stale and therefore could not found the presumption of insolvency required to justify the winding up application. Additionally, the defendant argued that the plaintiff lacked standing to apply to wind up the company due to an offsetting claim and that the defendant was solvent. The matter was before the Federal Court of Australia, which was required to determine the legal issues surrounding the validity of the statutory demand and the plaintiff's standing to apply for the winding up of the defendant.

The court was required to decide whether the defendant's failure to comply with a stale statutory demand without more could found the plaintiff's application to have the defendant wound up in insolvency under Chapter 5 Part 5.4 of the Corporations Act. The court also needed to determine whether the plaintiff had standing to make the winding up application, considering the defendant's offsetting claim, and whether the defendant was solvent. The provisions of the Corporations Act and relevant case law, particularly Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd (2008) 243 ALR 207, were central to the court's consideration of these issues.

The court found that the defendant's failure to comply with a stale statutory demand without more could not found the plaintiff's application to have the defendant wound up in insolvency. The court held that the statutory demand was stale because the defendant's application to set it aside was served out of time, and the time for compliance with the demand was extended to 21 days after the demand was served, not 7 days after the decision dismissing the application to set it aside. Furthermore, the court found that there was a significant and genuine dispute between the parties in relation to the debt, which undermined the plaintiff's standing to apply for the winding up of the defendant. The court also considered the defendant's solvency, but this was not the primary basis for its decision.

The court dismissed the originating process and ordered the parties to file and serve submissions on costs and any affidavits on which they intended to rely. The defendant was required to file and serve its submissions on or before 11 August 2008, while the plaintiff had until 25 August 2008 to file and serve its submissions. The defendant was also required to file and serve any reply on or before 1 September 2008. This outcome effectively halted the winding up proceedings initiated by the plaintiff against the defendant.

Orders

Orders of the court

1. The originating process be dismissed.

2. The defendant file and serve submissions on costs and any affidavit on which it intends to rely on or before Monday, 11 August 2008.

3. The plaintiff file and serve submissions on costs and any affidavit on which he intends to rely on or before Monday, 25 August 2008.

4. The defendant file and serve any reply on or before Monday, 1 September 2008.

Background

Background to the litigation

The present interlocutory process seeks orders including the summary dismissal under s 31A(2) of the Federal Court of Australia Act 1975 (Cth) or else the stay or dismissal under O 20 r 5 of the Federal Court Rules of an application made under s 459P of the Corporations Act 2001 (Cth) to wind up the defendant company, Dromana Estate Limited. It is unnecessary for me to refer to further alternative orders proposed. BACKGROUNDStatutory Demand Proceedings On 29 November 2007 the plaintiff served a statutory demand in an amount of $164,285.74 on the defendant. The amount claimed to be owed is in respect of a contract for services between the plaintiff and the defendant in which the plaintiff was engaged as group general manager of the defendant. On 20 December 2007 the defendant filed in the Supreme Court of Victoria an application to set aside the demand. That application was not served until 21 December 2007. This was one day beyond that specified in s 459G(3)(b) of the Corporations Act for service on the person who served the demand on the company. On 29 May 2008 the Supreme Court of Victoria dismissed the application to set aside the statutory demand on the basis that the application was served out of time and “the Court had no jurisdiction”. Winding Up Proceedings By an originating process filed on 10 June 2008 the plaintiff made an application under s 459P of the Corporations Act for Dromana to be wound up in insolvency “relying on failure by the company to comply with a statutory demand”. The accompanying affidavit in turn referred only to Dromana’s alleged indebtedness to Mr Gryst and to the failure to comply with the statutory demand. The application clearly was formulated with “the presumption of insolvency” in mind. Section 459C(2)(a) of the Corporations Act provides:(2)The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made: (a)the company failed (as defined by section 459F) to comply with a statutory demand. On 10 July 2007 the defendant filed a notice of appearance setting out the following grounds of opposition to the winding up proceedings:(1)The statutory demand cannot found a presumption of insolvency under s 459C(2)(a) of the Corporations Act because it is stale. In this regard the application to set the statutory demand aside was not made “in accordance with s 459G” as it was served out of time and the time for compliance with the statutory demand was, in consequence, 21 days after the statutory demand was served on the plaintiff, not 7 days after the decision dismissing the application to set aside the statutory demand: cf s 459F(2)(b).(2)Further or in the alternative, the plaintiff has no standing as of right to make an application to wind up the defendant under s 459P of the Corporations Act because the defendant has an offsetting claim against the plaintiff and the plaintiff is therefore not a creditor, or alternatively, only a contingent creditor.(3) Further or in the alternative the defendant is solvent.The defendant also filed the present interlocutory process on 10 July 2007.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

FINN J

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Established by: FINN J

The affidavit in support of the interlocutory process annexed a number of communications between the parties which suggest that the failed application to set aside the statutory demand was based upon a claimed genuine dispute in relation to the debt the subject of the statutory demand. It also annexes a copy of a writ dated 27 June 2008 issued out of the Supreme Court of Victoria in which the defendant sought unspecified damages from the plaintiff in relation to what is claimed to be a breach of an agreement between the plaintiff and the defendant for the plaintiff to act as the defendant’s group general manager and his failure in the course of that to exercise reasonable, proper or professional skill and diligence or act in the best interests of the defendant. Further material filed in support of, and in opposition to, the interlocutory process (which it is unnecessary to enlarge upon here) suggests that there is a significant and genuine dispute between the parties in relation to the debt. CONSIDERATION Both parties made oral submissions in this matter and Dromana filed detailed written submissions. I mean no disrespect in not outlining those submissions here. Given the state of authority binding on me or which as a matter of comity I consider I should follow, the issue raised before me is not open to serious contest. The short point raised in this matter is whether Dromana’s failure to comply with a stale statutory demand without more can found Mr Gryst’s application to have it wound up in insolvency under Ch 5 Pt 5.4 of the Corporations Act. The provisions of that Part have been the subject of considerable judicial attention most recently by the High Court in Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd (2008) 243 ALR 207. To foreshadow what I have to say, central to the scheme of that Part is the device of the statutory demand the failure to comply with which, unless successfully challenged, gives rise both to a basis for winding up a company in insolvency and the s 459C(2)(a) presumption of insolvency. By way of background s 459F and s 459G of the Act provide:459F(1)If, as at the end of the period for compliance with a statutory demand, the demand is still in effect and the company has not complied with it, the company is taken to fail to comply with the demand at the end of that period. 459F(2)The period for compliance with a statutory demand is: (a)if the company applies in accordance with section 459G for an order setting aside the demand: (i)if, on hearing the application under section 459G, or on an application by the company under this paragraph, the Court makes an order that extends the period for compliance with the demand – the period specified in the order, or in the last such order, as the case requires, as the period for such compliance; or (ii)otherwise – the period beginning on the day when the demand is served and ending 7 days after the application under section 459G is finally determined or otherwise disposed of; or (b)otherwise – 21 days after the demand is served. SECTION 459G COMPANY MAY APPLY 459G(1)A company may apply to the Court for an order setting aside a statutory demand served on the company. 459G(2)An application may only be made within 21 days after the demand is so served. 459G(3)An application is made in accordance with this section only if, within those 21 days: (a)an affidavit supporting the application is filed with the Court; and (b)a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD 78 OF 2008

BETWEEN:	WILLIAM FAIRLEIGH GRYST Plaintiff
AND:	DROMANA ESTATE LIMITED (ACN 090 000 276) Defendant

JUDGE:	FINN J
DATE OF ORDER:	6 AUGUST 2008
WHERE MADE:	ADELAIDE

JUDGE:	FINN J
DATE:	6 AUGUST 2008
PLACE:	ADELAIDE