Kay Investment Holdings Pty Ltd v North East Developments Pty Ltd (in liq) - [2011] NSWSC 1121

Supreme Court

New South Wales

Medium Neutral Citation: In the matter of Kay Investment Holdings Pty Ltd - Kay Investment Holdings Pty Ltd v North East Developments Pty Ltd (in liq) [2011] NSWSC 1121
Hearing dates: 9 September 2011
Decision date: 19 September 2011
Jurisdiction: Equity Division - Corporations List
Before: Ward J
Decision:
Statutory demand set aside

Catchwords: CIVIL PROCEDURE - application for stay of hearing pending application for leave to appeal interlocutory order - HELD - application refused in exercise of discretion - CORPORATIONS - application to set aside statutory demand on grounds that it defective and that genuine dispute/off-setting claim - HELD - statutory demand set aside
Legislation Cited: Corporations Act 2001 (Cth)
Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth)
Retail Leases Act 1994 (NSW)
Supreme Court (Corporation) Rules 1999 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited: Adeels Palace Pty Ltd v Moubarah; Adeels Palace Pty Ltd v Najeem (No 2) [2009] NSWCA 130
Alexander v Cambridge Credit Corporation (1985) 2 NSWLR 685
Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175
Australian Securities and Investments Commission v Vines (2005) 55 ACSR 617; 23 ACLC 1387; [2005] NSWSC 738
B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433
Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd [2005] NSWSC 638
Buckland Products Pty Ltd v Deputy Commissioner of Taxation of the Commonwealth of Australia [2003] VSCA 85
Business To All Australia Pty Ltd v North East Developments Pty Ltd (receivers and managers appointed) [2011] NSWSC 668
Cameron v Cole [1994] HCA 5; (1944) 68 CLR 571
Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporises Pty Ltd (1994) 13 ACSR 37
Chief Commissioner of Stamp Duties v Paliflex Pty Ltd [1999] NSWSC 15; (1999) 149 FLR 179
Corporate Affairs Commission (Vic) v Bracht [1989] VR 821; (1988) 14 ACLR 728
CP York Holdings Pty Ltd v The Food Improvers Pty Ltd [2009] NSWSC 409
Craig v Kanssen [1943] 1 KB 256
DAG International Pty Ltd v DAG International Group [2005] NSWSC 1036
David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265
Edge Technology Pty Ltd v Lite-on Technology Corporation (2000) 34 ACSR 301
Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; 12 ACLC 669
First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939
Fitness First Aust Pty Ltd v Dubow [2011] NSWSC 531
Gain Rural Holdings Pty Ltd v Commonwealth Development Bank of Australia Ltd (1997) 141 FLR 238
Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456
Grant Thornton Services (NSW) Pty Ltd v St George Wholesale Distributors Pty Ltd [2008] FCA 1777
Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452
Guardian Group Australia Pty Ltd v Alice Lu and Anor [2005] NSWSC 1299
Holpitt Pty Ltd v Swaab (1992) 33 FCR 474; 6 ACSR 488
Hornet Aviation Py Ltd v Ansett Australia Ltd (1995) 16 ACSR 445
Hoskins v Van Den-Braak and ors [1998] NSWSC 80
HVAC Construction (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd (2002) 44 ACSR 169
J Canon Australia Pty Ltd v Young Bros Pty Ltd [2009] NSWSC 842
Jem Developments v Hansen Yuncken [2006] NSWSC 1378; (2006) 60 ACSR 393
Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 122 ALR 717; 13 ACSR 787; 12 ACLC 490
LSI Australia Pty Ltd v LSI Holdings (2007) 25 ACLC 1602, [2007] NSWSC 1406
Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743
Magjarraj v Asteron Life Ltd [2009] NSWSC 1433
Master Paving Pty Ltd v Heading Contractors Pty Ltd (1997) 193 LSJS 1; 15 ACLC 1025
Micallef v ICI Australia Operations Pty Ltd [2001] NSWCA 274
NA Investment Holdings Pty Limited v Perpetual Nominees Limited [2010] NSWCA 210
Onefone Australia Pty Ltd v One Tel Ltd [2007] NSWSC 268
Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896
Partnership Pacific Ltd v Killen (NSWCA unreported 112/79)
Perpetual Nominees Ltd v Masri Apartments Pty Ltd [2004] NSWSC 551; (2004) 49 ACSR 719
Process Machinery Australia Pty Ltd v ACN057 262 590 Pty Ltd [2002] NSWSC 45
Rainbow and Nature v Bronson and Jacobs [2006] NSWSC 217
Re Fratelli 's Fresh Pasta Pty Ltd [2011] NSWSC 576
Re Future Life Enterprises Pty Ltd (1994) 33 NSWLR 559
Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601
Re Rick Wilson & Co Pty Ltd (1982) 7 ACLR 354
Re Satellite Group Ltd [2000] NSWSC 984; (2000) 35 ACSR 565
Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452
Sultana Investments Pty Ltd v Cellcom Pty Ltd [2009] NSWSC 392
Switz Pty Ltd v Glowbind Pty Ltd; Glowbind Pty Ltd v Switz Pty Ltd [2000] NSWCA 37
Sycotex Pty Ltd v Baseler (1994) 122 ALR 531; 13 ACSR 766
Tatlers.com.au Pty Ltd v Davis [2006] NSWSC 1055; (2006) 203 FCR 473
Taylor v Taylor (1979) 143 CLR 1
Texel Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 298; (1993) 11 ACSR 535;
Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527; (2004) 185 FLR 130
Topfelt Pty Ltd v State Bank of NSW (1993) 47 FCR 226; 12 ACSR 381
Trad v Harbour Radio Pty Ltd [2010] NSWCA 41
Vacuum Oil Co Pty Ltd v Stockdale (1942) (NSW) 239 at 243
Warragamba Winery Pty Ltd v State of NSW [2010] NSWCA 174
Web Wealth Pty Ltd v Helimount Pty Ltd [2006] FCA 1376
White v Overland [2001] FCA 1333
Willard King Organisation (1978) Pty Ltd v CT Franchises Pty Ltd [2009] NSWSC 97; (2009) 69 ACSR 612
Texts Cited: Austin and Black, Annotations to the Corporations Act
Australian Corporation Law Principles & Practice
Australian Law Reform Commission, Discussion Paper No 32 (August 1987) General Insolvency Inquiry
Ford's Principles of Corporations Law
Osborn's Concise Legal Dictionary (11th edn)
Ritchie's Commentary on Uniform Civil Procedure Rules
Category: Principal judgment
Parties: Kay Investment Holdings Pty Ltd (Plaintiff)
North East Developments Pty Ltd (Defendant)
Representation: Counsel
V R W Gray (Plaintiff)
C R de Robillard (Defendant)
Solicitors
Corporate & Civil Legal (Plaintiff)
Herbert Geer (Defendant)

File Number(s): 11/050106

Judgment

HER HONOUR: Listed before me for hearing on 9 September 2011 was an application by Kay Investment Holdings under s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand dated 25 January 2011 and served on it on 31 January 2011 by the defendant (North East Developments), a company which is in liquidation and to the assets and undertaking of which a receiver/manager was appointed in 2008. Kay Investment was the lessee of shopping centre premises owned by North East Developments at Toongabbie under a lease commencing on 1 January 2010 with an initial five-year term.

The debt claimed in the statutory demand was in the amount of $74,245.20 and described in the schedule thereto as:

Debt owing by the Company as lessee pursuant to a lease between the Company and the Creditor registered with the Land and Property Management Authority and allocated Registration Number AF62812 for the period 1 January 2010 to 31 December 2014

The affidavit accompanying and verifying the statutory demand was sworn by Mr Craig Gallie, who has deposed that he is the Centre Manager employed by North East Developments and that in his position as such he is authorised by North East Developments and the Receiver and Manager of the company (Mr Brian Silvia) to make the affidavit on the creditor's behalf.

On 15 February 2011, Kay Investment commenced these proceedings seeking an order setting aside the statutory demand. That application was accompanied by an affidavit sworn by Mr Andrew Kathestides, the director of Kay Investment. In that affidavit, Mr Kathestides deposed to various pre-lease representations that he said were made to him and had induced Kay Investment to enter into the lease of the premises and to expend approximately $400,000 on the fitout of the premises. At [17] of his affidavit he deposes that he does not know how the sum claimed in the demand has been calculated. At [18] he deposes that:

Kay Investment disputes its liability to pay to North East the sum of $74,245 or any other sum and is to institute proceedings under the Retail Leases Act based upon the facts matters and circumstances referred to in this affidavit seeking an order that its lease of the Demised Premises be set aside de novo and that all rents and other moneys paid to North East be refunded

The bases on which Kay Investment now seeks to set aside the statutory demand are, first, that it does not comply with s 459E(2)(a) and is thus defective and, secondly, that there is a genuine dispute as to the basis of the debt on which the statutory demand is based and Kay Investment has an off-setting claim which exceeds the debt claimed in the statutory demand.

On 1 April 2011, Kay Investment commenced proceedings in the Administrative Decisions Tribunal (as had been foreshadowed in Mr Kathestides' affidavit). (Counsel for North East Developments, Mr de Robillard, concedes that the existence of those proceedings, which I am told have been listed for hearing in October this year, is indicative of a dispute between the parties but submits that this dispute only crystallised after the statutory demand was issued.)

Kay Investment's application to set aside the statutory demand (to which I will refer as the statutory demand application) was first listed for hearing on 7 June 2011 before Windeyer AJ. North East Developments had at that stage filed a submitting appearance. On that occasion, there was no appearance on behalf of Kay Investment and the statutory demand application was dismissed (whether or not at the instance of North East Developments is unclear). Mr de Robillard accepts that on that occasion there was no attempt made by North East Developments or its representatives to contact the representatives of Kay Investment to ascertain the reason for its non-attendance in court on the hearing of its own application for relief. I was informed by Mr de Robillard that he could put it no higher than that there was the basis for an assumption that Kay Investment did not intend to proceed on the statutory demand application due to a perceived non-compliance by Kay Investment with directions for the service of documents in the Tribunal proceedings. (I say "perceived non-compliance" because Mr de Robillard informed me that his instructing solicitors had subsequently discovered that such material had indeed been served at their offices. A similar misunderstanding seems to have been the basis on which evidence was put before me to support one of the grounds initially relied upon by North East Developments on its present stay application - that being in relation to the alleged lack of service of the initial originating process on North East Developments, though this complaint was not pressed after the document was located in the solicitors' offices.)

Kay Investment's ignorance of the matter having been listed for hearing did not come to light until after the statutory demand application had been dismissed. In part, this was due to the failure of North East Developments to comply with the requirements of Practice Note Eq 1 for the service of outlines of submissions and the like within a specified time prior to the hearing (since if that had occurred then Kay Investment's legal representatives would have been alerted to the listing). In part it may be said to be due to a failure by Kay Investment's representatives to make any enquiry as to the listing of the matter, although there was no obligation as such on them to do so. Not surprisingly, Kay Investment failed to comply with the Practice Note, since it was not aware of the listing. (Mr de Robillard suggested that the defendant's non-compliance with the practice note may have been that it was waiting for documents to be served by the plaintiff in that regard - though the practice note does not provide for the sequential service of such documents.)

On 15 July 2011, Kay Investment brought an application to set aside the orders dismissing its statutory demand application on the basis of denial of procedural fairness as it said that it had not been aware that the matter had been listed for hearing on 7 June 2011. Its solicitor filed an affidavit deposing to the fact that notification had not been received by him and (on information and belief) that notification had not been received by Mr Gray of Counsel who was briefed to appear in the matter. (Mr Gray submits that to apply to vacate the order made by Windeyer AJ was the correct procedure for Kay Investment to adopt (as opposed to seeking to appeal against the order), citing Re Rick Wilson & Co Pty Ltd (1982) 7 ACLR 354 at [356] per McLelland J, as his Honour then was.)

Meanwhile, however, North East Developments had filed a winding up application invoking the statutory presumption of insolvency which arose (having regard to s 459F(2)(a)(ii)) seven days after the determination of Kay Investment's statutory demand application (i.e. on 14 June 2011).

The application by Kay Investment to set aside Windeyer AJ's orders, together with the winding up application filed by North East Developments, came before White J on 12 August 2011. His Honour heard the former application and delivered ex tempore reasons for judgment on 15 August 2011, setting aside the orders made by Windeyer AJ (with retrospective effect as from 7 June 2011) and his Honour listed the application to set aside the statutory demand for hearing, together with the winding up application for mention, on 9 September 2011. His Honour expressly drew the parties' attention to the requirements of the then recently amended Practice Note in relation to the service of documents prior to the hearing (with which North East Developments again failed to comply in a timely fashion - Mr de Robillard stated that this was because he was working on the stay application to which I refer below and which, if successful, would render documents in relation to the statutory demand application otiose at this stage).

When the matter came before me, Mr de Robillard, pressed an application by his client (filed on 5 September 2011) for a stay of the statutory demand application on the basis that his client had (on 2 September 2011) filed a notice of intention to appeal from the judgment of White J. That stay application was opposed by Kay Investment.

In the interests of the just, quick and cheap determination of the real issues in dispute, I took the view that I should hear both the stay application and then (it being my preliminary view that a stay should not be granted) the statutory demand application before reserving judgment on both applications. I now publish my reasons.

Issues

The issues before me are, first, whether to grant a stay of the application by Kay Investment to set aside the statutory demand (pending the foreshadowed appeal by North East Developments) and, secondly, if no such stay is granted, whether the statutory demand should be set aside either because it is defective or because there is a genuine dispute or off-setting claim.

Summary

For the reasons set out below, I am of the view that a stay should not be granted and that the statutory demand should be set aside pursuant to s 459G of the Corporations Act (on the basis that there is a genuine dispute or off-setting claim). The statutory demand procedure under Part 5.4 of the Act is not a debt collection mechanism and, technical though the process is acknowledged to be, it operates on the basis that a party on whom a statutory demand will have an opportunity (should it bring an application within the specified time) to have determined at an early stage the issue as to whether the statutory demand should be set aside (so as to leave winding up cases to those properly before the Court). In the present case, that opportunity (for reasons due to what seems to have been an administrative error, whether on the part of Kay Investment's legal representatives or on the part of the court) was not made available to Kay Investment.

It does not seem to me to be inconsistent with the policy underlying the statutory demand procedure explained in Switz Pty Ltd v Glowbind Pty Ltd; Glowbind Pty Ltd v Switz Pty Ltd [2000] NSWCA 37 (to which I refer later in these reasons) to afford Kay Investment the opportunity to present its case on the statutory demand application. Nor, in my view, would it be consistent with the modern-day (no-ambush) approach to litigation recognised by Allsop J (as his Honour then was) in White v Overland [2001] FCA 1333 (albeit in a different context) to prevent it from so doing simply in order to enable North East Developments to preserve a presumption of insolvency (that, if the challenge to the statutory demand is unsuccessful, may shortly arise in any event).

I set out below the reasons for the conclusions I have reached, on the issues before me.

(i) Stay application

Mr de Robillard identified the principal reason for the stay that is now sought as being that the appeal foreshadowed against the interlocutory judgment of White J will be rendered nugatory if the stay is not granted because by then North East Developments will have lost the benefit of the statutory presumption invoked in its winding up process. He submitted that, on the balance of convenience, the position of Kay Investment is not prejudiced by a stay of its (revived) statutory demand application because it remains open to it to argue on the winding up application the issues that it seeks now to argue on the statutory demand application (ie that there was a genuine dispute in relation to the debt claimed in the statutory demand). (Mr de Robillard did, however, concede that the means to argue such matters might be reduced having regard to s 459S of the Act.) In other words, what North East Developments is seeking to do is to pursue an appeal from the decision of White J (in which his Honour ex debito justitiae set aside the orders that had been made dismissing the statutory demand application) so that, if that appeal is successful, it can rely on the statutory presumption of insolvency in its current winding up proceedings (though conceding that there is presently a dispute between the parties as to the existence of the debt claimed in the statutory demand or the existence of an off-setting claim, which will be heard by the Tribunal shortly).

Mr de Robillard further submitted that, insofar as one of the issues that would be determined on the statutory demand application is whether there was a genuine dispute, that will shortly be resolved in any event because the Tribunal proceedings have been set down for hearing on or about 17 October 2011. (Pausing there, the fact that the Tribunal might dismiss the claim by Kay Investment would not of itself mean that the dispute had not been a genuine one - which seems to be what is suggested by this submission. Dismissal of the Tribunal proceedings would be consistent simply with a finding on the balance of probabilities that Kay Investment had failed to establish its claims not as to the genuineness of the claims having been brought in the first place.)

Background Facts

I have briefly summarised the background to the present dispute above. Insofar as Mr Kathestides deposed as at February 2011 that he was unaware as to the how the sum claimed in the statutory demand had been calculated, Mr de Robillard submits that this is inconsistent with the fact that, by letter dated 7 December 2010, the solicitors acting for North East Developments had written to the solicitor acting for Kay Investment (referring to the vacation of the premises by Kay Investment on 4 December 2010 and removal of the fitout therefrom), in which they had asserted that the conduct of Kay Investment amounted to a repudiation of the lease and that, in accordance with clause 2.4 of the lease, the benefit of the rent-free period (from 1 January to 17 August 2010) had been lost and the amount of $114,741.81 was due and owing for immediate payment). On my reading of this letter, it seems clear that the monetary amount there specified (ie $114,741.81) was the amount that would, but for the rent-free period, have been payable by way of rent for the 8 month rent-free period. However, the letter did also assert that costs incurred in re-letting the premises would be payable "together with any resultant shortfall in rent and other charges" and foreshadowed the commencement of proceedings seeking damages for misleading and deceptive conduct in relation to the negotiation of the lease "and subsequent conduct" (which leaves open the possibility that there might be additional components of the debt claimed than just the 8 months' rent).

By letter dated 3 February 2011, Kay Investment's solicitors responded (noting their instructions to commence proceedings to set aside the demand and to commence proceedings in the Retail Tenancy Tribunal and requesting a comprehensive breakdown of the calculation of the amount claimed). In that letter they asked whether the amount took into consideration the bank guarantee and whether the amount claimed was in full and final payment of all the lease obligations.

Presumably in recognition of the availability of the bank guarantee to meet the debt claimed in the statutory demand, a call was then made on the guarantee and the statutory demand was then issued for the lesser amount (of approximately $74,000).

By affidavit sworn 5 September 2011, Mr Kathestides has deposed that the bank guarantee was for a sum of $40,837.50 and has reiterated that when he received the demand he did not know exactly what the figure represented, how it had been calculated or what it comprised (deposing to his understanding from reading the 7 December letter that the lessor intended to claim the cost of re-letting; any resultant shortfall in rent and other charges and $114,841.81 as the loss of the benefit of the rent-free period; less the amount of the bank guarantee, in respect of a period to 31 December 2014). (There does not appear to be an exact mathematical correlation between the respective amounts.)

The background to the present dispute also includes the fact that there was an earlier dispute between the parties in relation to the premises that was referred to mediation on the application of Kay Investment in May 2010. The nature of that dispute (as set out in the application for mediation) was that the lessee disputed the entitlement of the lessor to have issued a Notice of Default and Notice of Intention to draw on Bank Guarantee - those notices apparently relating to a delay in the lessee having opened for business in the shopping centre. In its application for mediation, Kay Investment sought the withdrawal of those notices and that the lessor both honour the rent-free period and extend it "for the time of delay contributed by the Landlord". The subject matter of this dispute thus appears to be removed from that foreshadowed in Mr Kathestides' affidavit in support of the application to set aside the statutory demand and apparently the subject of the present Tribunal proceedings.

This dispute was resolved at mediation by entry into a Deed on 23 June 2011 under which Kay Investment undertook various obligations in relation to the opening of the pharmacy premises, including the provision of a substitute bank guarantee by 17 August 2010, and North East Developments agreed (subject to compliance by the lessee with its obligations under the deed) to withdraw the notices it had issued. North East Developments also agreed not to call upon the bank guarantee and to take steps to inform the relevant bank that it no longer wished to call upon the bank guarantee.

Clearly, the measure of agreement reached between the parties in June 2010 did not last long, given that the premises were vacated by Kay Investment in early December 2010 (just over 3 months after rent first became payable under the terms of the lease, under the operation of the rent-free provision).

Judgment of White J

The application before White J was brought under r 36.16(2)(b) of the Uniform Civil Procedure Rules 2005, that rule (applicable to the proceedings by virtue of r 1.3 of the Supreme Court (Corporation) Rules 1999) permitting the Court to set aside or vary a judgment or order after it has been entered if it was given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order.

The circumstances in which the matter came initially to be listed for hearing before Windeyer AJ are set out in his Honour's judgment and I do not need to repeat them other than to note that the allocation of the hearing date was made in chambers by the Corporations List judge and the parties' representatives were to be notified by email of that listing. Email notification of the hearing date (and of the making of the usual order for hearing in accordance with Practice Note SC Eq 1, noting the requirements of Practice Note SC Eq 2) was sent on 12 April 2011. However, apparently due to an error in the email addresses given or used for that purpose, Kay Investment's legal representatives did not receive notification of the listing. (North East Developments' representatives did but, as noted earlier, did not comply with the usual rule for hearing.) Therefore, the problem did not come to light prior the date fixed for hearing (7 June 2011). Kay Investment's representatives apparently did not query the delay in notification of a listing date in the 2 month period from 11 April 2011 (when the matter had been before the Court for the allocation of a hearing date), a matter to which Mr de Robillard points as indicating a degree of fault on the part of Kay Investment.

Part 29 rule 7 of the Uniform Civil Procedure Rules applies when a party is absent at the time the trial is called on for hearing. There is power to dismiss the proceedings (where a plaintiff is absent), the effect of which is to dismiss the application on its merits (see Ritchie's commentary [29.7.15]. (The authors go on to cite Magjarraj v Asteron Life Ltd [2009] NSWSC 1433 as authority for the proposition that a party fails to appear for the purpose of that rule if it fails to provide an apparently credible reason for its absence. Here, of course, no explanation was proffered at the time for the very reason of the non-attendance - namely, that Kay Investment had no notice of the listing.) Ritchie's commentary goes on to note that the Court has a discretion to refuse an application to set aside a verdict or judgment made under this rule (noting that the Court will not set aside a judgment regularly obtained unless the defendant is able to show prima facie that there is a good defence on the merits - there citing Vacuum Oil Co Pty Ltd v Stockdale (1942) (NSW) 239 at 243 - but not addressing the position where the plaintiff's claim has been similarly dismissed).

In his reasons for judgment, White J noted at [12]) that in Cameron v Cole [1994] HCA 5; (1944) 68 CLR 571, Rich J said at [589]:

It is a fundamental principle of natural justice, applicable to all courts whether superior or inferior, that a person against whom a claim or charge is made must be given a reasonable opportunity of appearing and presenting his case. If this principle be not observed, the person affected is entitled, ex debito justitiae, to have any determination which affects him set aside ... The setting aside of the invalid determination lays the ghost of the simulacrum of a trial, and leaves the field open for a real trial. (my emphasis)

White J was not satisfied in the circumstances of the case that Kay Investment had been given a reasonable opportunity of appearing and presenting its case. His Honour observed that the fact that the failure to do so was a result of administrative error did not make it less fundamental. His Honour considered that, having regard to what was said in Cameron v Cole , Kay Investment was entitled ex debito justitiae to have the orders of 7 June 2007 set aside. (His Honour added that if it were necessary for Kay Investment also to establish that there were reasonably arguable grounds for its claim, that requirement would, in any event, be satisfied on the material read on the present application; the tests for establishing a genuine dispute or an offsetting claim not being demanding.)

White J went on to consider the question as to the effect of setting aside the orders made on 7 June 2011 and noted, having regard to s 459F(2), that although the effect of such an order would be that the originating process would not be treated as having been dismissed, a presumption of insolvency would have arisen in accordance with s 459F(2)(a)(ii) on 14 June 2011 (that being 7 days after the application under section 459G had been finally determined or otherwise disposed of); his Honour noting that an order of a superior court is not a nullity.

His Honour referred to Buckland Products Pty Ltd v Deputy Commissioner of Taxation of the Commonwealth of Australia [2003] VSCA 85, where (at [9]) Phillips JA, with whom Chernov and Eames JJ agreed, held that an application was "finally determined" within the meaning of s 459F(2)(a)(ii) when the Master's order was made notwithstanding that the determination was subject to appeal.

His Honour also referred to Jem Developments v Hansen Yuncken [2006] NSWSC 1378; (2006) 60 ACSR 393, where Austin J noted the case law to the effect hat an application under s 459G is "finally determined or otherwise disposed of" for the purposes of s 459F(2)(a)(ii) when the judicial officer hearing the case at first instance makes final orders after hearing the application.

White J said:

In this case there was no substantive hearing of the application. The case is obviously different from one in which a plaintiff has been heard but wishes to appeal. It is open to such a plaintiff to seek an order extending the period for compliance with the demand. In the present case the plaintiff had no such ability. It did not know that the orders had been made setting aside its originating process. Hence it did not have the opportunity to seek any extension of the period for compliance with the demand in order so that its application to set aside the orders of 7 June 2011 could be determined.

His Honour went on to refer to rule 36.4(3), which provides that the court may order that a judgment or order is to take effect as of a date earlier or later than the date fixed by those sub rules, noting that in the commentary to Ritchie's (at [36.16.90]) the view was expressed that where an order is set aside or varied under r 36.16, the Court should make an order under rule 36.4(3) specifying the date the new order takes effect, and that it will usually be appropriate to order that the new order take effect as at the date of the original order (referring to Re Future Life Enterprises Pty Ltd (1994) 33 NSWLR 559).

White J concluded that:

In my view there would be utility in making an order setting aside the orders of 7 June 2011 with retrospective effect. Although I am aware of no authority on the question, it seems to me that if an order were made that the orders of 7 June 2011 be set aside by an order expressed to take effect on 7 June 2011, it could not then be said that the application under s 459G had been finally determined or otherwise disposed of.

His Honour noted that this left North East Developments in an invidious position, having filed an originating process on 1 July 2011 seeking an order that Kay Investment be wound up in insolvency, in reliance on the service of the statutory demand and dismissal of the application on 7 June 2011 for the setting aside of the statutory demand (since the effect of the order he was proposing to make would be "that the presumption of insolvency had not arisen when the originating process for winding-up was filed, even though as at 1 July 2011 it could properly be said, as matters then obtained, that the presumption of insolvency had arisen") but observed that this was a necessary consequence of making the order with retrospective effect. In that regard, White J said:

I do not think that any hardship to the defendant in this regard outweighs the injustice that would otherwise obtain if the plaintiff's application to set aside the statutory demand remains undetermined without a proper hearing. To a certain extent the defendant is not without fault. Had the defendant complied with the usual order for hearing, its service of the pre-trial documents would have alerted the plaintiff's legal representatives to the pending hearing date. But even without that consideration, the interests of justice require that the plaintiff have the reasonable opportunity for its claim to be determined on its merits.

If the order were not set aside, the plaintiff would not necessarily be wholly without remedy. It could seek leave in the winding-up proceedings pursuant to s 459S of the Corporations Act to oppose the winding-up application on a ground on which it could have relied for the purposes of the application to set aside statutory demand. However, it would have to establish that the grounds on which it sought to set aside the statutory demand were material to proving solvency. Moreover, if it were successful in an application under s 459S, that would not mean that the presumption of insolvency was removed. The possibility of an application under s 459S is not a sufficient reason not to make an order under r 35.16(2)(b) with retrospective effect . (my emphasis)

His Honour proceeded to set aside the orders made on 7 June 2011 and did so with retrospective effect such that those orders were to operate from 7 June 2011.

Grounds of Appeal

It is not disputed that White J's decision was interlocutory in nature and not final. That being the case, pursuant to s 101(2) of the Act, leave would be necessary from the Court of Appeal for an appeal against that decision to be brought. In Micallef v ICI Australia Operations Pty Ltd [2001] NSWCA 274 at [45], Heydon JA, then sitting in the Court of Appeal, (with the agreement of Sheller JA and Studdert J) noted what must be demonstrated for an appeal against an interlocutory order to succeed (namely, that there had been an error of legal principle; a material error of fact; some irrelevant matter had been taken into account; a failure to take into account, or gave insufficient weight to, some relevant matter, or the result was so unreasonable or unjust as to suggest that one of the foregoing categories of error had occurred, even though the error in question did not explicitly appear on the face of the reasoning.)

In Warragamba Winery Pty Ltd v State of NS W [2010] NSWCA 174 at [6], confirmed the principles stated in Micallef and said that it was "well established that parties who seek to challenge a discretionary interlocutory decision on a matter of practice and procedure ... face a difficult task".

In the present case, the Notice of Intention to Appeal was filed on 2 September 2011 (at which stage a certified copy of his Honour's ex tempore reasons was not available). Annexed marked "C" to the affidavit affirmed 2 September 2011 of North East Developments' solicitor (Ms Catherine Treweeke) is a copy of the draft notice of appeal. The appeal grounds are there stated as follows: that his Honour erred in law when he applied the ex debito justitiae principles to the facts of the case; that his Honour did not at law have the power to make his order retrospective to 7 June 2011; and that the exercise of his Honour's discretion miscarried.

As to the first ground, two particulars are given: first, that North East Developments had already served a summons for winding up (a matter to which his Honour had adverted in his reasons); and, secondly, that the failure to have the statutory demand set aside did no more than define "where the burden of proof lies in winding up proceedings"; neither matter on its face seemingly going to why, as a matter of law, it is said that his Honour erred in applying the ex debito justitiae principles.

Mr de Robillard informed me that the essence of the appeal will be the extent of the power exercised by White J under the ex debito justitiae principles in circumstances where the application to be heard before Windeyer AJ was an application by Kay Investment (ie this was not a situation where a defendant was deprived of an opportunity to be heard; rather, it was a case where the plaintiff simply did not appear to prosecute its claim). Mr de Robillard submitted that the ex debito justitiae principles arise where there is a substantial right to be heard (as the concept of a "right" is defined in Osborn's Concise Legal Dictionary (11 th edn)) not where there is a claim sought to be made by the party who failed to appear. Mr de Robillard also foreshadowed an argument that the Rules (under which the Court has power to set aside judgments and to make orders with retrospective effect) cannot displace the strict procedures and time schedules imposed by s 459F of the Corporations Act . He maintains that there is only a very limited 'right' to challenge a statutory demand under the statutory scheme.

Reference was made by Mr de Robillard to the analysis of the principles in Cameron v Cole by the Court of Appeal in Hoskins v Van Den-Braak and ors [1998] NSWSC 80, ( Mason P, Priestley JA, Beazley JA at page 6), where the case before their Honours was one where neither the appellant nor anyone acting on his behalf was served with the cross claim on which judgment was given against him and it was said that since he was not properly joined in the proceedings they were a nullity so far as he was concerned. Their Honours cited Rich J's judgment in Cameron v Cole and went on to note Craig v Kanssen [1943] 1 KB 256 at [262] where reference was made to the inherent jurisdiction to set aside a determination made where there has been a failure to observe the principle that a person against whom a charge or claim is made must be given a reasonable opportunity of appearing and presenting his or her case. Their Honours noted that in Taylor v Taylor (1979) 143 CLR 1, Gibbs J said (at 8) that "It is clear that the majority of the Court in Cameron v Cole accepted that a court, whether superior or inferior, has inherent power to set aside an order made against a person who did not have a reasonable opportunity to appear and present his case."

In Taylor, Mason J said (at 16):

Although the Family Court is a court created by statute it none the less possesses an inherent jurisdiction to set aside a judgment obtained by default. ... A jurisdiction to set aside its orders is inherent in every court unless displaced by statute. In my opinion the jurisdiction extends not only to the setting aside of judgments which have been obtained without service or notice to a party ( Craig v Kanssen [1943] KB 256 at 262-263) but to the setting aside of a default or ex parte judgment obtained when the absence of the party is due to no fault on his part. I can find no indication in the Family Law Act of an intention to displace this inherent jurisdiction.

(His Honour's comments did not there suggest that the inherent jurisdiction was restricted to judgments entered against defendants.)

Mr de Robillard relied on the above authority for the submission that insufficient weight was placed by White J on the question of fault when his Honour set aside the orders made on 7 June 2011 (emphasising that the ex debito justitiae principles were invoked in Cameron v Cole in circumstances where the party had been denied a hearing with no fault on its part).

As to the particulars put forward in relation to the first ground of appeal, Mr de Robillard explained this as raised "in the context of delay in finding out about it being complete", by which I understood him to be submitting that it will be argued that his Honour had not given sufficient weight, when applying the ex debito justitiae principles, to the disadvantage that would be suffered by North East Developments by reason of the loss of the statutory presumption of insolvency having regard to the fact that there were by then insolvency proceedings on foot and that these were predicated on the presumption of insolvency. As to the second particular, it is submitted that this goes to the argument that to the extent that it would be open to Kay Investment to raise on the winding up application issues of the kind on which it relies to set aside the statutory demand, namely that this is relevant to whether or not there was a substantial right affected by the failure to afford Kay Investment a hearing on 7 June 2011.

Mr Gray submits that the first of the particulars relied upon for the first proposed ground of appeal is not an error of law but, at most, a discretionary factor and amenable to recompense in costs if, in the exercise of the Court's discretion, it were considered just to make the order now sought by Kay Investment. As to the s 459S contention, it is submitted that (contrary to Mr de Robillard's submission) the failure to have the statutory demand set aside does have the effect potentially of denying Kay Investment the ability to defend the winding up proceedings on a number of grounds, which I consider in due course.

As to the second ground of appeal (namely that there was not power to make the order retrospective), Mr Gray submits that this is plainly wrong in law (having regard to Part 36 Rule 16 and referring to Re Future Life Enterprises Pty Ltd (1994) 33 NSWLR 559 at 563D per McLelland CJ in Eq; and Onefone Australia Pty Ltd v One Tel Ltd [2007] NSWSC 268 at [37] per Barrett J).

As to the third ground of appeal, namely that there was a miscarriage in the exercise of his Honour's discretion, Mr Gray submits that the matters articulated in the particulars to paragraph 3 of the draft notice of appeal are, at best, discretionary matters the weight to be attributed to each, in the matrix of circumstances, being a matter for the trial judge. Reliance is placed in this regard on the principles espoused in Micallef . Mr Gray emphasises that in that factual matrix one must also take into account the evidence that Kay Investment had no knowledge that a date had been fixed for the hearing of its application. Thus it is submitted that Kay Investment cannot be criticised for non-appearance on 7 June 2011 or for not complying with procedural requirements based upon that date (by way of example), when it was ignorant of that date. It is further noted that the situation where a party is ignorant of the trial date is one of the very situations contemplated by Part 36 Rule 16(2)(b).

It is submitted by Mr Gray that it cannot be said that White J's decision was so unreasonable or unjust as to suggest that any of the errors of the kind considered in Micallef must have occurred. He submits that the critical issue between the parties for present purposes is whether Kay Investment had a legal obligation to comply with the statutory demand (referring to Re Fratelli 's Fresh Pasta Pty Ltd [2011] NSWSC 576).

It is further submitted that for White J not to have set aside Windeyer AJ's order (where Kay Investment had an arguable case which ought to be heard and had been ignorant of the original trial date allocated for the hearing of the matter) would itself have been a manifest miscarriage of justice.

Pausing there, although his Honour concluded that Kay Investment was entitled ex debito justitiae to have the orders set aside, he also expressed the view that had it been necessary for it to have established that there were reasonably arguable grounds for its claim (in order to seek to have the orders set aside under Part 36 r 16), then that requirement was met on the material before him. Therefore, whether or not, as Mr de Robillard contends, the ex debito justitiae principles were applicable as a matter of law, to a case in which it was the plaintiff's application that was dismissed, it seems clear from his Honour's reasons that the same result would have been reached.

I turn then to the issues now to be determined.

(i) Stay

In Adeels Palace Pty Ltd v Moubarah; Adeels Palace Pty Ltd v Najeem (No 2) [2009] NSWCA 130, Hodgson JA affirmed that the principles on which a stay of a judgment or order may be granted are those set out in Alexander v Cambridge Credit Corporation (1985) 2 NSWLR 685 (namely that, prima facie, the successful party is entitled to the benefit of a judgment but a stay may be granted where the applicant demonstrates an appropriate case to warrant the exercise of discretion in its favour) but said that even where the usual requirements for a stay are met (there speaking of the requirements in the context of a stay in connection with an application for special leave to appeal to the High Court) the onus remains on an applicant to demonstrate "a proper basis for a stay that will be fair to all parties".

As to the fairness of the stay sought by North East Developments, Mr Gray submits that this is an application in which it seeks to retain the benefit of an order made in the absence of its opponent (which had no knowledge of the hearing date having been fixed) where, had North East Developments complied with its obligations under the Usual Order For Hearing under Practice Note Eq 1 (to provide written outline submissions at least five working days prior to the allotted hearing date) the original situation would never have arisen.

Mr Gray submits that where an appeal is brought against a final judgment or order, then in order to justify a stay of the order, it must be shown that there is an arguable case that the appeal will be successful (relying upon Trad v Harbour Radio Pty Ltd [2010] NSWCA 41 at [48] per Tobias JA). In Trad, Tobias JA said (from [46]):

The relevant principles applicable to a stay application were referred to by this Court (Kirby P, Hope and McHugh JJA) in Alexander v Cambridge Credit Corporation Ltd (Receivers appointed) (1985) 2 NSWLR 685 at 693-695. Particular reliance was placed by the defendant upon the following passage from the joint judgment at 695:

"Secondly, although courts approaching applications for a stay will not generally speculate about the appellant's prospects of success, given that argument concerning the substance of the appeal is typically and necessarily attenuated, this does not prevent them considering the specific terms of a stay that will be appropriate fairly to adjust the interest of the parties, from making some preliminary assessment about whether the appellant has an arguable case. This consideration is protective of the position of a judgment creditor where it may be plain that an appeal, which does not require leave, has been lodged without any real prospect of success and simply in the hope of gaining a respite against immediate execution upon the judgment."

In Chen v Lym International; Chen v Marcolongo [20091 NSWCA 121, Beazley JA, sitting as the referrals judge, observed (at [15]) that the comment by the Court in the passage which I have recorded above, indicates that there is no necessary requirement that the Court determine whether there is an arguable case on the appeal although it may be relevant in determining whether it is appropriate to grant a stay. Her Honour then remarked:

"In the present climate, where legal practitioners have a statutory obligation not to bring proceedings that do not have reasonable prospects of success: the Legal Profession Act 2004 s 347, this particular consideration may be one that the courts can approach with less scrutiny. It will depend upon the circumstances of the particular case. The court will always be concerned to ensure that its processes are not used inappropriately, for example, by permitting a defendant from keeping a successful plaintiff out of the fruits of his/her litigation victory by seeking a stay in respect of a hopeless appeal. ... The primary consideration in the court's determination will be whether the applicant for the stay has discharged the onus of demonstrating that there is a proper basis for the stay."

I respectfully agree with her Honour's remarks. In particular, the relevance of whether the appellant has an arguable case may well turn on whether the appeal is merely for the purpose of keeping a successful plaintiff out of the fruits of his/her victory by seeking a stay in respect of what is a hopeless appeal ...

As the discussion in Trad makes clear, whether there is an arguable case for appeal is of relevance (though may not be necessary to be shown in all cases) where a stay is sought.

Where, as here, the appeal is sought to be brought against an interlocutory order, Mr Gray submits that a stay will not normally be ordered against an interlocutory decision where the trial of the substantive issues will be delayed (referring to Partnership Pacific Ltd v Killen (NSWCA unreported 112/79 - Ritchie's [456,165). In Partnership Pacific, Moffitt P, Reynolds and Hutley JJA dismissed an ex parte application for expedition of an appeal in respect of an interlocutory decision given by the trial judge in proceedings then about to commence on an application to set aside a subpoena to produce documents. Moffitt P noted that there had been no claim for a stay of the proceedings and said that had there been it would have been refused, expressing concern at the interruption or attempted interruption of the proceedings by applications of the kind there sought to be invoked.

I doubt that the circumstances in Partnership Pacific are directly analogous (as here there was not a lengthy proceeding about to begin which was threatened to be interrupted by the application for a stay). Nevertheless, Mr Gray submits that where the hearing of the (reinstated) application to set aside the statutory demand was listed on 15 August 2011 by White J to be heard on 9 September 2011 (and submissions in support of the application to set aside the statutory demand were served by Kay Investment on 26 August 2011) but the stay application was not served until 5 September 2011 in reliance upon a notice of intention to appeal filed on 2 September 2011 in which the stated intention is to commence appeal proceedings on or before 14 November 2011, this is inconsistent with s 56 of the Civil Procedure Act and Practice Note Eq 4 (Corporations List) at [29].

It is submitted that the filing of a notice of intention to appeal one week before the date fixed for the hearing of the statutory demand application and the application for a stay of the present proceedings until the appeal is heard and determined (which may not be until some time in 2012) brings this case within the principle in Aon Risk Services v Australian National University (2009) 239 CLR 175 (though it is conceded that, unlike Aon , this is not an amendment application), since the effect of a stay would be to defer the hearing of the statutory demand application for months.

On the application for a stay, while I cannot say that there is not an arguable case for appeal on the issue as to whether, as a matter of law, the ex debito justitiae principles were applicable in the circumstances of the present case, it seems to me that it is relevant to take into account that even had those principles not applied his Honour appeared to be minded to grant the relief under the power contained in Part 36 r 16 (and made it clear that, to the extent that it were necessary to consider whether there was an arguable case for the setting aside of the statutory demand, he was satisfied that there was). Similarly, while I cannot exclude the possibility that there is an arguable case as to the exercise of the power to set aside the June 2011 orders with retrospective effect, there seems to have been recognition that an extension of time for compliance could be obtained in appropriate cases to preserve the position pending an appeal from a decision not to set aside a statutory demand in Buckland and that may also be an order of a kind which, under the Rules, might be able to be given retrospective effect.

It is therefore by no means clear that even if an appeal on the grounds presently contemplated were to succeed this would have the effect of preserving the presumption of insolvency for all purposes. (There is also the prospect that the Court of Appeal might come to a different view on, say, the retrospective operation of the order setting aside the June 2011 orders but not the applicability of the ex debito justitiae principles per se, which would leave the parties back in the invidious position to which His Honour referred in his judgment.)

I accept that the refusal to grant a stay may to an extent operate to render the appeal nugatory in that if the stay is not granted and the application to set aside the statutory demand succeeds, then the basis for the present presumption of insolvency would fall away. However, I cannot agree that to grant the stay would cause no unfairness to Kay Investment (or that the balance of convenience lies in favour of a stay for that reason).

While the presumption of insolvency remains, there is doubt as to whether Kay Investment can rely (to resist a winding up application) on matters on which it has (through an administrative error and the fact that North East Developments apparently chose to capitalise on that error by proceeding on an assumption that Kay Investment was not intending to pursue the proceedings) been unable to raise in challenge to the statutory demand.

The thrust of Part 5.4 of the Corporations Act is to make, as far as possible, the procedure of applying under s 459G the only avenue for a company's objections to a statutory demand. Thus, it is recognised that a company receiving a statutory demand that has a reason for objecting to the demand cannot procrastinate or defer its objections until the hearing of the winding up application ( Ford's Principles of Corporations Law at [27.062]).

North East Developments' application for winding up, as noted, is based upon a failure to comply with a statutory demand served on Kay Investment. Under s 459C(2) the court must presume in those circumstances that the company was insolvent and that presumption operates except so far as the contrary is proved for the purposes of the application.

Under s 459S of the Corporations Act , for Kay Investment to oppose the winding up application on a ground on which it could have relied for the purposes of an application by it for the demand to be set aside but did not so rely on (whether it made such an application or not), leave of the Court is necessary and subs 2 provides that such leave is not to be granted unless the Court is satisfied that the ground is material to proving that the company is solvent.

The essential issues for consideration in determining an application for leave under s 459S were outlined by Austin J in Chief Commissioner of Stamp Duties v Paliflex Pty Ltd [1999] NSWSC 15; (1999) 149 FLR 179 at [49] and adopted by Brereton J in DAG International Pty Ltd v DAG International Group [2005] NSWSC 1036 as being, in summary:

(i) whether there is a serious question to be tried on the ground sought now to be raised;

(ii) the sufficiency of any explanation as to why that ground was not raised in an application to set aside the statutory demand (involving an evaluation of the reasonableness of the conduct of the debtor at the time when the application was or might have been made); and

(iii) whether the court is satisfied that the relevant ground is material to proving that the debtor is solvent.

(see also Austin & Black's Annotations to the Corporations Act at [5.459S] and Guardian Group Australia Pty Ltd v Alice Lu and Anor [2005] NSWSC 1299). The discretion conferred by s 459S is one which it has been said should be exercised cautiously and sparingly (see Switz and Paliflex ).

In the present case, I accept that Kay Investment may be in no worse position in establishing, in resistance to a winding up application, the first of those matters than it would be if it were now to be permitted to move on its statutory demand application (since in Guardian Group (at [69]) and DAG International (at [5]) , where the ground sought to be raised related to the existence of a dispute as to the claimed debt, Brereton J stated that this first issue "involves a preliminary consideration of the company's basis for contending that the debt is the subject of a bona fide dispute, though it does not require decision at this stage, whether there is, in fact, a bona fide dispute").

As to the second, while it may be difficult for North East Developments later to argue that there is not a sufficient explanation as to why the ground sought to be raised was not previously raised (when it has so forcefully sought to preclude the argument being run at this stage), there is authority where a failure of the company's solicitor to deal adequately with the demand has been held not to be an adequate explanation for the purposes of an application for leave under s 459S ( Re Satellite Group Ltd [2000] NSWSC 984; (2000) 35 ACSR 565) and therefore, to the extent that Mr de Robillard suggests that there was fault on the part of Kay Investment (or its representatives) in not checking whether and if so when the matter was listed for hearing, then this factor may prove problematic if Kay Investment later seeks to raise matters that it could have raised on its statutory demand application. Certainly, the reasonableness of a debtor's conduct seems to be able to be taken into account in considering the sufficiency of the reason why the ground was not raised earlier (as indicated in Perpetual Nominees Ltd v Masri Apartments Pty Ltd [2004] NSWSC 551; (2004) 49 ACSR 719); see also Grant Thornton Services (NSW) Pty Ltd v St George Wholesale Distributors Pty Ltd [2008] FCA 1777; Willard King Organisation (1978) Pty Ltd v CT Franchises Pty Ltd [2009] NSWSC 97; (2009) 69 ACSR 612.)

Be that as it may, the real scope for uncertainty seems likely to arise in relation to the requirement in sub-s (2) as to whether the ground later sought to be relied upon is material to proving that the company is solvent . This is a mandatory requirement. It has received considerable attention in the context of s 459S cases (see, among others, Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226; 12 ACSR 381; Texel Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 298; (1993) 11 ACSR 535; Master Paving Pty Ltd v Heading Contractors Pty Ltd (1997) 193 LSJS 1; 15 ACLC 1025).

There have been both 'narrow' and 'broad' approaches to the question of whether the ground sought to be relied upon is material to proving solvency, as summarised in the discussion in Austin & Black's Annotations to the Corporations Act, which I do not now repeat.

The weight of recent authority appears to lean towards the stricter (or narrower) construction to s 459S(2) (on which approach, for a ground to be 'material', it is must be 'pivotal', 'crucial' or determinative of solvency), as in Grant Thornton Services; Switz v Glowbind; HVAC Construction (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd (2002) 44 ACSR 169 ; Web Wealth Pty Ltd v Helimount Pty Ltd [2006] FCA 1376 at [43] - [45]).

Therefore, I do not consider that it can be said that the present stay application will not result in Kay Investment being in a worse position when it comes to defending a winding up application than it would have been had it been in a position to challenge the debt claimed in the statutory demand at the s 459G stage.

When balancing those factors against the prejudice suffered by North East Developments if its application for leave to appeal is rendered nugatory and it is unable to rely upon a presumption of insolvency obtained at a time when Kay Investment was not aware that the hearing was about to be determined in its absence (and North East Developments chose not to enlighten it of that situation), I consider that the proper exercise of discretion in this case is not to grant the application for a stay.

(ii) Application to set aside the statutory demand

Turning then to the application to set aside the statutory demand, as noted earlier Kay Investment relies on two main grounds: first, that the statutory demand does not comply with s 459E(2)(a) and is thus defective and, secondly, that there is a genuine dispute as to the basis of the debt on which the statutory demand is based and an off-setting claim which exceeds the debt claimed by North East Developments.

Alleged Defects

Mr Gray points to a number of alleged defects in the statutory demand.

First, though (deservedly) little weight was placed on this in oral argument, it is noted that the description of the debt on which the demand is based incorrectly specifies the registration number of the lease (stating that it is AF62812, when in fact it is AF628126). That can hardly be a defect likely to cause substantial injustice if the demand is not set aside. There is only one relevant lease and Kay Investment was well aware of it - hence, there is no room for confusion on this aspect of the matter.

Secondly, Mr Gray contends that the demand is defective because it fails unambiguously to specify the debt on which the demand is based (referring to the requirement in s 459E(2)(a) in this regard).

It is submitted that the description of the debt is ambiguous in that it is capable of referring to multiple different debts or possible debts and therefore that the actual debt has not been specified as required by the Act. Reliance is placed in this regard on Topfelt Pty Ltd ; Spencer Constructions v D&M Aldridge Pty Ltd (1997) 76 FCR 452; LSI Australia Pty Ltd v LSI Holdings [2007] NSWSC 1406; (2007) 25 ACLC 1602; and J Canon Australia Pty Ltd v Young Bros Pty Ltd [2009] NSWSC 842 at [10] - [11].

As support for the proposition that the present statutory demand fails unambiguously to specify the debt, reference was made to the fact that in Business To All Australia Pty Ltd v North East Developments Pty Ltd (receivers and managers appointed) [2011] NSWSC 668, a debt claimed in a statutory demand (issued by the very same entity as issued the present demand) in the very same words as that presently in dispute was submitted to refer to a claim for "... rent for the balance of the term of the lease subject to [the landlord's] obligation to mitigate its losses" and reference was there also made to a claim damages arising from the tenant's alleged repudiation of the lease.

In Business To All , Hammerschlag J considered to be well-founded the complaints made by the plaintiff in that case that the statutory demand was defective because: it did not specify the nature of the amount claimed under the lease by identifying any provision which gives rise to the claimed debt or otherwise; purported to claim as a debt an amount referable to the entire period of the lease which would (had it not been terminated earlier) have ended some five years away; and described the claim as a debt referable to a period of some years after termination of the lease. His Honour commented at [11] that the demand did not provide a clue as to the source of the obligation asserted.

Mr de Robillard submitted that no reliance could be placed on what another court had said as to another statutory demand in a different factual context but Mr Gray does not rely on the Business to All case as authoritative on the construction of the statutory demand in this case. Rather, he refers to that case as illustrative of the scope for uncertainty - in other words, if the very same words as those used in the present statutory demand have elsewhere been asserted (by the very same defendant) as referable to a claim of a different kind as the debt now claimed against Kay Investment, he submits that this reveals the ambiguity of such a description.

Relevantly, in the present case, although the debt referred to in the correspondence of December 2010 was fairly clearly a debt comprised by rent payable under the lease for the rent-free period (following the repudiation of the lease), the statutory demand itself refers to the period from 1 January 2010 to 31 December 2014, well beyond the end of the rent-free period.

In Topfelt Pty limited , albeit in a case where the defective description lay in the inability for the debtor to know how much it would have to pay in order to avoid the presumption of insolvency, Lockhart J said (at 396):

It is not asking too much that creditors who issue statutory demands under the Corporations Law should ensure that the demands are expressed in clear, correct and unambiguous terms. If the creditors wish to have the benefit of the presumption of insolvency, the least they can do is to tell the debtor companies in clear terms what amounts are due, whether they include interest or not, and, if so, the amount.

His Honour went on later to say :

... it is not the obligation of a debtor company to calculate the interest which the creditor calls upon him to pay; to make certain and specific something which the creditor has left uncertain and unspecified. Also, in winding up proceedings the court acts not merely inter partes, but in the public interest. An order for winding up operates in rem. It is in the public interest that provisions of the Corporations Law which require a statutory demand to state the amount of a debt that is due and payable, should be observed.

In Sultana Investments Pty Ltd v Cellcom Pty Ltd [2009] NSWSC 392, the Court approached the question by reference to whether there was room for doubt as to what the party issuing the demand required.

The present case is not one in which there is in reality any doubt on the face of the demand as to the amount that is required to be paid in order to avoid the presumption of insolvency. However, there is doubt as to what the debt there claimed comprises and I think there is room for confusion in that regard having reference to the specification of lease obligations for the whole of the 5 year term of the lease (which seems to go beyond any amount referable to the rent-free period). T he enquiry made in early February makes clear the concern as to precisely what was comprised by the debt as claimed in the statutory demand and I accept that there is room for confusion in that regard even though the December correspondence had referred to an amount in relation to the rent-free period. Therefore I consider that there is a defect in the demand in this regard and it is one that would warrant the demand being set aside (though, ultimately, I do not need to rely on this ground as the existence of a genuine dispute and off-setting claim seems to me to be beyond doubt).

The next alleged defect turns upon the verification of the statutory demand. The debt claimed in the statutory demand is not a judgment debt. Therefore, it is necessary, pursuant to s 459E(3), for the demand to be verified by an affidavit that complies with the rules. The requirement for an affidavit verifying the demand which satisfies the statutory requirements is a critical element of a valid demand ( B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Ltd (1994) 15 ACSR 433 at [435] - [436]; Fitness First Aust Pty Ltd v Dubow [2011] NSWSC 531 at [94]).

Mr Gray notes that the Corporations Regulations Schedule 2 Form 509H prescribe that an affidavit verifying a statutory demand made by a corporation is to be made by "a director or by the secretary or an executive officer of the corporation". Mr Gray submits that where, as here, a receiver has been appointed to a corporation, any statutory demand issued in the name of the corporation must be verified by an affidavit made either by the receiver or by an executive officer of the corporation. There is no evidence, beyond Mr Gallie's assertion, that he is authorised to represent the receiver in this fashion.

In the present case, the verifying affidavit was made by Mr Gallie, the Centre Manager employed by North East Developments. Mr Gallie is not a director or the secretary of the company. Is he an "executive officer" for the purposes of the section? In s 9 of the Act, the term "officer" is defined, relevantly, as meaning a person "who makes, or participates in making, decisions that affect the whole or a substantial part of the business of the corporation" or "who has the capacity to affect significantly the corporation's financial standing" or "in accordance with whose instructions or wishes the directors of the corporation are accustomed to act".

There is evidence from Mr Kathestides that Mr Gallie told him that he worked for himself. There is no evidence as to the role carried out in this regard by Mr Gallie. Mr Gray submits that there is no evidence that he occupies the position of executive officer of North East Developments and therefore submits that there is no evidence that the statutory demand was verified as required by s 459E(3) (and that, in the absence of evidence that the issue of the statutory demand was authorised by the receiver, the statutory demand must be set aside, citing Gain Rural Holdings Pty Ltd v Commonwealth Development Bank of Australia Ltd (1997) 141 FLR 238).

The former definition of "executive officer" in s 9 was repealed by the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth), effective 1 July 2004 and replaced by the concept of a "senior manager" (see Ford's discussion at [1.2.0803]).

The former term focussed attention on whether or not the person was concerned in or took part in the management of a body (having regard to the extent of the person's authority, the significance of the matters within that person's authority to the body corporate's overall activities, the scope of any discretion exercised by that person, and whether that person was responsible to management or directly to the board) ( Corporate Affairs Commission (Vic) v Bracht [1989] VR 821; (1988) 14 ACLR 728; Holpitt Pty Ltd v Swaab (1992) 33 FCR 474; 6 ACSR 488; Sycotex Pty Ltd v Baseler (1994) 122 ALR 531; 13 ACSR 766 at 782 per Gummow J). The present definition focuses on whether the person makes or participates in making decisions that affect the whole, or a substantial part, of the entity's business or who has the capacity to affect substantially the entity's financial standing.

It is suggested in Ford's that the factors relevant to determining whether a person participates in making decisions that affect the whole, or a substantial part, of the entity's business or has the capacity to affect substantially the entity's financial standing, are likely to be similar to those relevant to determining whether a person is concerned in, or takes part in, the management of a body (including the extent of the person's authority, the significance of the matters within that person's authority to the body corporate's overall activities, the scope of any discretion exercised by that person, and whether that person was responsible to management or directly to the board (referring to the authorities cited above).

In Bracht , Ormiston J (considering the former definition of executive officer) interpreted this as covering a wide range of activities relating to the management of a corporation, where there is an involvement of some kind in the decision making process. His Honour said (ACLR at 733-4) that the provision pointed to:

... activities which involve policy and decision making, related to the business affairs of the corporation, affecting the corporation as a whole or a substantial part of that corporation, to the extent that the consequences of the formation of those policies or the making of those decisions may have some significant bearing on the financial standing of the corporation or the conduct of its affairs.

His Honour, in obiter , was inclined to think that an officer whose responsibility included negotiating matters of financial importance, such as the rent of the company's premises or the terms of its borrowings from bankers, might well be concerned in management, while an officer who merely communicated instructions prepared by someone else was not. (A narrower view was taken in Holpitt Pty Ltd v Swaab (1992) 33 FCR 474; 105 ALR 421; 6 ACSR 488; 10 ACLC 64 where Burchett J held that a person does not take part in the management of the company unless he or she has a management role similar to that of a director.)

In Australian Securities and Investments Commission v Vines (2005) 55 ACSR 617; 23 ACLC 1387; [2005] NSWSC 738 at ACSR 851-56, the court considered that the wider interpretation of management in Bracht was to be preferred to the narrower interpretation in Holpitt in relation to the statutory directors' and officers' duties in former s 232 in relation to the duties to act honestly and with reasonable care and diligence, and the duties not to make improper use of information or position.

In Hornet Aviation Pty Ltd v Ansett Australia Ltd (1995) 16 ACSR 445, an appeal was dismissed against the refusal of the primary judge to set aside a statutory demand, inter alia, on the grounds that it was formally defective because the affidavit in support was sworn by the credit controller of the respondent company and it was said that he was not an executive officer within the meaning of the then applicable Corporations Law . Northrop J at first instance had noted that the credit controller in question had very wide powers as an officer of the respondent and had deposed to his responsibility in that role for processing credit applications, collecting outstanding accounts and instituting legal proceedings to collect outstanding accounts and to his personal knowledge of the state of the indebtedness.

There is no such indication in the present case to suggest that the role of Mr Gallie within the North East Developments organisation involved the participation in or making of decisions as to a substantial part of the business of the affairs of the company (although that might conceivably be the case as centre manager if this was the only shopping centre owned or operated by North East Developments). However, on the evidence before me I am not satisfied that Mr Gallie was an executive officer of the company and I have nothing other than his assertion to establish that he was authorised by the Receiver to swear the affidavit verifying the statutory demand. I therefore consider that the objection as to the validity of the demand has force (but again, it is not necessary for me to determine the case on this basis having regard to the matters considered below).

Disputed Debt And Off-setting Claim

The debt in dispute must be in existence at the time at which the statutory demand is served on the debtor ( Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452; Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; 12 ACLC 669 ) and here there is no suggestion that a debt arising from the contractual operation of the provisions in relation to the rent-free period was not in existence at the relevant time. (Mr de Robillard maintains, however, that the dispute as to the existence of the debt or the off-setting claim did not arise until much later.)

It is well recognised that there is a low threshold in establishing a genuine dispute or a genuine offsetting claim. A genuine dispute is one which is bona fide and truly exists in fact; and is not spurious, hypothetical, illusory or misconceived. It exists where there is a plausible contention which places the debt in dispute and which requires further investigation.

In Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896, per Barrett J noted that the task faced by a company challenging a statutory demand on genuine dispute grounds is by no means a difficult or demanding one and said that a company will fail in its task only if the contentions upon which it seeks to rely in mounting the challenge are so devoid of substance that no further investigation is warranted. His Honour noted that the court does not engage in any form of balancing exercise between the strengths of competing contention and that if there is any factor that on reasonable grounds indicates an arguable case it must find a genuine dispute exists even where the case available to be argued against the company seems stronger.

In Eyota , McLelland CJ in Eq said (at [787]):

It is, however, necessary to consider the meaning of the expression "genuine dispute" where it occurs ... in my opinion that expression connotes a plausible contention requiring investigation, and raises much of the same sort of considerations as the "serious question to be tried" criterion which arises on an application for an introductory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to genuine dispute, every statement in an affidavit "however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be not having "sufficient prima facie plausibility to merit further investigation as to its [truth]" (cf Eng Me Yong v Letchumanan [1980] AC 331 at 341), or "a patently feeble legal argument or an assertion of fact unsupported by evidence": cf South Australia v Wall (1980) 24 SASR 189 at 194.

But it does mean that, except in such an extreme case [i.e. where evidence is so lacking in plausibility], a court required to determine whether there is a genuine dispute should not embark upon an enquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute .... In Re Morris Catering Australia it was said the essential task is relatively simple - to identify the genuine level of a claim ...

Similarly in Edge Technology Pty Ltd v Lite-on Technology Corporation (2000) 34 ACSR 301, it was said that the court's task in this kind of application is not to resolve competing claims but to determine whether there is a genuine dispute concerning the debt or a genuine offsetting claim against the party serving the statutory demand and if so in what amount and that it is neither necessary nor appropriate to consider the merits of the dispute or offsetting claim (there citing Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456; Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601; Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporises Pty Ltd (1994) 13 ACSR 37).

In Edge Technology , it was further said (at [43] - [45]) that there are several matters of fact bearing on whether the dispute or the asserted offsetting claim is not genuine (ie that it is, "spurious, hypothetical, illusory or misconceived"):

the question must be answered having regard to the evidence before the court at this time and on the basis that the contract has not been terminated. ... The threshold presented by the test to set aside a statutory demand does not however require of the plaintiff a rigorous and in-depth examination of the evidence relating to the plaintiff's claim, dispute or offsetting claim. That is why cross-examination in contested statutory demand proceedings is limited: Hayne J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290.

As to an off-setting claim, in Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 122 ALR 717; 13 ACSR 787; 12 ACLC 490 Young J (as his Honour then was) emphasised (at [57]) that what is required for a genuine off-setting claim in this context is that the amount be claimed in good faith "so long as that claim is not fictitious or merely tolerable".

In Rainbow and Nature v Bronson and Jacobs [2006] NSWSC 217, Austin J stated that the ingredients of s 459H to be satisfied are that there is a "genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates").

In Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743, Palmer J said (at [17] - [18]);

In my view, a claim for the purposes of CA s 459H(1) and s 459H(2) means not just a cause of action, so that once a genuine cause of action for unliquidated damages is shown by a plaintiff, the court is compelled to accept at face value the damages claimed by the plaintiff as the amount of the offsetting claim for the purposes of the calculation required by s 459H(2). .... In my opinion, a genuine offsetting claim ... means a claim on a cause of action advanced in good faith, for an amount claimed in good faith. "Good faith" means arguable on the basis of facts asserted with sufficient particularity to enable a court to determine that the claim is not fanciful. In a claim for unliquidated damages for economic loss, the court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that losses calculated. If such evidence is entirely lacking, the court cannot find that there is a genuine offsetting claim ... .

His Honour had earlier in that case said (at [16]);

the real difficulty in this case is the amount of the plaintiff's alleged offsetting claim. Where the case involves a claim for a liquidated sum the application of the section is relatively easy, the court simply determines whether the cause of action is a genuine one and if that proves to be the case, the amount of the offsetting claim is the amount of liquidated sum, the subject of that claim. The position is by no means as easy where claim is a claim is for unliquidated damages and the damages are said to be economic loss suffered by the plaintiff.

The dispute as to the existence of the debt claimed in the statutory demand in this case (as does the claimed off-setting amount) relates to the matters now before the Tribunal. Mr de Robillard conceded (and on the basis of this concession a large volume of material in relation to the Tribunal proceedings was not tendered) that there is a substantial dispute in the Tribunal proceedings in respect of the claim by Kay Investment for relief in relation to its retail lease of the premises.

In essence, what Kay Investment is contending in those proceedings is that North East Developments engaged in unconscionable conduct within the meaning of s 62B of the Retail Leases Act 1994 in connection with the entry into the lease and that it is entitled to an order that the lease be surrendered and a declaration that it has no liability to pay any money to North East Developments (as well as seeking an order that North East Developments pay it an amount, including interest, not exceeding $400,000).

In his affidavit filed in support of the Tribunal application, Mr Kathestides deposes to the making of various pre-lease representations on which Mr Kathestides says he relied when causing Kay Investment to enter into the lease and as to the falsity of those representations and the assertion that North East Developments acted inconsistently with those representations. Mr Kathestides asserts that Kay Investment lost $639,000 as a result thereof. Insofar as these claims are denied by Mr Gallie and North East Developments, Mr Gray contends that there is prima facie a triable issue on these contested assertions.

It is submitted (and as a matter of logic it must follow) that if the Tribunal were to find that Mr Gallie had made to Mr Kathestides one or more of the contested representations and that Kay Investment did rely upon them to its loss and thereby or for some other reason were to make the orders sought by Kay Investment, then the consequence would be that Kay Investment would owe nothing to North East Developments under the lease (and hence the basis of the claim made in the statutory demand would be negated even if some other claim might be able to be made by North East Developments, say for account to be made for the benefit obtained by Kay Investment during the period of its occupation of the premises).

Mr de Robillard does not contend that there is not a dispute as to the matters the subject of the Tribunal application, which is fixed for hearing in October this year (although, as I understand it, the lessor will rely on the acknowledgements provided by the lessee at the time of entry into the lease as to non-reliance on any representations or the like other than those expressly set out in the lease or contained in the relevant disclosure statement provided in accordance with the Act).

Rather, Mr de Robillard contends that there is not a genuine dispute or an off-setting claim for the purposes of s 459H of the Act, because there was no such dispute as at the time that the statutory demand was served (on the basis that the dispute only crystallised when the Tribunal proceedings were commenced in April this year). I cannot accept the proposition that a dispute only crystallises when proceedings are commenced in relation to that dispute. It may not have been articulated before proceedings are commenced (although in this case it was articulated insofar as the broad assertions were contained in the affidavit sworn in February this year) but that does not mean that there was not a dispute on Kay Investment's part as to the claim for moneys under the lease (that being a lease it contends, and it then stated it intended to seek relief in relation thereto, should be set aside ab initio).

I accept that the late commencement of proceedings might perhaps go to the genuineness of a dispute in certain circumstances but here I am by no means satisfied that there was such a delay in commencement of the Tribunal proceedings as to warrant a conclusion that there is no genuine dispute.

In effect, what Mr de Robillard seems to contend for is that if a dispute is not made the subject of a claim within the 21 day period or at the time the statutory demand is served then it is not a dispute that can be relied upon to challenge the statutory demand. If that is the contention then I have considerable difficulty with it. A dispute might "crystallise" when proceedings are issued but that does not mean it has not previously arisen and the affidavit sworn by Mr Kathestides clearly raises the issue of pre-lease representations as well as the contention that this gave rise to an entitlement to have the lease set aside 'de novo'. The relevant question is whether the affidavit sworn in support of the application to set aside the demand sufficiently articulates the basis of a genuine dispute as to the debt (not the date on which proceedings to resolve that dispute are commenced).

True it is that that affidavit referred to an intention to seek an order "that all rents and other moneys be paid to North East be refunded" whereas what seems now to be claimed in the Tribunal proceedings is an order for the payment of damages by reference to losses said to have been incurred by reference to the alleged unconscionable conduct. However, the assertion that the lease should be set aside de novo would, of itself, indicate that the existence of a liability thereunder was disputed (because if the lease as from its inception were to be set aside no contractual liability could thereby have arisen).

Mr de Robillard submitted that the affidavit sworn by Mr Kathestides did not properly identify the claim because it simply said that there was doubt as to how the debt had been calculated. However, the affidavit goes well beyond that. In my view it sufficiently identifies, expressly or by necessary inference, (so as to be clearly delineated as a ground for challenging the statutory demand) the basis of a dispute as to pre-lease representations. That complies with the principles outlined in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 (at [459] - [460]) (applied, among others, in Process Machinery Australia Pty Ltd v ACN 057 262 590 Pty Ltd [2002] NSWSC 45, at [22]; Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527; (2004) 185 FLR 130 at [56]; and Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 at [7].)

What is required, by way of a supporting affidavit in this regard, is that the affidavit and application alert the party to the nature of the case sought to be made on the application to set aside the statutory demand, identifying the "area of controversy" so that it is identifiable with one or more on the grounds available under ss 459H and 459J ( Process Machinery and Elm ). In Graywinter, it was held that it is not sufficient merely to assert the existence of a dispute or offsetting claim (though it is not necessary for the affidavit to contain in admissible form all the evidence supporting the claim that the there is a dispute/offsetting claim). Here, the affidavit goes beyond mere assertion and outlines the basis of the dispute, that being as to pre-lease representations in reliance on which it is said that Kay Investment entered into the lease and incurred the expenditure on fitout of the premises.

In the case of an application to set aside based on an offsetting claim which is unliquidated, in Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd [2005] NSWSC 638, Gzell J held that an affidavit in support is insufficient if it does not contain material from which a court can make an estimate of the amount of an offsetting claim. There must be sufficient material indicating the nature of the offsetting claim and the way in which it is calculated in order to enable the statutory exercise under s 459H(2) of the Corporations Act 2001 , to be carried out by the court. (See also the extract from Macleay Nominees to which I have referred above.)

Here, the affidavit does not quantify the off-setting claim as such but it does refer to the amount allegedly expended on the fitout (which is being sought as moneys expended in relation to the lease) and it makes clear that what is sought is to be the setting aside from the outset of the lease (hence, as discussed earlier, any contractual basis for a debt as claimed by the statutory demand would fall away if that claim were to succeed).

Moreover, provided the ground is raised in the initial affidavit, an applicant may supplement initial affidavits by leading further evidence relevant to matters raised by the initial application (see the discussion and cases noted in Austin & Black's Annotations to the Corporations Act (s 459G).

I therefore find that Kay Investment has established a genuine dispute and an offsetting claim so as to be entitled to relief under s 459G.

Issue raised by defendant as to competence of present application

Finally, I note that Mr de Robillard submitted that the "purported" application by Kay Investment filed on 15 February 2011 seeking to set aside the Statutory Demand served on 31 January 2011 is incompetent due to the failure of Kay Investment to comply with the mandatory requirement under the Corporations Rules in relation to the carriage of a ASIC search prior to the hearing of the application.

In Graywinter, Sundberg J held that the failure of an affidavit to satisfy the minimum requirements for an affidavit to be a "supporting affidavit" is a jurisdictional impediment to an application under s 459C. In David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265, the High Court confirmed that the court cannot entertain, as an application under s 459G of the Corporations Law, a case in which an affidavit containing the minimum requirements has not been served within time.

Mr de Robillard submitted that failure to obtain the ASIC search in accordance with the rules meant that no s 459G(3) affidavit had been filed as required within the 21 day period (and hence the application should be dismissed). However, Rule 2.4(a) of the Corporations Rules simply requires that on a s 459G application certain steps must be taken including the obtaining of the ASIC search within the period there specified. That cannot logically be required to be done at the time of the s 459G(3) affidavit which is to be filed within the 21-day period, since the Corporations Rules permit the search to be obtained no less than one day before the hearing (and then tendered at the hearing). (There is no dispute but that such a search had not been carried out before the hearing in the present case.)

In NA Investment Holdings Pty Limited v Perpetual Nominees Limited [2010] NSWCA 210, Lindgren AJA observed that one of the purposes of a s 459G(3) affidavit is to accelerate the filing and service of evidence in the interests of an early hearing of the application to set aside the statutory demand. It is not necessary for that purpose that the affidavit (as a jurisdictional matter) have annexed to it the ASIC search required under the rules.

There is no doubt that there was non-compliance by Kay Investment with the rules in this regard. Mr de Robillard maintained that this was consistent with the 'cavalier' attitude it had displayed to the proceedings. Given that his own client had been somewhat cavalier with the requirement for compliance with the Court's own Practice Notes, this was tantamount to the 'pot calling the kettle black'. Nevertheless, he maintained that (technical as the point might be), it was an important requirement and non-compliance with it rendered the whole application to set aside incompetent. He was unable to point me to authority in which the importance of this particular requirement or its public policy aspect was considered. At best it was suggested by Mr Gray that the public policy underlying this requirement of the rules might be to ensure that the Court was aware, when the application to set aside a statutory demand was heard, whether there were other winding up applications against the company in question (which has the air of logic to it).

It seemed to me that non-compliance with the Rules in this regard was a matter that could readily be rectified. Under Uniform Civil Procedure Rule 1.12, there is power to abridge or extend the time for compliance with requirements under the rules. Section 1322(4)(d) further permits dispensation with rules in relation to the affairs of a company. It seemed to me that, subject to the provision of a search prior to the determination of the hearing (and provided Mr de Robillard's client had the ability to make any submissions it might seek to do arising out of matters disclosed by that search), there would be no prejudice to be suffered by such dispensation and I should make orders rectifying the irregularity in this regard. (I should add that this case has been characterised by a reliance on technical points, as may not be surprising given the technical nature of the jurisdiction, but it did not seem to me that there was anything inconsistent with the public policy underlying the legislative scheme and rules for me to make orders addressing the late provision of the ASIC search.)

Barrett J in CP York Holdings Pty Ltd v The Food Improvers Pty Ltd [2009] NSWSC 409 at [11] noted that:

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.

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.

The Pt 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 Ltd v Glowbind Pty Ltd ( 2000) 48 NS W LR 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.

However, it is also clear that, as Santow J (as his Honour then was) said in First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939 (at p 951):

It has been said on numerous occasions that the Companies Court is not to be the court which deals with disputed debts. If there is an honest dispute between the parties as to the amount of the debt, they are expected to resolve their dispute through the normal channels such as litigation in the Common Law Division or the District Court, not by the means of winding up proceedings; for example, see John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716 at 717 per Young J.

In B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433 at 435-6; 13 ACLC 88, in the context of considering the requirement for an affidavit attesting to the belief that there was no genuine dispute, that requirement was said by McLelland CJ in Eq to be "a significant mechanism for filtering out cases where there is in fact such a dispute, so as to prevent cases where there is a genuine dispute as to the debt from reaching the court on such an application as the present, with a consequent waste of time and resources".

The legislative purposes identified in relation to s 459J in the Explanatory Memorandum focussed on "overcoming the prolonged proceedings which can result from legal disputation in relation to the effectiveness of a statutory demand which occurs on the hearing of a case for the winding up of a company". The legislative purpose is thus to ensure that questions about the ability to rely on the presumption of insolvency are known in advance of the winding up application.

In those circumstances, and given the findings I have reached in relation to the issues in (ii) above, the non-compliance with the Rules in relation to the ASIC search was not sufficient for me to exercise any discretion against the setting aside of the statutory demand in this case.

I directed on 9 September 2011 that there be filed with my associate an affidavit annexing an ASIC search of the company that day. It was duly filed. I gave leave for Mr de Robillard to serve any short written submissions as to any matters arising out of the search or as to the account I should take of it in the context of the present application. A week later no such submissions have been received and so I have proceeded to publish these reasons, noting that the ASIC search does not reveal any other winding up applications on foot in relation to this company.

Orders

For the above reasons I make the following orders:

1. I dismiss the application by North East Developments for a stay of the hearing of the application by Kay Investment for an order that the statutory demand served on it on 31 January 2011 be set aside.

2. I set aside the statutory demand dated 25 January 2011 and served on Kay Investment by North East Developments on 31 January 2011.

I will hear any submissions in relation to costs and as to what orders should be made in relation to the winding up proceedings that were listed before me for mention at the time of the statutory demand application.

**********

Decision last updated: 20 September 2011

Medium Neutral Citation:	In the matter of Kay Investment Holdings Pty Ltd - Kay Investment Holdings Pty Ltd v North East Developments Pty Ltd (in liq) [2011] NSWSC 1121
Hearing dates:	9 September 2011
Decision date:	19 September 2011
Jurisdiction:	Equity Division - Corporations List
Before:	Ward J
Decision:	Statutory demand set aside
Catchwords:	CIVIL PROCEDURE - application for stay of hearing pending application for leave to appeal interlocutory order - HELD - application refused in exercise of discretion - CORPORATIONS - application to set aside statutory demand on grounds that it defective and that genuine dispute/off-setting claim - HELD - statutory demand set aside
Legislation Cited:	Corporations Act 2001 (Cth) Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth) Retail Leases Act 1994 (NSW) Supreme Court (Corporation) Rules 1999 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Adeels Palace Pty Ltd v Moubarah; Adeels Palace Pty Ltd v Najeem (No 2) [2009] NSWCA 130 Alexander v Cambridge Credit Corporation (1985) 2 NSWLR 685 Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 Australian Securities and Investments Commission v Vines (2005) 55 ACSR 617; 23 ACLC 1387; [2005] NSWSC 738 B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433 Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd [2005] NSWSC 638 Buckland Products Pty Ltd v Deputy Commissioner of Taxation of the Commonwealth of Australia [2003] VSCA 85 Business To All Australia Pty Ltd v North East Developments Pty Ltd (receivers and managers appointed) [2011] NSWSC 668 Cameron v Cole [1994] HCA 5; (1944) 68 CLR 571 Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporises Pty Ltd (1994) 13 ACSR 37 Chief Commissioner of Stamp Duties v Paliflex Pty Ltd [1999] NSWSC 15; (1999) 149 FLR 179 Corporate Affairs Commission (Vic) v Bracht [1989] VR 821; (1988) 14 ACLR 728 CP York Holdings Pty Ltd v The Food Improvers Pty Ltd [2009] NSWSC 409 Craig v Kanssen [1943] 1 KB 256 DAG International Pty Ltd v DAG International Group [2005] NSWSC 1036 David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 Edge Technology Pty Ltd v Lite-on Technology Corporation (2000) 34 ACSR 301 Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; 12 ACLC 669 First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939 Fitness First Aust Pty Ltd v Dubow [2011] NSWSC 531 Gain Rural Holdings Pty Ltd v Commonwealth Development Bank of Australia Ltd (1997) 141 FLR 238 Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456 Grant Thornton Services (NSW) Pty Ltd v St George Wholesale Distributors Pty Ltd [2008] FCA 1777 Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 Guardian Group Australia Pty Ltd v Alice Lu and Anor [2005] NSWSC 1299 Holpitt Pty Ltd v Swaab (1992) 33 FCR 474; 6 ACSR 488 Hornet Aviation Py Ltd v Ansett Australia Ltd (1995) 16 ACSR 445 Hoskins v Van Den-Braak and ors [1998] NSWSC 80 HVAC Construction (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd (2002) 44 ACSR 169 J Canon Australia Pty Ltd v Young Bros Pty Ltd [2009] NSWSC 842 Jem Developments v Hansen Yuncken [2006] NSWSC 1378; (2006) 60 ACSR 393 Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 122 ALR 717; 13 ACSR 787; 12 ACLC 490 LSI Australia Pty Ltd v LSI Holdings (2007) 25 ACLC 1602, [2007] NSWSC 1406 Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 Magjarraj v Asteron Life Ltd [2009] NSWSC 1433 Master Paving Pty Ltd v Heading Contractors Pty Ltd (1997) 193 LSJS 1; 15 ACLC 1025 Micallef v ICI Australia Operations Pty Ltd [2001] NSWCA 274 NA Investment Holdings Pty Limited v Perpetual Nominees Limited [2010] NSWCA 210 Onefone Australia Pty Ltd v One Tel Ltd [2007] NSWSC 268 Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 Partnership Pacific Ltd v Killen (NSWCA unreported 112/79) Perpetual Nominees Ltd v Masri Apartments Pty Ltd [2004] NSWSC 551; (2004) 49 ACSR 719 Process Machinery Australia Pty Ltd v ACN057 262 590 Pty Ltd [2002] NSWSC 45 Rainbow and Nature v Bronson and Jacobs [2006] NSWSC 217 Re Fratelli 's Fresh Pasta Pty Ltd [2011] NSWSC 576 Re Future Life Enterprises Pty Ltd (1994) 33 NSWLR 559 Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 Re Rick Wilson & Co Pty Ltd (1982) 7 ACLR 354 Re Satellite Group Ltd [2000] NSWSC 984; (2000) 35 ACSR 565 Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 Sultana Investments Pty Ltd v Cellcom Pty Ltd [2009] NSWSC 392 Switz Pty Ltd v Glowbind Pty Ltd; Glowbind Pty Ltd v Switz Pty Ltd [2000] NSWCA 37 Sycotex Pty Ltd v Baseler (1994) 122 ALR 531; 13 ACSR 766 Tatlers.com.au Pty Ltd v Davis [2006] NSWSC 1055; (2006) 203 FCR 473 Taylor v Taylor (1979) 143 CLR 1 Texel Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 298; (1993) 11 ACSR 535; Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527; (2004) 185 FLR 130 Topfelt Pty Ltd v State Bank of NSW (1993) 47 FCR 226; 12 ACSR 381 Trad v Harbour Radio Pty Ltd [2010] NSWCA 41 Vacuum Oil Co Pty Ltd v Stockdale (1942) (NSW) 239 at 243 Warragamba Winery Pty Ltd v State of NSW [2010] NSWCA 174 Web Wealth Pty Ltd v Helimount Pty Ltd [2006] FCA 1376 White v Overland [2001] FCA 1333 Willard King Organisation (1978) Pty Ltd v CT Franchises Pty Ltd [2009] NSWSC 97; (2009) 69 ACSR 612
Texts Cited:	Austin and Black, Annotations to the Corporations Act Australian Corporation Law Principles & Practice Australian Law Reform Commission, Discussion Paper No 32 (August 1987) General Insolvency Inquiry Ford's Principles of Corporations Law Osborn's Concise Legal Dictionary (11th edn) Ritchie's Commentary on Uniform Civil Procedure Rules
Category:	Principal judgment
Parties:	Kay Investment Holdings Pty Ltd (Plaintiff) North East Developments Pty Ltd (Defendant)
Representation:	Counsel V R W Gray (Plaintiff) C R de Robillard (Defendant) Solicitors Corporate & Civil Legal (Plaintiff) Herbert Geer (Defendant)
File Number(s):	11/050106