Liverpool Cement Renderers (Aust) Pty Ltd v Landmarks Constructions (NSW) Pty Ltd
[1996] FCA 260
•19 APRIL 1996
CATCHWORDS
CORPORATIONS LAW - application to restrain publication of notice of winding up application required by sub-rule 37(9) under Corporations Rules (Federal Court) - seeking orders that the application to wind-up be dismissed as an abuse of process - s459G(2) of Corporations Law - requirement that application to set aside a statutory demand served on a company may only be made within 21 days of service - whether recent clarification of a doubtful area of the law excuses non-compliance with s459G(2) - David Grant & Co v Westpac Banking Corporation (1995) Case - whether facts proved an abuse of process so as to allow for the grant of injunctive relief - no such improper purpose shown - whether statutory demand defective on other grounds - whether statutory demand is wrongly based, as based on a debt then not payable - whether this matter can be raised at this stage after failure to comply with 459G(2) - whether unsecured borrowing available to be treated as debtor's own money when determining solvency - question of solvency to be determined at hearing of winding up application - application does not come within reserved category of David Grant's Case - advertisement not to be lightly dispended with.
Corporations Law s 459G(2), s 459C(2)(a), s 459S
Corporations Rules (Federal Court) subrule 37(9)
David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 131 ALR 353, applied
Kekatos v Holmark Construction Company Pty Ltd (1995)
13 ACLC 1581, distinguished
Re J & E Holdings Pty Ltd (1995) 13 ACLC 867, applied
David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 13 ACLC 261, applied
Cavetina v Synthetic Dyeworks Industries Pty Ltd (1994)
12 ACLC 768, cited
Williams v Spautz (1992) 174 CLR 509, cited
Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 13 ACLC 229, cited
Taylor v Australian and New Zealand Banking Group Ltd (1988)
6 ACLC 808, applied
Norfolk Plumbing Supplies Pty Ltd v Commonwealth Bank of Australia (1992) 10 ACLC 158, cited
Sandell v Porter (1966) 115 CLR 666, cited
Australian Securities Commission v AS Nominees Ltd (1995)
13 ACLC 1596, cited.
IN THE MATTER OF LANDMARKS CONSTRUCTIONS PTY LIMITED
LIVERPOOL CEMENT RENDERERS PTY LTD v
LANDMARKS CONSTRUCTIONS PTY LIMITED
NO NG 3064 OF 1996
Tamberlin J
Sydney
19 April 1996
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 3064 of 1996
GENERAL DIVISION )
IN THE MATTER OF LANDMARKS CONSTRUCTIONS (NSW) PTY LIMITED
AUSTRALIAN COMPANY NUMBER: 003 113 193
BETWEEN: LIVERPOOL CEMENT RENDERERS
(AUST.) PTY LIMITED
ACN 063 202 988
Applicant
AND: LANDMARKS CONSTRUCTIONS
(NSW) PTY LIMITED
ACN 003 113 193
Respondent
CORAM: TAMBERLIN J
PLACE: SYDNEY
DATED: 19 APRIL 1996
MINUTE OF ORDERS
THE COURT ORDERS THAT:
The Notice of Motion be dismissed.
The respondent pay the applicant's costs of the Notice of Motion.
NOTE: Settlement and entry of orders is dealt with in accordance with Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 3064 of 1996
GENERAL DIVISION )
IN THE MATTER OF LANDMARKS CONSTRUCTIONS (NSW) PTY LIMITED
AUSTRALIAN COMPANY NUMBER: 003 113 193
BETWEEN: LIVERPOOL CEMENT RENDERERS
(AUST.) PTY LIMITED
ACN 063 202 988
Applicant
AND: LANDMARKS CONSTRUCTIONS
(NSW) PTY LIMITED
ACN 003 113 193
Respondent
CORAM: TAMBERLIN J
PLACE: SYDNEY
DATED: 19 APRIL 1996
REASONS FOR JUDGMENT
Before me is a Notice of Motion filed by the respondent, on 19 February 1996, which seeks orders that the applicant be restrained from publishing notice of a winding up application and that the application be dismissed as an abuse of process. The claim in relation to the second order is that the company is solvent and that there is a genuine dispute as to the debt.
Background
In early December 1995 the applicant ("Liverpool") was employed by the respondent ("Landmarks") to do cement rendering at a work site in Balmoral.
Liverpool did not finish the rendering and a large portion of the work was said by Landmarks to have been of poor workmanship.
On 8 December 1995, Nick Garzaniti ("Garzaniti") of Liverpool was handed a cheque by Vince Battaglia (V Battaglia), the Managing Director of Landmarks for $6,311 for work done under sub-contract. V Battaglia required the work to be finished before Christmas. Garzaniti agreed and said he would start work immediately.
On 18 December 1995, at the work site, V Battaglia expressed dissatisfaction with some of the work and required it to be rectified. It is alleged Garzaniti refused to agree to this.
Later that day Landmarks received from Liverpool a letter, to which was attached an invoice for $17,932, the amount of the debt in question.
The faxed letter of 18 December was in these terms:
".....
Liverpool Cement Renderers (AUST) Pty Ltd, demand immediate payment of invoice Number 2003 of balance $3,000. The company enclose invoice Number 2016 to date of $14, 932. Payment is to be made within seven (7) days. The company will attend site tomorrow to complete the work, but requires assurance that the invoices and remaining work will be paid.
Please give this confirmation by return fax...."
The invoice reads:
"Company Name: Landmark Constructions Pty Ltd
Job Location: Botanic Rd Balmoral
Dr. to INVOICE 2016
Please pay the following for work completed to date, for the above mentioned site, being for
monaccount still outstanding.
1) Internal Cement Render
442 metres at $10.00 per mt $4,420.00
2) Render & Set 462 metres at $22.00 per mt $10,164.00
3) Set to ceilings 79 metres at $12.00 per mt $948.00
4) Day labour carried out for external work
to date, at $30.00 per hr per man
Amount of men 135 at $240.00 per man $32,400.00
5) Materials $2,000.00
Total to date $49,932.00
Paid to date $32,000.00
Outstanding $17,932.00
PLEASE PAY ON INVOICE TERMS: STRICTLY NET
NO STATEMENT ISSUED TOTAL $17,932.00"
On 18 December 1995 V Battaglia faxed a copy of the same letter back to Liverpool with the addition of a handwritten note which reads:
"LANDMARKS WILL NOT PAY ANY FURTHER MONEY, AND IF L.C.R. [LIVERPOOL CEMENT RENDERERS] FOUND ON LANDMARKS' PROJECTS WILL BE SUED FOR TRESPASSING!"
Later on that day Liverpool sent a second letter which reads:
"Receipt of your fax acknowledged. The company knows of no reason why you should not let it back on the job to be completed and treat your response as a repudiation of our contract and the company reserves its right to sue you for damages.
Immediate payment of invoices numbered 2003 and 2016 is required."
On 20 December Garzaniti met at the work site with P Battaglia who was present as agent of Landmarks. The work was discussed. Garzaniti insisted on payment and the respondent insisted on completion of the work and rectification of faulty workmanship and when this was not agreed to, Garzaniti left the site.
On 22 December 1995 Liverpool issued a Notice of Statutory Demand for $17,932 under s459 of the Corporations Law (Cth) ("the Law").
It is said that Landmarks did not receive this notice until 8 January 1996, when its office re-opened after the Christmas break.
On 4 January 1996 the statutory demand was served at Landmarks' registered office. The 21 day period for the making of an application to set aside the statutory demand under s459G of the Law expired on 25 January 1996. No application under s459G has been filed.
On 10 January 1996, Landmarks' solicitors were instructed to dispute the statutory demand.
On 1 February 1996 Liverpool's solicitors signed an application to wind up Landmarks and supporting affidavits were sworn on that date.
On 5 February 1996 Landmarks' solicitors received a letter from Liverpool's solicitors, dated 31 January 1996, which reads:
"RE:LIVERPOOL CEMENT RENDERERS (AUST) PTY. LIMITED .v. LANDMARKS CONSTRUCTIONS (NSW) PTY. LIMITED
I refer to your letter of the 16th January, 1996 and have obtained my client's instructions in relation to the allegations raised therein.
My client instructs me that it denies categorically that it was in any way guilty of delay or that it in any way contributed to your client suffering some financial loss. The fact of the matter is that my client, upon requesting payment from yours of its outstanding invoices of a not insubstantial amount, was informed that no further payment would be made and it would be charged with trespassing if it returned to the site.
At all times my client has properly and dutifully carried out the work. Your client, before now, never complained of delay.
As to the standard of my client's work, the foreman and your client, on a few occasions, required minor rectification work to be carried out from time to time and this was immediately effected by my client at its own expense.
The allegations which your client now raises can only be viewed as a response to my client's demands for payment of its invoices and nothing else. The facts simply do not support your contentions.
I am therefore instructed to inform you that my client will take such action as it may be advised, including the institution of proceedings for the winding up in insolvency of your client..."
On 9 February 1996, the Application to Wind Up was served at Landmarks' registered office.
Landmarks' Case on the Notice of Motion
Landmarks alleges that at all material times it was, and is presently, solvent and can pay its debts, including that of Liverpool. It further says that there is a genuine dispute as to the existence of the debt.
The first order sought is that the applicant be restrained from publishing notice of the application.
The relevant provision which requires advertising is sub-rule 37(9) of the Corporations Rules (Federal Court), which provides:
"37(9)Unless the Court orders to the contrary, notice of an application ... must be published in the manner prescribed ... not earlier than 3 days after the date a copy of the application was served on the company and not later than 7 days before the day appointed for directions ..."
It is said, on behalf of Landmarks, that publication ought be restrained because the statutory demand was not properly based. Several matters are raised.
The first is that the debt is the subject of a genuine dispute. I accept that there is evidence of a "genuine dispute" in the present matter as to the money claimed because the evidence takes the matter significantly beyond mere assertion.
However, the difficulty which Landmarks faces, in relation to this contention, is that the statutory demand was served at its registered office on 4 January 1996. Section 459G(2) of the Law requires that an application to set aside a statutory demand served on the company may "only" be made within 21 days after the statutory demand was served. In the present case, there has been no application filed to set aside the statutory demand within the period, which expired on 25 January 1996, or at all.
Grant's Case
In David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 131 ALR 353, the High Court held that the time specified for an application under s459G, to set aside the demand, could not be extended by order of the Court, because on the proper interpretation of that section, and in particular, the expression "may only be made", it is mandatory to make the application within 21 days. There has been no compliance at all with that requirement in the present case. Judgment in Grant's case was delivered on 11 October 1995.
The principal judgment was given by Gummow J, with whom the other four members of the Court agreed. In the course of his judgment, Gummow J, referred to the Explanatory Memorandum published at the time of the introduction into Parliament of the Bill for the 1992 Act, which relevantly stated:
"Division 3 - Application to set aside statutory demand.
This Division will implement the Harmer Report's recommendations in connection with the setting aside of statutory demands ... companies presently often need to bring injunction proceedings where a debt claimed in a demand is disputed. The Report took the view that the legislation should specifically provide for the determination of disputed debt issues and other disputes in respect of a statutory demand ...
This proposed Division, together with proposed Division 4 [ss459P-459T], also provides a means of dealing with statutory demand disputes ... by requiring debtor companies to raise genuine disputes (about, for example, whether a debt is owed) at an early stage, rather than after winding-up proceedings have commenced."
His Honour observed that:
"The provisions of the new Pt 5.4 constitute a legislative scheme for quick resolution of the issue of solvency and the determination of whether the company should be wound up without the interposition of disputes about debts, unless they are raised promptly."
In the present case, the substance of the notice of motion, seeking an injunction to restrain publication, is to mount an attack on the statutory demand, in circumstances where no application has been made within the time required by the Law to set it aside.
Reasons for Failure to Comply
Landmarks seeks to rely on a number of matters to excuse its failure to comply with s459G(2). These were to the effect that the decision in Grant's case finally clarified a doubtful area of the law and that it was understandable that its legal advisers may not have appreciated the importance of a failure to comply with the time limit, in view of what they had previously perceived, as a power in the court to extend the period within which to apply to set aside the demand. There was correspondence between solicitors in relation to the validity of the statutory demand between 16 and 31 January 1996 and the suggestion is that the respondent somehow relied on this correspondence and was entitled to do so. Reference was made to the remark of Young J in Kekatos v Holmark Construction Company Pty Ltd (1995) 13 ACLC 1581 at 1582 that a mistaken impression of a solicitor as to the state of the law in relation to s459G might be taken into account in the exercise of the courts's discretion. That decision was given before the matter was conclusively declared by the High Court in Grant's case. Furthermore, it concerned the grant of leave under s459S.
However, it seems to me none of this is to the point. The Law must be applied as interpreted by the High Court. The decision in Grant's case was handed down more than 3 months prior to the relevant period in the present case. There was some evidence of wide publicity having been given to the decision in professional journals. Furthermore, the New South Wales Court of Appeal, in a unanimous judgment, given on 15 June 1995, decided that the Court had no power to extend time under s459G(1): Re J & E Holdings Pty Ltd (1995) 13 ACLC 867. That Court followed the decision of the Appeal Division of the Supreme Court of Victoria in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 13 ACLC 261 delivered on 10 February 1995. Both these decisions were contrary to the judgment of the Queensland Court of Appeal in Cavetina Pty Ltd v Synthetic Dyeworks Industries Pty Ltd (1994), 12 ACLC 768 delivered on 22 August 1994.
As counsel for Liverpool points out, the essential purpose of having a strict time limit is to require debtor companies to raise genuine disputes as to the debt at an early stage, so that they can be resolved at that time, rather than require the court to determine these disputes on the hearing of the winding up application. Moreover, if a debtor company could rely on its solicitor's oversight or neglect in compliance with s459G the force of the requirement would be substantially diminished, contrary to the express intention envisaged by the Explanatory Memorandum.
The High Court appreciated that its decision in Grant's case (supra) would lead to hardship in some cases. At the conclusion of his judgment at 362, Gummow J said:
" No doubt, in some circumstances, the new Pt 5.4 may appear to operate harshly. But that is a consequence of the legislative scheme which has been adopted to deal with perceived defects in the pre-existing procedure in relation to notices of demand. It also may transpire that a winding-up application in respect of a solvent company is threatened or made for an improper purpose which amounts to an abuse of process in the technical sense of that term as explained in Williams v Spautz (1992) 174 CLR 509 at 518-22, 532-37. However, in an appropriate case, injunctive relief may then be available to the company in a court of general equity jurisdiction."
Counsel for Landmarks seeks to rely on this statement in the present case in relation to the residual power of the Court to grant injunctive relief. In order to do so, facts must be proved which amount to a threat to wind up the company for a collateral and improper purpose, so as to be an abuse of process. See Williams v Spautz (supra) at 522. In my view, no such improper purpose has been shown in the present case. Indeed, the purpose which emerges from the evidence, is that Liverpool seeks to recover the moneys allegedly owed to it, which, it seems to me, is not only proper but is the purpose for which the statutory demand was issued. There is no suggestion of threats of undue pressure, extortion, or commercial duress. Nor is there any suggestion that the demand was a charade in that it was not intended to be pursued to its conclusion.
Statutory Demand
A second matter raised by Landmarks is that the statutory demand is defective because the letter which requested payment of 18 December 1995, while it demanded immediate payment of Invoice No. 2003 of a balance owing of $3000, required that payment on Invoice No. 2016 of $14,932 be made within 7 days and it is said that 7 days were not allowed before the Statutory Notice of Demand was issued. However, that demand also included a statement that the company would attend the site "tomorrow" to complete the work. It required an assurance that the invoices and remaining work would be paid. Liverpool points out that it treated the handwritten note of Landmarks, which threatened to sue Liverpool for trespassing if it was found on Landmarks' projects, as being a repudiation of the earlier payment arrangements. It prevented Liverpool from carrying out any further work. Reliance is placed by Liverpool on its letter of 18 December 1995, which said that:
"The company knows of no reason why you should not let it back on the job ... and treat (sic) your response as a repudiation of our contract and the company reserves its right to sue you for damages.
Immediate payment of Invoices Nos 2003 and 2016 is required."
It seems to me that the position is that Liverpool offered to complete the work and wanted an assurance that the invoices would be paid within 7 days. Landmarks decided that it would shut out Liverpool. Liverpool treated this as a repudiation and demanded immediate payment. No moneys were paid at any time by Landmarks pursuant to the invoice or the statutory demand. As mentioned earlier that demand was served on 4 January 1996.
In these circumstances, it is clear in my view, that Liverpool was demanding immediate payment, so that by 22 December, when the statutory demand was issued, the arrangement between the parties, (leaving aside the issue concerning the quality of the building work), was such that the monies were then payable. I do not accept the argument advanced by Landmarks.
Another matter raised was that because Liverpool "reserved" its right to sue for damages, then it could not rely on a requirement for immediate payment.
The substance of this argument, is also that the statutory demand should be set aside as defective being wrongly based on a debt not then payable. This is a ground which would go to setting aside the statutory demand. In view of the failure to comply with s459G this matter cannot be raised at this stage of the winding up proceedings.
In my view, there is no substance in this argument. Liverpool did not elect to sue for damages, but simply reserved its right.
Solvency
A third allegation, made by Landmarks, is that the company has been shown on the evidence to be solvent and that in seeking to wind up a solvent company there is abuse of process underlying the application to wind up. The application is said to be for an improper purpose.
Section 459S(1) of the Law provides:
"459S(1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:
(a) that the company relied on for the purposes of an application by it for the demand to be set aside; or
(b) that the company could have so relied on, but did not so rely on (whether it made such an application or not).
(2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent." (Emphasis added)
The statutory scheme contemplates that argument as to solvency of a company is intended to be considered as a ground of opposition on the hearing of the winding up application and is not a matter which should be determined prior to that time in an application such as the present. This is a further reason why the present application fails.
The present application is premature because the relevant provisions of the Law, namely ss459, 459C(2)(a), and 459S, disclose the clear intention that the question whether the company is solvent is one for the ultimate hearing of the winding up application. See Chippendale Printing Co Pty Limited v Deputy Commissioner of Taxation (1995) 13 ACLC 229 at 242, per Lindgren J.
In support of Landmarks' submission as to solvency, reliance is placed on the evidence of Mr Ian Hayton, an accountant employed by Landmarks. Mr Hayton refers to the financial statements of the company including the balance sheet as at 31 December 1995, a trading account, and a profit and loss account. These financial statements were not prepared by Mr Hayton, but by external accountants of the respondent. They are described as "management accounts". There is a letter in evidence from those accountants, stating this.
In paragraphs 7 and 8, Mr Hayton in his affidavit of 20 February 1996, states;
"7. As at 13 February 1996, the Respondent's $75,000.00 bank overdraft $24,509.54 in credit whilst the Respondent had $55,570.67 in its two (2) savings bank accounts. Therefore as at 13 February 1996 there was a total of $155,080.21 available funds. I annex hereto and mark with the letter "E" copies of bank records evidencing those figures.
The books, records and financial statement of the Respondent evidenced that the respondent is solvent and able to meet all its debts at this point in time including the alleged debt to the applicant."
The evidence does not disclose whether the overdraft facility referred to, was secured or unsecured. This is an important consideration on the question of solvency. See the remarks of McGarvie J, in Taylor v Australian and New Zealand Banking Group Ltd (1988) 6 ACLC 808 at 814, to the effect that moneys available by way of unsecured borrowing is not to be treated as the debtor's own money when determining insolvency. This statement was applied by Kearney J in Norfolk Plumbing Supplies Pty Ltd v Commonwealth Bank of Australia (1992) 10 ACLC 158 at 169.
Included in the non-current intangible assets in the balance sheet is a net goodwill component of $225,000. In the trading account, the total trading profit is stated to be $303,658, which includes work in progress. There is no identification as to when the work will be completed or when cash funds will materialise to pay debts as they fall due. Moreover, the evidence indicates that there have been very substantial changes in the period from 31 December 1995 to February 1996. For example, the December balance sheet showed a bank overdraft of about $245,000, but the bank account before the court as at 13 February 1996 show a credit balance of $24,509. These changes indicate that it may be unsafe to rely on the 31 December 1995 "management" figures as an accurate reflection of the company's position in March 1996. There is no evidence before the court as to who are the current creditors and debtors and the availability of funds to pay those debts as and when they fall due.
Another substantial asset is said to be "debtors' retentions" of $229,644. In cross-examination, Mr Hayton could not provide any accurate information as to when the debtors retentions fell due for release. The availability of those funds to meet debts as and when they fall due for payment, is therefore not known.
Both Mr Hayton and Mr V Battaglia asserted the solvency of Landmarks. However, under cross-examination, it was quite clear that Mr Battaglia was not qualified to make good such an assertion. Nor was the evidence of Mr Hayton of sufficient force to persuade me that Landmarks is solvent. The question is ultimately for the Court to decide in the light of evidence addressed on the hearing of the winding up application, looking at the overall picture after taking into account a wide range of considerations. See Sandell v Porter (1966) 115 CLR 666 at 670-671 per Barwick CJ, and also the remarks of Kearney J in Norfolk Plumbing (supra) at 169.
I am not satisfied that the present evidence establishes that Landmarks is a solvent company so as to justify a conclusion that there is an abuse of process. This case does not, in my view, come within the reserved category of circumstances adverted to by Gummow J in David Grant (supra) at the conclusion of his judgment.
Other Matters
Two minor matters raised by Landmarks were that the statutory demand did not state the Australian Company Number ("the ACN") of Liverpool and that the statutory demand referred to "Liverpool Cement Renders" and not to "Liverpool Cement Renderers". In my view there is no substance in these contentions. No doubt was expressed at any stage as to the identity of the applicant. Moreover, the covering letter sending the statutory demand, on 22 December 1995, bore a heading with the correct name. The exchange of correspondence on 18 December also included letterheads and invoices from Liverpool which stated the ACN.
Finally, it is said, that the court has power to, and should in the present case, dispense with publication of the winding up application under sub-rule 37(9) of the Corporations Rules (Federal Court). The basis for this submission is that publication of the application might crystallise floating charges and seriously and adversely affect the business reputation of Landmarks. In the present case I accept for the purpose of argument that there may be some significant disadvantage to Landmarks as a result of the advertisement.
The requirement of the sub-rule is that the publication must take place within a specified period. Liverpool does not seek any dispensation from the requirement to advertise. There are no reasons shown in the present case, which, in my view, would justify departure from the important standard requirement that the application must be advertised. Publication is not to be dispensed with lightly. The important role of advertising was referred to by Finn J of this Court in Australian Securities Commission v AS Nominees Ltd (1995) 13 ACLC 1596 at 1598.
Accordingly, the grounds on which the notice of motion is based, have not been made good.
Conclusion
For the above reasons, the Notice of Motion to restrain publication and to strike out the application should be dismissed with costs.
I certify that this and
the preceding nineteen (19)
pages are a true copy of the
Reasons for Judgment herein of
his Honour Justice Tamberlin.
Associate:
Date: 19 April 1996
Counsel for Applicant: Mr D K L Raphael
Solicitor for Applicant: Peta Bollinger
Counsel for Respondent: Mr A J Philpot
Solicitor for Respondent: Alexander Woolfe
Date of Hearing: 26 & 28 February 1996
Date Judgment Delivered: 19 April 1996
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