Magee v Halas Enterprises Pty Ltd
[2003] WASC 81
•30 APRIL 2003
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: MAGEE -v- HALAS ENTERPRISES PTY LTD [2003] WASC 81
CORAM: MASTER NEWNES
HEARD: 4 APRIL 2003
DELIVERED : 30 APRIL 2003
FILE NO/S: COR 254 of 2002
BETWEEN: TERRY MAGEE
Plaintiff
AND
HALAS ENTERPRISES PTY LTD (ACN 075 697 540)
Defendant
Catchwords:
Corporations - Application to wind up in insolvency - Validity of service of statutory demand - Turns on own facts
Legislation:
Corporations Act 2001 (Cth)
Result:
Order that the defendant be wound up
Category: B
Representation:
Counsel:
Plaintiff: Dr J O'Donovan & Mr T Galic
Defendant: Mr M J Hawkins & Mr P J M Kelly
Solicitors:
Plaintiff: Galic & Co
Defendant: Godfrey Virtue & Co
Case(s) referred to in judgment(s):
David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 69 ALJR 778
The Swan [1968] 1 Lloyds Rep 5
Case(s) also cited:
ACP Syme Magazines Pty Ltd v Tri Automative Components Pty Ltd (1997) 23 ACSR 530
CGU Workers Compensation (Vic) Ltd v Carousel Bar Pty Ltd (1999) 17 ACLC 1213
Community Development Pty Ltd v Engwirda Construction Co [1968] Qd R 541
Con-Stan Industries of Australia Pty Ltd v Norwich Winterhur Insurance (Australia) Ltd (1986) 160 CLR 226
DFC of T v Abberwood Pty Ltd (1990) 8 ACLC 528
F H Transport Pty Ltd v Ampol Petroleum (Queensland) Pty Ltd (1989) 7 ACLC 262
F P Leonard Advertising v K D Travel Services Pty Ltd (1993) 11 ACLC 1203
Fahey v MSD Spiers Ltd [1975] 1 NZLR 240
General Welding and Construction Co (Qld) Pty Ltd v International Rigging (Aust) Pty Ltd (1984) 2 ACLC 56
Hope v Hope (1854) 4 De GM and G 328
Hussey v Horne-Payne (1879) 4 App Cas 311
In re Sherry; London & County Baking Co Pty Ltd v Terry (1884) 25 Ch D 692
Legione & Anor v Hateley (1983) 152 CLR 406
National Mutual Life Association of Australasia Ltd v Oasis Developments Pty Ltd & Ors (1983) 1 ACLC 1263
Partnership Pacific v Scott, unreported; SCt of Qld; 24 September 1991
Quicksafe Freightlines Pty Ltd v Shell Co of Australia Ltd & Anor (1985) 10 ACLR 161
Re Damons Insurance Brokers Pty Ltd (1979) ACLC 32,027
Re Future Life Enterprises Pty Ltd (1994) 12 ACLC 274
Re Gasbourne Pty Ltd & Ors (1984) 2 ACLC 103
Re Great Britain Mutual Life Assurance Society (1880) 16 Ch D 246
Re Otway Coal Pty Ltd (1953) VLR 557
Re Rustic Homes Pty Ltd (1989) 49 SASR 41
Re Vaportec International Pty Ltd; Re Parktec International Pty Ltd (1994) 12 ACLC 123
Tecma Pty Ltd v Solah Blue Metal Pty Ltd (1988) 6 ACLC 1080
Texel Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 535
MASTER NEWNES: This is an application pursuant to the Corporations Act to wind up the defendant on the ground of insolvency. The application was made on the basis of a statutory demand served on the defendant under s 459E of the Act. No application was made by the defendant to set it aside. The circumstances in which that came about are a matter of dispute between the parties and it will be necessary to deal with those shortly.
The defendant opposes the winding up application on several grounds:
(a)there was no valid service of the statutory demand in that it was served in circumstances where the applicant knew it would not come to the attention of the defendant;
(b)there was no valid service of the statutory demand in that it was not accompanied by an affidavit verifying a debt owed by the defendant to the plaintiff;
(c)the application was defective in that the statutory demand and verifying affidavit were not filed in Court with the application.
The requirements for a statutory demand are set out in s 459E of the Act which, relevantly, provides as follows:
"(1)A person may serve on a company a demand relating to:
(a)a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum; or
(b)two or more debts that the company owes to the person, that are due and payable and whose amount total at least the statutory minimum.
(2)The demand:
(a)if it relates to a single debt - must specify the debt and its amount; and
(b)if it relates to two or more debts - must specify the total of the amount of the debts; and
(c)must require the company to pay the amount of the debt, or the total of the amount of the debts, or to secure or compound for that amount or total to the creditor's reasonable satisfaction, within 21 days after the demand is served on the company; and
(d)must be in writing; and
(e)must be in the prescribed form (if any); and
(f)must be signed by or on behalf of the creditor.
(3)Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that:
(a)verifies that the debt, or the total of the amount of the debts, is due and payable by the company; and
(b)complies with the rules."
Section 459G provides that a company may apply to the Court within 21 days after service of the statutory demand on it to set aside the demand. As I have said, no such application was made. The stipulated period having expired, it is now too late to make it: David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 69 ALJR 778.
By virtue of s 459C of the Act:
"…
(2)The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made:
(a)the company failed (as defined by section 459F) to comply with the statutory demand;
…
(3)A presumption for which this section provides operates except so far as the contrary is proved for the purposes of the application."
It was not in dispute that the defendant has failed, within the meaning of s 459F, to comply with the statutory demand.
Section 459Q provides:
"If 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 application:
(a)must set out particulars of service of the demand on the company and of the failure to comply with the demand; and
(b)must have attached to it:
(i)a copy of the demand; and
(ii)if the demand has been varied by an order under subsection 459H(4) - a copy of the order; and
(c)unless the debt, or each of the debts, to which the demand relates is a judgment debt - must be accompanied by an affidavit that:
(i)verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and
(ii)complies with the rules."
I will deal first with the defendant's argument that service of the statutory demand was invalid because the plaintiff knew at the time of the service that the manner of service would result in the demand not coming to the attention of the defendant.
The plaintiff relied for proof of service of the statutory demand on the affidavit of Ms Linda Ann Collins, a secretary then in the employ of the plaintiff's former solicitor, Mr Coad. In an affidavit sworn on 28 February 2003, Ms Collins says that on 19 July 2002 she sent by prepaid post to Unit 9, 884 Beaufort Street, Inglewood ("Unit 9"), the original Creditor's Statutory Demand for Payment of Debt, to which was a affixed an affidavit of the plaintiff. Copies of the documents are annexed to Ms Collins' affidavit. In the affidavit the plaintiff deposes to a debt of $35,000 owed to him by the defendant and acknowledged in writing, a copy of which acknowledgment is annexed to his affidavit.
Whether or not the acknowledgment is of a debt due to the plaintiff, rather than a company controlled by the plaintiff, and whether or not it is a debt owed by the defendant, rather than by its sole director, Mr McLernon, are issues to which I will return.
It is not in dispute that Unit 9 was the registered office of the defendant at the time of service. It was also not disputed by the defendant that in normal circumstances service by post to the registered office of a company is good service. It was contended, however, that in the circumstances of this case the posting of the statutory demand to the registered office of the defendant did not constitute good service on it.
Mr Terence John McLernon is the sole director of the defendant. In an affidavit sworn on 23 October 2002, Mr McLernon acknowledged that Unit 9 was the registered office of the company at the time of service. He says that it was the office of a John Miller, who, until early in 2002, had been his and the defendant's accountant, and who was still the plaintiff's accountant. Mr McLernon says that the statutory demand was never brought to his attention. Had it been brought to his attention, an urgent application would have been made to set it aside.
In an affidavit sworn on 5 February 2003 (but dated 24 November 2002), Mr McLernon says that he has been involved in a dispute with Mr Miller since early 2002.
On 5 February 2003 Mr McLernon swore a further "supplementary" affidavit to which he annexed a copy of a letter dated 11 July 2002 from Mr Miller to ASIC withdrawing consent to the use by the defendant of Mr Miller's office as the registered office of the company. The letter was in the following terms:
"Dear Sir
Re Halas Enterprises Pty Ltd ACN 075 697 540
TAKE NOTICE that John Miller, previously of Unit 9/884 Beaufort Street, Inglewood in the State of Western Australia hereby withdraws consent for the use by Halas Enterprises Pty Ltd of the address Unit 9/884 Beaufort Street Inglewood WA 6052 as that company's registered office under section 190(d) of the Corporations Law.
FURTHER TAKE NOTICE that the company Halas Enterprises Pty Ltd does not utilise the said Inglewood office as the principal place of business.
I have notified the Commission previously in regard to the fact that this company is no longer permitted to use the said address. I or my representatives take no responsibility whatsoever, for any notices that are issued to the said address and request that the Commission deletes any current reference utilising the said address by the company Halas Enterprises Pty Ltd forthwith.
Yours sincerely
John Miller"
On the letter to ASIC, Mr Miller's address was given as Suite 20/326 Hay Street, Perth.
The letter appears from the date stamp on it to have been received by ASIC on 17 July 2002. Mr McLernon says he was not informed by Mr Miller that his consent had been withdrawn, nor did Mr McLernon receive any notice of it from ASIC.
Mr Miller filed an affidavit sworn on 6 February 2003 in which he acknowledges writing the letter to ASIC. He says, however, that he continued to receive mail and any other documents which were delivered to Unit 9 and, where the documents were addressed to Mr McLernon or to the defendant, they were immediately forwarded to Mr McLernon's private post office box address.
It was the defendant's contention that, at the time the statutory demand was posted, the plaintiff knew that it would not come to the attention of the defendant. It said that, on the affidavit evidence, it should be inferred that the plaintiff knew that Mr Miller would not draw a notice served at that address to Mr McLernon's attention and that service in those circumstances was not good service.
The response of counsel for the plaintiff was that there was simply no basis for such an inference. The plaintiff's counsel also relied on an affidavit the plaintiff swore on 31 March 2003 in which the plaintiff denied there was any discussion or understanding between himself and Mr Miller that Mr Miller would not bring to Mr McLernon's attention the existence of the statutory demand and affidavit. The plaintiff says that he had no reason to suspect or believe that those documents would not be brought to Mr McLernon's attention.
In the course of argument, the defendant's counsel effectively conceded that this ground had not made out. In my view, that was rightly conceded. I do not consider that the defendant has established there was any collusion or arrangement between the plaintiff and Mr Miller in connection with the service of the statutory demand, nor anything else which would impugn the effectiveness of the service of it. The fact that the documents did not find their way to Mr McLernon is not to the point. There is no evidence that they were returned undelivered. Indeed, Mr Coad, the plaintiff's former solicitor, has deposed to the fact that the documents were not returned undelivered. I am satisfied on the evidence that the statutory demand was duly served on the registered office of the defendant in accordance with the requirements of the Act.
The next issue raised by the defendant was that the statutory demand was not accompanied by an affidavit verifying a debt owed by the defendant to the plaintiff. To follow that submission, it is necessary to go to the affidavit of the plaintiff in support of the statutory demand. In that affidavit the plaintiff says he is a creditor of the defendant. He says that on or about 15 September 1998 the defendant acknowledged in writing that it was indebted to him in the sum of $35,000. He confirms that the defendant is indebted to him in the sum of $35,000 and says that, despite demand, it has refused to pay that amount or any amount. A copy of the acknowledgment of debt is annexed to the affidavit.
The acknowledgment of debt is in the following terms:
"Acknowledgment of Debt
To Terry Magee
Suite 1
6/10 Douro Place, West Perth, 6005
I Terence John McLernon of 16 Hemsley Road, Yallingup, WA (the borrower) acknowledge that I personally and as a sole director of Halas Enterprises Pty Ltd ACN 075 697 540 indebted [sic] in sum of $35,000 to Terry Magee being the lender
1. in consideration of the lender having advanced $35,000 being to the borrower.
The principal sum will be repaid to the lender by the borrower on or before 16 November 1998.
The borrower hereby grants to the lender the right to lodge a caveat immediately as of this date over the property known as units 1 and 2, number 5 Harvest Road, North Fremantle, Western Australia and identified as lot 1 on strata plan 34946 and lot 2 on strata plan 34946, diagram 94392.
Signed sealed and delivered
[signed, T J McLernon]
Sole director
15/09/98
Terence John McLernon [signed, T J McLernon]
15/09/98
Witness
Alfred Michael Vegvary
15/9/98"
It is apparent from the evidence that the Lots 1 and 2 referred to in the acknowledgement of debt were, and are, registered solely in the name of the defendant.
Counsel for the defendant submitted that the acknowledgment was simply an acknowledgment of a debt owed by Mr McLernon personally, not of a debt owed by the defendant. He argued that the use of the word "director" in the acknowledgment was merely descriptive and he referred to The Swan [1968] 1 Lloyds Rep 5 per Brandon J at 13.
That case, however, was concerned with a different point. There the defendant, as agent for a company, had entered into a contract with the plaintiff for the repair of certain vessels owned by the defendant but operated by the company. The question was whether the defendant was personally liable with the company on the contract. At pp 12 – 13, Brandon J cited with approval the following passage from Halsbury's Laws of England, 3rd ed, vol 1, par 517:
"Prima facie a party is personally liable on a contract if he puts his unqualified signature to it. In order, therefore, to exonerate the agent from liability, the contract must show, when construed as a whole, that he contracted as agent only, and did not undertake any personal liability. It is not sufficient that he should have described himself in the contract as an agent. But if he states in the contract, or indicates by an addition to his signature, that he is contracting as agent only on behalf of a principal, he is not liable, unless the rest of the contract clearly involves his personal liability, or unless he is shown to be the real principal."
Brandon J went on to say (at 13):
"Where a person contracts as agent for a company and does nothing more than add the word 'director' or 'secretary' after his signature, it seems that he does not avoid personal liability."
I do not find the case of any real assistance in the present application.
The defendant's counsel took no point about the adequacy of the affidavit of the plaintiff in support of the statutory demand nor of the statutory demand itself. He emphasised in argument that the point in issue was not an attack on the statutory demand but on the service of it. He submitted that s 459E was mandatory in its terms and required that at the time of service the statutory demand be accompanied by an affidavit which verified the debt. In this case it did not. Rather, it referred to a debt which was owed not by the defendant, but by Mr McLernon personally.
The plaintiff's counsel argued that the acknowledgment was, in its terms, clearly an acknowledgment by Mr McLernon both in his personal capacity and on behalf of the defendant. There would have been no point in signing the document twice if it was intended only to acknowledge a personal debt. The fact that it had been executed twice by Mr McLernon showed that it was also intended to be an acknowledgment of debt by the defendant. The defendant's conduct in permitting caveats to be lodged against its land would also be inexplicable if it were not a debtor.
Counsel for the defendant submitted, in the alternative, that on the evidence the debt was owed not to the plaintiff personally but to one of the companies controlled by him. The plaintiff was not therefore a creditor of the defendant and accordingly had no standing under s 459P to bring a winding‑up application. In that regard, the defendant relied upon an affidavit of the plaintiff sworn 24 November 2002, in which the plaintiff said:
"The acknowledgment of debt the subject of these proceedings was intended by me to secure not the moneys which were owed to Startown by Halas for the unpaid deposits for the Harvest Terrace units but was to the best of my recollection in relation to other unpaid deposits due and owing by Halas in relation to is purchase of a property in Yallingup also from a company belonging to me."
Counsel for the plaintiff submitted that that passage simply used loose language and the position was sufficiently clarified by a further affidavit of the plaintiff sworn 31 March 2003 in which the plaintiff said:
"The debt the subject of the acknowledgment of debt consists of an estimate made by me at the time in consultation with the defendant's director Mr Terry McLernon (representing the defendant) of roughly what was owed to me (as the lender) by the defendant in respect of a whole host of dealings between the defendant and entities associated with me."
I do not consider that either of the grounds relied upon by the defendant has been made out. It must be said that the acknowledgment of debt is, to say the least, confusing. However, I accept the plaintiff's submission that it is properly to be construed as an acknowledgement not only by Mr McLernon, but also by the defendant, of liability for the debt. Moreover, in the affidavit accompanying the statutory demand, the plaintiff expressly deposes to the fact that the defendant is indebted to him. Although the terms of the acknowledgment of debt are far from a model of clarity, I do not therefore consider it can be said that the affidavit does not verify a debt owed by the defendant to the plaintiff. Nor do I consider that the passage in the plaintiff's affidavit of 24 November 2002, referred to by counsel for the defendant, has the effect for which the defendant contends. It is difficult to know precisely what that passage was intended to mean, but in the light of the plaintiff's affidavit accompanying the statutory demand and his affidavit of 31 March 2003, in both of which he deposes to the defendant's indebtedness to him personally, I do not accept that the evidence as a whole shows other than that debt is owed by the defendant to the plaintiff.
In the light of that conclusion, the question of whether, having regard to s 459S(1)(b) of the Act, it is now open to the defendant to oppose a winding‑up order on these grounds does not arise for decision. That is, whether the contentions that the affidavit did not verify a debt owed by the defendant but only by its sole director personally, alternatively that the debt is not owed to the plaintiff but rather to a company associated with him, and the consequences which are alleged to flow from that, are matters which the defendant "could have" relied upon in an application to set aside the statutory demand, with the result that they are now not open on this application unless they go to the issue of solvency. It is not suggested that they do go to insolvency. These matters were not, however, the subject of specific argument.
The other contention of the defendant is that there has been a failure to comply with s 459Q of the Act in that the statutory demand and accompanying affidavit were not filed in the Court with the application to wind up the defendant.
It is the case that the statutory demand and verifying affidavit are not attached to the application on the Court file. That much is accepted by the parties. The plaintiff does not, however, accept that the application was filed in that form. In an affidavit sworn on 4 April 2003, Mr Coad, the plaintiff's former solicitor, says that he has been practising law for 29 years. He says that he is well aware of the requirements for filing and serving such applications. Mr Coad says he filed this application himself. Mr Coad does not specify the particular documents he filed on this occasion and presumably now has no recollection of them. I am asked, however, to infer that he would have ensured that the documents were in order, as required by the Act.
A process server, Mr Reimers, has deposed in an affidavit sworn on 24 February 2003 that on 26 September 2002 he received written instructions from Galic and Co (who had assumed conduct of the matter on behalf of the plaintiff from Mr Coad) to serve at Unit 9, the following documents:
(a)An application to wind up the defendant;
(b)An affidavit of the plaintiff sworn 14 August 2002 verifying the application to wind up the defendant;
(c)A notice of change of solicitors; and
(d)An affidavit of service by post of creditor's statutory demand sworn by Linda Ann Collins on 21 August 2002;
(e)A copy of a letter from Galic & Co to the defendant.
Mr Reimers says that he served those documents at Unit 9 on 27 September 2002. He has annexed to his affidavit copies of the documents to which he refers.
The plaintiff submits that it has not been established that the statutory demand and verifying affidavit were not filed with the application. Alternatively he relies on s 467A of the Act.
Section 467A is in the following terms:
"An application under Part 5.4 or 5.4A must not be dismissed merely because of any one or more of the following:
(a)in any case - a defect or irregularity in connection with the application;
(b)in the case of an application for a company to be wound up in insolvency - a defect in a statutory demand;
unless the Court is satisfied that substantial injustice has been caused that cannot otherwise be remedied (for example, by an adjournment or an order for costs)."
It is impossible, on the evidence, to reach any firm view on whether or not the application, when filed, was accompanied by the statutory demand and verifying affidavit. It is possible the latter may have been dislodged and misplaced since filing. It may be that, by an error or oversight, they were not filed and that there was therefore an irregularity in connection with the application. But, in my view, even if the latter were the case, that would not be fatal to this application. The defendant was served with the full set of documents. It only became aware of the state of the Court file when that was raised by the Acting Master in the course of an interlocutory hearing in these proceedings. In other words, the defendant only became aware of the irregularity quite fortuitously, after it had appeared in opposition to this application. It has not sought to adduce any evidence of prejudice, nor has it pointed to any.
If the statutory demand and verifying affidavit were not filed with the application, there is nothing to suggest that substantial injustice has been caused to the defendant as a result. I accept the plaintiff's submission that s 467A of the Act applies and that the application should not be dismissed on this ground.
It follows, in my view, that the statutory demand and verifying affidavit were duly served on the defendant and there is no basis upon which the application should be dismissed by reason of any procedural irregularity, if in fact there be any such irregularity.
The final issue was solvency. That issue was raised at the initial hearing of this application on 11 March 2003 when the defendant sought leave to file an affidavit of Mr McLernon which was said to go to the issue of solvency.
On that occasion, I adjourned the matter to allow any further affidavit material to be filed by either party. I directed that any such affidavits be filed by 17 March.
At the hearing on 4 April 2003, counsel for the defendant sought a further adjournment of 14 days to adduce evidence of solvency. The adjournment was sought on the basis that the defendant had not been able to find Mr Miller, the defendant's former accountant, to obtain from him the company's books. However, as the plaintiff's counsel pointed out, on the defendant's own evidence Mr Miller had not been the defendant's accountant since early 2002. It was not apparent what evidence he could provide, or what assistance the books prior to that point would be, on the question of the current solvency of the defendant, nor was it apparent why Mr McLernon, as the sole director of the defendant, was not able adequately to depose to any matters relied upon as establishing its solvency. I declined to grant the adjournment. The defendant, in my view, had already had ample time to put on any evidence of solvency.
I did not understand the defendant to press the issue of solvency any further. In any event there is no evidence that the defendant is solvent. In fact, such evidence as there is points to the defendant's insolvency.
I consider the plaintiff is entitled to an order that the defendant be wound up. I will hear counsel on the precise form of the orders.
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