Professional Services of Australia Pty Ltd v Lean - [2018] WASC 28

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD -v- LEAN [2018] WASC 28

CORAM: SMITH AJ

HEARD: 13 DECEMBER 2017

DELIVERED : 31 JANUARY 2018

FILE NO/S: COR 160 of 2017

MATTER :Section 459G of the Corporations Act 2001 and Professional Services of Australia Pty Ltd (Formerly Subject to a Deed of Company Arrangement) (ACN 082 879 641)

BETWEEN: PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD
Plaintiff
AND
GRAEME TREVOR LEAN
Defendant

Catchwords:

Application to set aside statutory demand - Whether genuine dispute as to the existence of debt for remuneration of a court appointed receiver when the debt a judgment debt - Pending appeal - No stay of primary judgment - Whether offsetting claim open to be raised where claims are only open to be raised on behalf of other persons not party to these proceedings - Whether 'some other reason' for setting aside the statutory demand

Legislation:

Corporations Act 2001 (Cth), s 459E, s 459G, s 459H(1), s 459H(1)(a), s 459H(1)(b), s 459H(2), s 459H(5), s 459J(1), s 459J(1)(b)

Result:

Statutory demand to be set aside on condition of payment in court of amount of judgment debt together with interest

Category: B

Representation:

Counsel:

Plaintiff: Mr T R Stephenson
Defendant: Mr C P Stokes

Solicitors:

Plaintiff: Eastwood Law
Defendant: Chris Stokes & Associates

Case(s) referred to in judgment(s):

Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 233
Campbell‑Smith v Lean [2017] WASCA 89
Computer Accounting and Tax Pty Ltd (in liq) v Professional Services of Australia Pty Ltd [No 11] [2016] WASC 365
Computer Accounting and Tax Pty Ltd (in liq) v Professional Services of Australia Pty Ltd [No 2] [2010] WASC 318
Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133
Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91
Durkan v Sandbank Holdings Pty Ltd [2008] WASCA 249
Edge Technology Pty Ltd v Lite‑On Technology Corporation [2000] NSWSC 471; (2000) 156 FLR 181
Eumina Investments Pty Ltd v Westpac Banking Corporation [1998] FCA 824; (1998) 84 FCR 454
Frigger v Campbell‑Smith [2010] WASC 353
Hoare Bros Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302
Midas Management Pty Ltd v Equator Communications Pty Ltd [2007] NSWSC 759
Re ACES Sogutlu Holdings Pty Ltd [2014] NSWSC 140
Re Douglas Aerospace Pty Ltd [2015] NSWSC 167; (2015) 294 FLR 186
Remote Camps Australia Pty Ltd v Hazeldine Pty Ltd [2012] FCA 130
Tatlers.com.au Pty Ltd v Davis [2006] NSWSC 1055; (2006) 203 FLR 473
Tatlers.com.au Pty Ltd v Davis [2007] NSWSC 835; (2007) 213 FLR 109
Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466

SMITH AJ: Professional Services of Australia Pty Ltd (formerly subject to a deed of company arrangement) (PSA) makes application under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand dated 21 June 2017 served on it by Graeme Trevor Lean.
The debt upon which the statutory demand is based is a judgment debt that arose out of a decision by the Master in Computer Accounting and Tax Pty Ltd (in liq) v Professional Services of Australia Pty Ltd [No 11] [2016] WASC 365 (CIV 2265 of 2016).

History of relevant litigation between PSA, Mr Lean and related parties

A summary of the litigious history of this and related matters is set out in the judgment of Murphy JA in Campbell‑Smith v Lean [2017] WASCA 89, which I respectfully adopt without substantially repeating all of that history.
This application arises as a part of related long running disputes and litigation between a number of parties which include Mr Lean, PSA, Banning Holdings Pty Ltd (BH), Computer Accounting and Tax Pty Ltd (CAT), Mr Hartmut Frigger and Mrs Angela Frigger.
On 9 July 2008, Simmonds J awarded CAT (a company whose directors and shareholders were Mr and Mrs Frigger) damages in the sum of $967,202.50 against PSA and Mr Martin Banning: Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133 (CIV 2265 of 2006).
On 21 November 2008, Mr Lean was appointed receiver of PSA, by Simmonds J, for a limited purpose of appropriating and realising property to satisfy the judgment debt. Shortly before that order was made by the court, Mr Banning died and Mr Donald Campbell‑Smith, as the executor of Mr Banning's estate, was substituted as the second defendant in CIV 2265 of 2006.
When the order was made appointing Mr Lean receiver, the only property of substantial value available to satisfy the judgment debt was one share in BH. The order appointed Mr Lean the receiver to appropriate and realise the one share of BH to satisfy the judgment debt, as this was property held by Mr Banning in his name being a 50% shareholding in BH.
Pursuant to the order made on 21 November 2008, one share in BH was transferred to Mr Lean by Mr Campbell‑Smith, as executor, in December 2008.
Following the registration of the share in Mr Lean's name, Mr Lean entered into a contract for sale with Mr and Mrs Frigger. The Friggers paid Mr Lean the purchase price of $730,000. The directors of BH, Mrs Banning and Mr Campbell‑Smith, refused to process or register an executed transfer of the BH share. The constitution of BH contained provisions to the effect that the directors may decline to register any transfer without giving any reason therefor (article 22), and that no shares in the capital of the company could be sold or transferred unless and until specified rights of pre‑emption had been followed (article 22A).
Mr and Mrs Frigger commenced proceedings to compel, in effect, the registration of the transfer of the share in BH (CIV 1727 of 2009). The defendants initially comprised Mr Campbell‑Smith, Mrs Banning (who held the only other share of BH) and BH. Mr Lean was initially joined as a second plaintiff, but was subsequently removed and added as a fourth defendant. A declaratory order and a form of mandatory injunction were sought by Mr and Mrs Frigger against Mr Lean. BH, Mrs Banning and Mr Campbell‑Smith counterclaimed against Mr Lean and also against Mr and Mrs Frigger.
Before CIV 1727 of 2009 proceeded to trial, CAT was paid the original judgment sum of $1,165,661.59. That sum was then paid by CAT to Mr and Mrs Frigger.
On 23 October 2009, the Court of Appeal upheld an appeal by PSA and Mr Campbell‑Smith as executor, on damages awarded against them. The damages awarded to CAT were substantially reduced to $424,449. As CAT had already been paid under the original judgment, the Court of Appeal ordered CAT to, in effect, repay PSA and Mr Banning's estate amounts which came to approximately $800,000.
As the judgment debt that had been owed by PSA to CAT had been substantially paid, Simmonds J cancelled the receivership orders. In reasons published on 10 November 2010, his Honour decided that it was improbable that the services of the receiver were required further. Consequently, Mr Lean was discharged as receiver. However, Simmonds J was of the opinion a consequential order should be made in favour of Mr Lean to preserve a lien for his costs (of his work as the receiver) on the share of BH or its proceeds, as Mr Lean's costs of receivership were not chargeable to CAT and the lien survived his discharge as receiver: Computer Accounting and Tax Pty Ltd (in liq) v Professional Services of Australia Pty Ltd[No 2] [2010] WASC 318.
On 9 February 2011, Kenneth Martin J made orders permanently staying the proceedings in CIV 1727 of 2009 and ordered that Mr and Mrs Frigger pay certain costs of BH, Mrs Banning, Mr Campbell‑Smith and Mr Lean: see Frigger v Campbell‑Smith [2010] WASC 353.
In about 2014, Mr Lean made a claim in CIV 2265 of 2006 for fees in relation to his work as a court‑appointed receiver over the share in BH. The claim was opposed by PSA and Mr Campbell‑Smith, as executor. After hearing the parties the Master made orders on 8 December 2016 that the defendants in CIV 2265 of 2006 (PSA and Mr Campbell‑Smith, as executor) pay Mr Lean's remuneration.
The Master ordered that Mr Lean's costs and disbursements as receiver, be allowed in the sum of $75,000 together with interest at $12.32 per day accruing from 5 January 2017. He also ordered that the first and second defendants, namely PSA and Mr Campbell‑Smith as executor, pay Mr Lean's costs of the application, including reserved costs, fixed in the sum of $30,000 (being a total of $105,000) (the judgment sum). The Master stayed the time for payment of the sums until 5 January 2017.
By letter dated 16 December 2016, Mr Lean's solicitors made a demand that the amount of $105,000 be transferred to Mr Lean's bank account by close of business on 6 January 2017. In the letter the solicitors stated that if Mr Lean had not received this amount by 6 January 2017, he would claim interest on the amount from 5 January 2017 and that Mr Lean reserved his rights to issue a statutory demand under s 459E of the Corporations Act against PSA and a bankruptcy notice against Mr Campbell‑Smith.
On 10 January 2017, Mr Campbell‑Smith, as executor, and PSA lodged an appeal notice from the decision of the Master made on 8 December 2016.
On 8 February 2017, Mr Lean lodged an application in the appeal for security of costs.
On 13 April 2017, Murphy JA ordered Mr Campbell‑Smith and PSA, as appellants, pay into court by 27 April 2017, the sum of $35,000, as security for costs and that in the meantime the appeal be stayed: Campbell‑Smith v Lean.
On 29 May 2017, the Court of Appeal issued a notice to attend for Mr Campbell‑Smith and PSA to show cause why the appeal should not be dismissed for non‑compliance with the order for security for costs. The notice to attend was listed for hearing on 21 July 2017.
On 9 June 2017, the judgment sum being unpaid, Mr Lean issued a statutory demand pursuant to s 459E of the Corporations Act. The demand required PSA to pay the amount of the judgment debt ($105,000) within 21 days after service.
On 20 July 2017, the appellants attempted to pay into court the sum of $35,000. Accordingly, on 21 July 2017, the Court of Appeal granted an extension of time to lodge security, and an extension of time from 20 February 2017 to 28 July 2017 to lodge the appellant's case.

The grounds of application

PSA claims that the statutory demand be set aside on grounds that:
(a)PSA has a genuine claim against Mr Lean by way of counterclaim, set‑off or cross‑demand pursuant to s 459H(5) of the Corporations Act; and
(b)the service of the statutory demand was oppressive and would cause substantial injustice to PSA being 'some other reason' pursuant to s 459J(1) of the Corporations Act.

PSA's claims

Section 459H(1) of the Corporations Act applies where, on an application under s 459G, the court is satisfied of either or both that:
(a)there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b)the company has an offsetting claim.
Section 459H(2) of the Corporations Act requires the court to calculate the substantiated amount of the demand.
The award of remuneration made by Master Sanderson of $75,000 was broken into two components, namely, $47,951.50 for the remuneration and expenses incurred in the period prior to the sale of the share of BH by Mr Lean, and the balance of $27,048.50 for the period after the sale of the share.
The Master found that the sale process was flawed and the actions of Mr Lean after the sale of a share were not appropriate and that any amount charged by him should not be the subject of an order for remuneration [27] ‑ [28]. Whilst the Master accepted that Mr Lean's work after the sale of the share was not strictly necessary, he was of the opinion that it may be the case Mr Lean was required thereafter to undertake some further work consequent upon the sale of the share. PSA takes issue with this latter finding. It says no work actually completed by Mr Lean was identified by the Master as falling within this category, and, there was no finding that any work which had been completed was supported by 'adequate evidentiary material' to justify the award of $27,048.50.
PSA also says that despite being given every opportunity to do so Mr Lean failed to point to any work done himself that fell within his role as receiver following the sale of the share.
Consequently, PSA claims that based on Mr Lean's own evidence and the reasons given by the Master no order should have been made as to the work carried out consequent upon the sale of the share. A submission was also made that Mr Lean had charged IPAA Scale of charges plus 10% in his remuneration claim. As receiver, Mr Lean is bound not to exceed the IPAA Scale published in 1999 which had been approved in Western Australia as an appropriate rate for a receiver.
PSA also seeks to challenge the award by the Master in respect of remuneration for work done in the presale period as it says that there was evidence before the Master which established that work was carried out by Mr Lean which bore no, or, no obvious relationship to the receiver's role.
It is also argued that the factual basis for PSA's position was largely accepted by the Master. Yet, it is said that notwithstanding that the conduct by Mr Lean in his capacity as receiver was plainly unreasonable and outside the proper performance of his duty as receiver, no finding was made by the Master to reduce the presale component of the remuneration claim for the inappropriate or wasted work.
PSA also says it has an offsetting claim. In the hearing before the Master, PSA, together with Mr Campbell‑Smith, sought damages either to be fixed or assessed as a result of Mr Lean engaging them in the proceedings instituted by the Friggers and initially by Mr Lean in CIV 1727 of 2009. However, the Master did not make any findings about that claim, despite it being raised squarely before him for consideration.
Costs of defending CIV 1727 of 2009 is said to be an amount up to $116,000, plus interest and other costs. Whilst it is conceded that Mrs Banning, BH and Mr Campbell‑Smith as executor, have a partial entitlement to indemnity in respect to those costs from Mr and Mrs Frigger, regard should be had to a means enquiry of Mrs Frigger which indicates that it is unlikely that the Friggers would be able to pay anything towards the judgment amount in CIV 1727 of 2009 (being the costs awarded against them). Thus, it is claimed there is a potential for the offsetting claim to be a claim that is far greater in quantum than the total amount of Mr Lean's claim.
However, if the amount of the indemnity is deducted then the costs which are claimed as a claim in damages against Mr Lean are in the sum of approximately $47,000.

Is there a genuine dispute between PSA and Mr Lean about the amount of the judgment debt to which the demand relates or does PSA have an offsetting claim?

The matters put on behalf of PSA cannot at law give rise to a genuine dispute within the meaning of s 459H(1)(a) as to the existence or amount of the resultant judgment debt in these circumstances. Nor can the arguments raised, however genuine and strong, (in relation to which I make no findings) raise an offsetting claim within the meaning of s 459H(1)(b), as defined in s 459H(5).
The law is clear, that a judgment debt, while it stands, cannot be disputed; that is, it cannot be the subject of a 'genuine dispute' so as to enliven s 459H(1)(a). That is because the fact of the debt is res judicata between the parties.
As Barker J pointed out in Remote Camps Australia Pty Ltd v Hazeldine Pty Ltd [2012] FCA 130 [25], the law is crystal clear. A company cannot establish a genuine dispute about the existence of an amount of a debt to which the demand relates which may be the subject of an appeal to a higher court, that has not been stayed so far as the operation of the judgment is concerned.
In Re Douglas Aerospace Pty Ltd [2015] NSWSC 167; (2015) 294 FLR 186, Brereton J set out the well‑established authorities on this point. At [53] his Honour observed:
First, it is well-established that a judgment debt is beyond dispute, while it stands [Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235; Eumina Investments Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454; Midas Management Pty Ltd v Equator Communications Pty Ltd (2007) 25 ACLC 1,038; Joadja Whiskey v Abraham (2007) 25 ACLC 1,160, at [14] (Hammerschlag J)]. This applies even in the case of a default judgment [Diddy Boy Pty Ltd v Design Environment Pty Ltd [2009] NSWSC 14, at [40]; Virtual Technologies International Ltd v Gye [2010] NSWSC 399, at [11] ‑ [13]; Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466, at [9] ‑ [11]]. It applies also to an arbitration award [Quadwest Developments Pty Ltd v Thi (2009) 27 ACLC 160]. And it applies notwithstanding that the judgment is subject to an appeal or an application to set it aside, although the pendency of an arguable appeal may provide 'some other reason' for setting aside the demand ‑ at least if the judgment is the subject of a stay pending the appeal, or security is given [Wilden Pty Ltd v Greenco Pty Ltd (1995) 13 ACLC 1,039; Barclays Australia v Mike Gaffikin Marine; Eumina Investments v Westpac, 457-8; Eagle Homes Pty Ltd v LED Builders Pty Ltd [1999] NSWSC 1049, at [20]; Scope Data Systems v BDO Nelson Parkhill (2003) 199 ALR 56, at [17] ‑ [20]; Midas Management v Equator Communications Pty Ltd, at [12], [24]; ACN 001 891 103 Pty Ltd v Reiby Street Apartments Pty Ltd [2007] NSWSC 1345, at [8], [10]; Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd (2007) 69 NSWLR 374, at [26] ‑ [41]; Cranney Farm Pty Ltd v Corowa Fertilizers Pty Ltd (2011) 5 BFRA 188, at [57]]. Essentially, that is so because the judgment, so long as it stands, binds the parties and concludes any dispute as to the existence or amount of the debt.
An offsetting claim is defined in s 459H(5) to mean '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)'.
A statutory demand based on a judgment debt can be set aside, or varied, under s 459H(1)(b) if a company can show that it has a genuine offsetting claim, sounding in money, whereby the offsetting claim does not dispute the judgment debt itself but sets up a countervailing liability.
The standard of proof to be met when a company raises an offsetting claim to set aside a statutory demand is not high:
(a)A dispute must be genuine and an offsetting claim must also be genuine. To be genuine they must be bona fide: Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91 [52].
(b)An offsetting claim must not be 'spurious, hypothetical, illusory or misconceived': Edge Technology Pty Ltd v Lite‑On Technology Corporation [2000] NSWSC 471; (2000) 156 FLR 181; Durkan v Sandbank Holdings Pty Ltd [2008] WASCA 249; Diploma Construction (WA) Pty Ltd.
(c)The court is not required to engage in rigorous and in‑depth examination of the evidence relating to the offsetting claim: Edge Technology Pty Ltd; Durkan.
There appear to be in effect two offsetting claims made by PSA. The first arises out of costs incurred by PSA in CIV 2265 of 2006 (the original proceedings that resulted in the judgment debt). The second arises out of costs incurred in CIV 1727 of 2009 (the Friggers action).
In so far as the matters raised on behalf of PSA in respect of what is said to be the offsetting claim that relates to the quantum of the judgment debt, as this part of the claim attempts to dispute the judgment debt itself, it is not open to raise such a claim in this matter whilst the judgment debt stands. In particular, in so far as the offsetting claim sought to be pressed on behalf of PSA is a claim against Mr Lean not only disentitling him to remuneration for his work but also is a claim that PSA incurred unnecessary costs in CIV 2265 of 2006 because of the alleged misconduct or negligence by Mr Lean, this is also a claim which goes to the underlying indebtedness of the judgment debt. As such, such a claim is not open to PSA in seeking to set aside the judgment debt.

It is conceded that the losses suffered by Mr Lean engaging in the proceedings in CIV 1727 of 2009 were not occasioned by PSA. They were incurred by Mr Campbell‑Smith as executor, Mrs Banning and BH. Whilst this is an issue that may be capable of being ventilated in the appeal against the decision of the Master, it cannot be raised as an offsetting claim in this matter.
The point was made clear in Tatlers.com.au Pty Ltd v Davis [2007] NSWSC 835; (2007) 213 FLR 109. In this matter, White J held that where there are joint debtors, one of them being the plaintiff, the other a company, the company could not raise an offsetting claim available to its co‑debtor. Tatlers.com.au Pty Ltd had made an application under s 459G to set aside a statutory demand. The demand claimed $31,370 as the balance of a judgment debt. The judgment was for an amount of $75,000 and was entered in favour of a Mr Davis (the defendant) and a Ms Fletcher. Ms Fletcher was the sole director of Tatlers.com.au Pty Ltd. Mr Davis owed $11,000 to Ms Fletcher pursuant to an order for costs made in the Federal Magistrates Court. Tatlers.com.au Pty Ltd claimed it was entitled to set off against the judgment debt it owed to Mr Davis against an amount of $11,000 owed by Mr Davis to Ms Fletcher. One of the arguments put was if Tatlers.com.au Pty Ltd and Ms Fletcher were now to be sued together by Mr Davis, there could be no doubt that their joint and several liability would be reduced to the extent that each had several claims against Mr Davis.
Justice White explained why he rejected the argument as follows:
[43] Hence, it was argued that if Ms Fletcher had been entitled to her debt against the defendant before proceedings were brought by the defendant against her and the plaintiff, then, as the proceedings brought by the defendant against her and the plaintiff were for a joint and several obligation, the debt owed by Ms Fletcher to the plaintiff could have been set off against the debt for which the defendant obtained judgment against both of them. It was submitted that the availability of the set-off should not depend upon the accident that judgment had already been obtained. To the contrary, so it was argued, the plaintiff should be entitled to set off against the judgment owed by it the amount owed by the defendant to Ms Fletcher where she was also jointly and severally liable on the same judgment debt as the plaintiff, in order to avoid circuity of action. Counsel submitted that if the plaintiff paid the whole of the judgment debt pursuant to the defendant's demand, it would be entitled to recover contribution from Ms Fletcher for half of the judgment debt paid, but she could recover $11,000 from the defendant. The same result is reached if the plaintiff, availing itself of the set-off available to Ms Fletcher, paid the defendant the difference between the two judgments, and if Ms Fletcher was given the benefit of the set-off on the claim for contribution.
[44]However, this submission demonstrates the reason why one joint and several obligor who is sued alone cannot raise a set-off to which his or her co-obligor is entitled (Bowyer v Pawson (1881) 6 QBD 540). The reason is that, in a suit so constituted, rights of contribution between the co-obligors cannot be resolved. To take the present case, if the plaintiff were obliged to indemnify Ms Fletcher against her liability under the judgment in favour of the defendant, it would be unjust to allow the plaintiff to rely upon the set-off available to her against the defendant. If that were permitted, she would have to look to the plaintiff, rather than to the defendant, to recover the $11,000 owed to her by the defendant. There is no equity in allowing the plaintiff to distort the true position by taking advantage of a set-off available to her (Lord v Direct Acceptance Corporation Ltd (in liq) (1993) 32 NSWLR 362 at 369). The position would be different if the co-obligors are both joined in a suit so that a set-off available to one is actually given effect to, and rights of contribution between them can be determined. In the absence of such a suit, the plaintiff is not entitled to avail itself of the set-off available to its co-obligor (Bowyer v Patterson).
…
[46]It follows that in an action to set aside the statutory demand, to which the only parties are the plaintiff and the defendant, and in which the set-off available to Ms Fletcher cannot be given effect to, nor rights of contribution between the plaintiff and Ms Fletcher determined, the plaintiff cannot avail itself of the set-off available to Ms Fletcher.
The matters sought to be relied upon by PSA in its offsetting claim in its 'claim' for damages arising out of defending CIV 1727 of 2009 (the Friggers action) are losses incurred in the form of legal costs that arise out of an alleged claim of negligence or misconduct against Mr Lean in the sale of the share of BH. As PSA was not a party to CIV 1727 of 2009, I am not persuaded that this claim is a genuine offsetting claim. In my opinion, this part of the claim is misconceived, as it is not open to PSA itself to make such a claim. This is a claim that can only be pressed by the following defendants to CIV 1727 of 2009, namely, the first defendant, Mr Campbell‑Smith, Mrs Banning, the second defendant, and BH, the third defendant.
For these reasons, the first ground relied upon by PSA to set aside the statutory demand is not made out.

Is PSA entitled to relief under s 459J(1)(b) of the Corporations Act?

A court may set aside a demand under s 459J(1)(b) if it is satisfied there is 'some other reason' why the demand should be set aside. Section 459J(1)(b) confers a wide discretion. Section 459J(1)(b) extends to conduct that may be described as unconscionable, an abuse of process, or which give rise to substantial injustice: Hoare Bros Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302, 317 ‑ 318; (1996) 135 ALR 677, 691 ‑ 692.
In Diploma Construction (WA) Pty Ltd, Pullin JA (Newnes and Murphy JJA agreeing) observed:
Section 459J(1)(b) of the Corporations Act is a catchall provision which authorises the court to set aside a statutory demand if there is 'some other reason' why it should be set aside. This is a provision which will rarely be employed, but when employed, it will be for the purpose of meeting the demands of justice: Eumina Investments Pty Ltd v Westpac Banking Corp (1998) 84 FCR 454, 458 - 459. So for example in Durkan v Sandbank Holdings Pty Ltd [2008] WASCA 249, the appellant appealed against an order setting aside a statutory demand on the basis that the company had an offsetting claim. No application was made for expedition of the appeal and by the time it came on for hearing, the District Court was due to hear a trial of issues between the parties about the matter which the appellant said should have persuaded the court that there was a genuine offsetting claim. The court said:
'[I]t is not in the interests of justice for this court to analyse the genuineness of the respondent's claim so close to the time the District Court Action is to be decided on the merits, and in circumstances where the appellants did not seek to expedite the hearing of the appeal, did not apply for summary judgment in the District Court Action and did not obtain an order striking out the statement of claim' [83].
When considering whether to exercise its discretion under s 459J(1)(b), the court is entitled to take into account matters that have occurred after the service of the demand; that is, the court is to approach what will serve the statutory purpose in light of circumstances that prevail at the time it considers the application: Tatlers.com.au Pty Ltd v Davis [2006] NSWSC 1055; (2006) 203 FLR 473 [12].
PSA claims the service of the statutory demand is oppressive and unless set aside would cause substantial injustice to it which is a circumstance which raises 'some other reason' why the statutory demand should be set aside.
In support of this point PSA argues that it would appear that the statutory demand was issued by Mr Lean when he believed that PSA would be unable to pay into court an amount sufficient for security for costs (which had been ordered to be paid by the Court of Appeal) and the appeal would soon be dismissed. Consequently, it is submitted that the statutory demand was issued as a precursor to steps to liquidate PSA. It is also said that the maintenance by Mr Lean of the statutory demand in the face of this application is for the purpose of enabling Mr Lean to seek liquidation of PSA even during the pendency of the appeal.
Although PSA accepts that Mr Lean did not make any promise not to enforce the judgment pending the appeal, since no enforcement action had been taken at any stage prior to the issue of the statutory demand there was no need for PSA (or Mr Campbell‑Smith for that matter) to have taken any action to stay the judgment.
Thus, it is argued it would be unjust for PSA to have outstanding against it a finding of insolvency at the instance of a creditor the propriety of whose actions as receiver and the propriety of whose remuneration claim are presently before the Court of Appeal to be determined. In particular, it is said that this court should not be used as a way of bringing disputed debts before the court.
It says there was no necessity to seek a stay before the statutory demand was made and that even if sought after the demand was made and granted, PSA could not rely upon the stay to set aside the demand.
An argument is also put that once the statutory demand was served there was no ability by PSA to seek a stay of the judgment because, having made an application after the statutory demand was served, a stay is not something that PSA could have relied upon at the time when the statutory demand was issued. This submission appears to go to a point as to whether it would have been open in circumstances if the judgment had been stayed whether PSA could claim that the statutory demand was defective or that it should not have been issued or should be cancelled. This point, however, is not relevant as PSA has not sought a stay of the judgment of the Master.
With respect, to the arguments put by counsel on behalf of PSA, that appear to be a submission that an application for a stay would not assist its case in this matter I do not agree. Firstly, if a stay of the judgment had been granted by the Court of Appeal it would have been open at law to PSA to maintain a claim that it had a genuine offsetting claim in so far as the claims it seeks to put forward dispute the judgment debt. Secondly, for reasons that follow as to the question of whether an appeal raises an arguable case, PSA would likely have had compelling grounds to set aside the demand on grounds of 'some other reason' within the meaning of s 459J(1)(b): see for example Tatlers.com.au Pty Ltd v Davis [2006] NSWSC 1055; (2006) 203 FLR 473 [28].
Thirdly, Mr Lean put PSA on notice prior to the date that the judgment sum was due and payable and that he reserved his right to issue a statutory demand against PSA.
Fourthly, a judgment debtor is entitled to the fruits of his or her litigation. As Brereton J in Re ACES Sogutlu Holdings Pty Ltd [2014] NSWSC 140 [16] aptly pointed out:
[I]t cannot be contended that, by seeking to enforce a judgment that has not been stayed, notwithstanding that an appeal is pending, a judgment creditor thereby engages in an abuse of process or unconscionable conduct. To the contrary, prima facie a judgment creditor, even pending an appeal, is entitled to the fruits of the judgment, and a judgment debtor that wishes to procure a different position is bound to apply to the Court in which the judgment was given, or its appellate division, for a stay of the judgment pending appeal.
It appears that both parties have not been diligent in progressing the appeal before the Court of Appeal.
It is clear that PSA and Mr Campbell‑Smith delayed for a period of approximately five months in lodging the appellant's case.
Mr Lean, too, has not been as diligent as he should be in defending the appeal. Mr Lean was directed by the Court of Appeal to file his case by 5 October 2017. When this matter was heard on 13 December 2017 he had not done so. When counsel for Mr Lean was asked if an explanation could be given as to why that was the case, counsel informed the court he was not able to do so.
In circumstances where both parties have not been diligent in progressing the appeal, I am not persuaded the delay of Mr Lean is a matter I should have regard to. If only Mr Lean had been the sole party whose conduct had resulted in delay in progressing the appeal to hearing, I would have been of the opinion that this was a circumstance that I would have had regard to when considering whether there is 'some other reason' within the meaning of s 459J(1)(b).
Having read the judgment of the Master and reviewed the grounds of appeal, I agree that the appeal is reasonable and raises at least some arguable grounds. I have not considered all of the grounds. However it appears to me that some of the issues raised in respect of the quantum of remuneration in respect of fees and charges after the sale of one share of BH, awarded by the Master, raise reasonable and arguable grounds.
Yet, an existing appeal on reasonable and arguable grounds against a judgment debt if successful, that expunges the judgment debt, in itself, in the absence of a stay, is not a circumstance that will constitute 'some other reason' why the demand should be set aside: Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 233.
However, I am of the opinion that 'some other reason' will exist; that is, the demands of justice would be met if the amount of the judgment debt, together with interest calculated from 5 January 2017 to the date of the delivery of this judgment is paid into court. If the payment into court is made, this will enable the judgment debt to be met in the event the Court of Appeal proceedings do not result in the whole, or part, of the judgment debt being set aside. The 'some other reason' would then exist as Mr Lean would then be assured of the funds to meet the debt, the subject of the statutory demand.
This was the approach applied in Eumina Investments Pty Ltd v Westpac Banking Corporation [1998] FCA 824; (1998) 84 FCR 454; Midas Management Pty Ltd v Equator Communications Pty Ltd [2007] NSWSC 759 and Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466.
For these reasons, I intend to make an order that on condition that PSA pay into court the sum of $105,000 plus interest on $75,000 of that sum (calculated from 5 January 2017 to 31 January 2018) within 14 days, that is by 14 February 2018, the statutory demand dated 21 June 2017 will be set aside.