Re Lifestyle Residences Hobsons Bay Pty Ltd (recs & mgrs apptd)
[2023] VSC 179
•6 April 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2022 05164
IN THE MATTER of LIFESTYLE RESIDENCES HOBSONS BAY PTY LTD
(ACN 615 058 305) (RECEIVERS AND MANAGERS APPOINTED)
BETWEEN:
| LIFESTYLE RESIDENCES HOBSONS BAY PTY LTD (ACN 615 058 305) (RECEIVERS AND MANAGERS APPOINTED) | Plaintiff |
| v | |
| GUARDIAN EARLY LEARNING CENTRES PTY LTD (ACN 094 805 820) | Defendant |
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JUDGE: | Hetyey AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 29 March 2023 |
DATE OF JUDGMENT: | Oral reasons for decision delivered on 30 March 2023, revised on 6 April 2023 |
CASE MAY BE CITED AS: | Re Lifestyle Residences Hobsons Bay Pty Ltd (recs & mgrs apptd) |
MEDIUM NEUTRAL CITATION: | [2023] VSC 179 |
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CORPORATIONS — Corporations Act 2001 (Cth) — Part 5.4 — Insolvency — Statutory demand — Service effected under s 109X(1)(a) of Act by leaving it at company’s registered office — Whether requirement to serve statutory demand on receivers and managers of company — s 459G — Where application to set aside demand made outside statutory period — s 459J(1)(b) of Act —Whether demand can be set aside for want of fair notice — s 459E(2) of the Act — Form of statutory demand — Whether statutory demand a nullity because fails to provide address for service within the state demand was served — Re International Materials & Technologies Pty Ltd (2013) 282 FLR 362 distinguished — Application dismissed.
CORPORATIONS —Corporations Act 2001 (Cth) — Receivers and managers — Where statutory demand served on company in receivership — Where application to set aside demand brought in name of company by director — Residual power of director to commence proceeding — Where director required to provide satisfactory indemnity to company for costs — Where security required for indemnity.
PRACTICE AND PROCEDURE — Costs — Unsuccessful application to set aside statutory demand — Where application dismissed for want of jurisdiction — Where application doomed to fail — Order for costs against non-party director — Order on standard basis up to certain date and on indemnity basis thereafter.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Welner, solicitor | Welner Lawyers |
| For the Defendant | Mr D Gration | McCullough Robertson |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Procedural history and material relied upon................................................................................ 1
Whether proceeding commenced with authority?...................................................................... 4
Can the proceeding continue?......................................................................................................... 7
Whether application was made within the statutory period?................................................... 9
Relevant statutory provisions and principles.................................................................................. 9
Evidence regarding service of statutory demand........................................................................... 11
Submissions on service of statutory demand................................................................................. 14
Finding on service of demand and timing of s 459G application.................................................. 15
Answers to preliminary questions............................................................................................... 16
Fair notice argument........................................................................................................................ 17
Whether statutory demand a nullity............................................................................................ 19
Costs.................................................................................................................................................... 23
Conclusion......................................................................................................................................... 27
HIS HONOUR:
Introduction
By originating process dated 15 December 2022, Lifestyle Residences Hobsons Bay Pty Ltd (‘company’ or ‘plaintiff’) makes an application under s 459G of the Corporations Act 2001 (Cth) (‘Act’) to set aside a statutory demand dated 22 November 2021, in the sum of $213,166.89 (‘statutory demand’ or ‘demand’) and issued by Guardian Early Learning Centres Pty Ltd (‘defendant’). The application was made in the name of the company by its sole director and shareholder, Mr David Burgess, in circumstances where receivers and managers were appointed to the company on or around 14 September 2022. It is common ground that Mr Burgess did not seek the consent of the receivers and managers prior to commencing the proceeding.
Pursuant to r 47.04 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’), I am now required to determine the following preliminary questions:
(a) whether the proceeding has been properly commenced with the authority of the company;
(b) depending on the answer to (a), whether the proceeding can continue; and
(c) whether the application was made within the statutory period specified in s 459G(2) of the Act.
(together, ‘preliminary questions’).
Procedural history and material relied upon
The originating process invokes the genuine dispute ground[1] and refers to a defect causative of substantial injustice[2] as the bases to set aside the demand. However, it is unnecessary to enquire into those matters in answering the preliminary questions. In the originating process, Mr Burgess, in his capacity as shareholder of the company, also seeks leave under s 236 (and presumably s 237) of the Act to bring the proceeding in the name of the company. This was presumably to address the fact that the proceeding had been initiated by him on behalf of the company without the consent of Mr Said Jahani and Mr Andrew Hewitt of Grant Thornton Australia Limited as receivers and managers (‘receivers’).
[1]Corporations Act 2001 (Cth) s 459H(1)(a) (‘Corporations Act’).
[2]Ibid s 459J(1)(b).
The matter was first before the Court on 8 March 2023 and adjourned until 16 March 2023 to allow the parties to engage in settlement discussions. Around that time, Mr Burgess signed a deed of settlement on behalf of the company. However, it was later conceded by Welner Lawyers, who act for the company and ostensibly Mr Burgess, that Mr Burgess did not have authority to bind the company to a settlement given the appointment of the receivers. On 16 March 2023, the Court set out the preliminary questions and made a number of procedural orders to enable the hearing of the preliminary questions today (‘16 March orders’). In particular, the 16 March orders required service of the material in the proceeding on the receivers, the filing of further affidavit material by the plaintiff and the exchange of short written submissions.[3] The matter was listed for hearing on 29 March 2023 and was heard on that date.
[3]In addition, because of the reference to ss 236 and 237 of the Act in the originating process, on 16 December 2022, Connock J made an order referring the originating process to an Associate Judge for hearing and determination pursuant to r 77.05 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’) and, if required, also pursuant to r 16.1(3) of the Rules.
On 22 March 2023, Welner Lawyers wrote to the lawyers acting for the receivers in relation to the proceeding. The correspondence referred to the earlier service of the originating process and documents filed in the proceeding upon the receivers’ lawyers on 20 March 2023. Importantly, the 22 March 2023 correspondence stated that:
(a) Mr Burgess has agreed to be liable for all of the company’s legal costs charged by Welner Lawyers;
(b) Welner Lawyers will not seek to recover any costs from the company;
(c) the defendant accepts that $39,732 is adequate security for the defendant’s costs of the proceeding, having regard to the 16 March orders; and
(d) Mr Burgess will pay the sum of $39,732 into Court as security for the defendant’s costs should the defendant obtain a costs order in its favour.
It is unclear if the receivers’ lawyers have responded to this correspondence.
At the hearing, Mr Burgess, through his solicitor, gave the following undertakings to the Court:
(a) an undertaking to pay the defendant’s costs in the event of an adverse costs order;
(b) an undertaking to indemnify the company for the costs of the company in the proceeding; and
(c) an undertaking to be solely responsible for Welner Lawyers’ costs in the proceeding.
(together, ‘relevant undertakings’).
Further, the parties and Mr Burgess agreed to a form of order whereby Mr Burgess would pay into Court the amount of $39,732 as security by 19 April 2023, for the defendant’s costs in the event of an adverse costs order being made in its favour.[4]
[4]Mr Burgess also agreed to an order that, in the event security was not provided by the required date, the proceeding be stayed until the security be so provided. However, the parties agreed that if the proceeding was ultimately dismissed by the Court, an order for a stay would be otiose.
In addition to dealing with the preliminary questions, the company sought to raise two additional arguments at the hearing. The first was that the statutory demand should be set aside under s 459J(1)(b) of the Act for want of ‘fair notice’. The second additional argument relies on the judgment of Brereton J in Re International Materials & Technologies Pty Ltd,[5] and like decisions, to the effect that a statutory demand that fails to provide an address for service within the state the demand is served does not comply with s 459E(2) of the Act and Form 509H to the Corporations Regulations 2001 (Cth) (‘Corporations Regulations’) and is therefore a nullity.
[5](2013) 282 FLR 362 (Brereton J) (‘Re International Materials’).
Both of these arguments were made without prior notice to the defendant or to the Court. Nevertheless, the Court allowed the plaintiff to ventilate these points and the defendant was in a position to make brief submissions in response to them.
The plaintiff relies on:
(a) the affidavits of David Welner sworn on 15 December 2022, 23 March 2023, 28 March 2023 and 29 March 2023, respectively;
(b) the affidavit of Paula Baldacchino sworn on 23 March 2023;
(c) the affidavit of Sam Cimino sworn on 23 March 2023; and
(d) written submissions dated 28 March 2023.
The defendant relies on:
(a) the affidavits of Celia Luki affirmed on 27 January 2023, 15 March 2023 and 28 March 2023, respectively;
(b) the affidavit of Kaya Lehmann affirmed on 22 December 2022; and
(c) written submissions dated 31 January 2023 and 28 March 2023, respectively.
I will now deal with each of the preliminary questions in turn.
Whether proceeding commenced with authority?
The plaintiff submits, the defendant agrees, and I accept that Mr Burgess had authority to commence this proceeding.
As a matter of law, the appointment of receivers to a company does not entirely displace a director’s power and authority to commence a proceeding.[6] While receivers may effectively control a company’s dealings with the outside world, a receivership does not change the company’s internal structure.[7] A proceeding may be instituted by a director in his or her ‘residual capacity’.[8]
[6]Hawkesbury Development Co Ltd v Landmark Finance Pty Ltd (1969) 92 WN (NSW) 199, 209 (Street J) (‘Hawkesbury Developments’); Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] QB 814, 819–21 (Shaw LJ) (‘Newhart Developments’); Paramount Acceptance Co Ltd v Souster (1981) 2 NZLR 38, 43 (Davison CJ, Richardson and McMullin JJ) (‘Paramount Acceptance’); Re Phillips Oysters Pty Ltd v National Australia Bank Ltd [1992] FCA 547, [28] (Lockhart J) (‘Phillips Oysters’); Deangrove Pty Ltd (recs and mgrs apptd) v Commonwealth Bank of Australia (2001) 108 FCR 77, 84 [30] (Sackville J) (‘Deangrove’); Ernst & Young (reg) v Tynski Pty Ltd (2003) 47 ACSR 433, 434 [4], 438–9 [24], 439 [27] (Branson, Marshall and Stone JJ) (‘Ernst & Young v Tynski’); Tred Nominees Pty Ltd (recs & mgrs apptd) v Albarran [2021] VSC 494, [20] (Hetyey AsJ) (‘Tred Nominees’).
[7]Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (2006) 60 ACSR 217, 221 [21] (French J) (‘ASIC v Lanepoint’).
[8]Ernst & Young v Tynski, 439 [27] (Branson, Marshall and Stone JJ); Tred Nominees, [20] (Hetyey AsJ).
However, the practical question arises as to ‘whether the exercise by a director of any power in the name of the company would interfere with the legitimate exercise by the receivers of their powers’. [9] Put differently, the real question is whether the director can exercise a power ‘without prejudicing the legitimate interests of the receiver and the secured creditor in the realisation of the [relevant] assets’.[10] In Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (‘ASIC v Lanepoint’), the regulator applied to wind up two companies on the basis that receivers had been appointed to them under particular company charges.[11] A director of the companies sought leave under ss 236 and 237 of the Act to defend the winding up applications in the name of the companies. Justice French (as his Honour then was) held that a director was entitled, as a matter of law, to oppose a winding up application in the name of the company and therefore it was unnecessary to seek leave under ss 236 and 237 of the legislation.[12] His Honour also found that because the receivers did not oppose the regulator’s winding up applications, there was no actual or apparent conflict between their non-opposition and the director’s proposed exercise of the companies’ rights to oppose the winding up proceedings.[13] Nor did the existence of the receivers’ power under s 420 of the Act to defend the winding up applications give rise to any conflict.[14] Further, French J recognised that absent the director’s participation, there was no natural contradictor to the winding up application.[15] Whilst French J ultimately held that the director was permitted, without leave of the Court, to defend the winding up application in the name of the companies, it was not to be assumed that he would be allowed to resort to the companies’ assets for funding legal representation in the winding up proceedings.[16]
[9]ASIC v Lanepoint, 221 [21].
[10]Re Geneva Finance Ltd; Quigley (rec and mgr apptd) v Cook (1992) 7 WAR 496, 511 (Owen J).
[11]ASIC v Lanepoint, 217 [1].
[12]Ibid 221 [17].
[13]Ibid 222 [22].
[14]Ibid.
[15]Ibid 222 [24].
[16]Ibid 222 [24]–[25].
The case of Capital Globe Investments Pty Ltd v Parker Investments Australia Pty Ltd[17] is directly on point. There, a company’s sole director sought to continue the company’s application to set aside a statutory demand notwithstanding that receivers had been appointed to the property of the company. The respondent creditor contended leave was required under s 237 of the Act. The Court considered two preliminary issues, the first being whether the appointment of receivers had affected the residual power of the company’s sole director to continue the application to set aside the demand and secondly, if no such residual power existed, whether the director should be granted leave pursuant to s 237 to continue the proceeding on behalf the company. Applying earlier authorities, including ASIC v Lanepoint, Applegarth J determined that where a statutory demand is served upon a company in receivership, the director may initiate or maintain a proceeding in the name of the company to set aside the statutory demand provided there is no interference with, or prejudice to, the receivership or secured creditors.[18] While the receivers did not assert any such prejudice, that was ostensibly because the director had made an offer to indemnify the company and the receivers against any adverse costs consequences of the proceeding.[19] The Court held the director’s offer to be personally responsible for any costs was appropriate and that the director should also provide security in respect of any costs order made against the company arising from the continued prosecution of the application.[20] As such, it was unnecessary to address the question of whether leave was required under s 237 of the Act.
[17](2011) 2 Qd R 565, 568 [9]–[10] (Applegarth J) (‘Capital Globe').
[18]Ibid 567–8 [6]–[8].
[19]Ibid 568 [8].
[20]Ibid 568 [9].
Here, I am satisfied that the appointment of the receivers did not entirely displace the powers and authority of Mr Burgess as a director. Mr Burgess had the residual power to commence the application without the leave of the Court. No application for leave to bring a derivative proceeding under ss 236 and 237 of the Act was therefore necessary in the circumstances.
I note that neither the company nor Mr Burgess has adduced any evidence of the powers of the receivers, the details of the property over which they have been appointed, or whether as director he retains control over property excluded from the receivership. However, on its face, the exercise of the director’s residual power to initiate the proceeding did not clearly interfere with the legitimate exercise by the receivers of their powers in respect of the relevant property over which they have been appointed. The receivers have not sought to intervene in the proceeding to express any contrary position.
A separate question arises as to whether the continuation of the proceeding may prejudice the legitimate interests of the receivers and the secured creditor in relation to the realisation of the secured property. Such prejudice will arise if the company’s assets are imperilled by the costs of the litigation. This leads to the next preliminary question, namely whether the proceeding can continue and, if so, on what conditions.
Can the proceeding continue?
As I stated in Tred Nominees Pty Ltd (recs & mgrs apptd) v Albarran:[21]
The weight of authority clearly supports the proposition that where a director initiates and maintains a proceeding in the name of a company in receivership without the consent of the receivers, he/she is usually required to satisfactorily indemnify the company against any liability for costs.[22]
…
The governing principle is that those giving instructions on behalf of a company must demonstrate that ‘nothing in the course of the proceedings which they institute is going in any way to threaten the interests of the debenture holders’.[23] For example, the conduct of proceedings by a director in the name of a company in receivership may result in an order for costs being made against the company and thereby deplete its assets, imperil the property the subject of the security and interfere with the performance by the receiver of his/her duties and the exercise of his/her powers.[24] Where the secured property of a company in receivership is placed at risk by the prosecution of a proceeding brought in the company’s name by its director (including a proceeding to challenge a debenture under which the receivers were appointed or the manner in which the appointment occurred), the right to continue the proceeding is conditional upon the company being indemnified against any liability for costs.[25]
[21][2021] VSC 494, [28]–[29].
[22]Citing Newhart Developments, 821; Paramount Acceptance, 43; NEC Information Systems Australia Pty Ltd v Lockhart (1990) 2 ACSR 502 (Giles J); Charmae Investments Pty Ltd v Australia & New Zealand Banking Group Ltd [1991] ATPR 41-063 (Northrop J); Phillips Oysters, [28]–[29]; Deangrove, 87 [40]; Ernst & Young v Tynski, 439 [26]; Capital Globe, 568.
[23]Deangrove, 88 [47], quoting Newhart Developments, 821.
[24]Phillips Oysters, [28].
[25]See also Newhart Developments, 821; Deangrove, 87 [40]; Capital Globe Investments, [9]–[10].
In my view, the interests of the relevant secured creditor are threatened by the continuance of this proceeding because the company’s assets are at risk of being diminished by the legal costs incurred and its exposure to an adverse costs order. Accordingly, it is appropriate that Mr Burgess now provide a satisfactory indemnity to the company in respect of these costs. Further, the indemnity should be underpinned by an appropriate amount of security, also provided by Mr Burgess.
I note there is a suggestion in the company’s written submissions that the undertaking by Mr Burgess to pay adverse costs and agreement to pay an amount of security into Court in the event of an adverse costs order are distinct and alternative courses of action. In fact, the requirement for the indemnity to cover the company’s costs and the need for that indemnity to be supported by security are related requirements.[26] They are opposite sides of the one coin.
[26]See the approach in Capital Globe Investments, [9] and Tred Nominees, [37].
As previously stated, Mr Burgess made an offer to the receivers to indemnify the company for its legal costs incurred in this proceeding and to pay the sum of $39,732 (‘agreed security sum’) into Court as security for the defendant’s costs. He has also proffered the relevant undertakings to the Court at the hearing and agreed to an order regarding the payment of the agreed security sum into Court for the defendant’s costs. The agreed security sum finds its origins in correspondence from the defendant’s lawyers dated 17 March 2023 and sent to Welner Lawyers in accordance with the 16 March orders. Attached to the correspondence is a table setting out the defendant’s actual costs incurred to date of $32,853, costs associated with the hearing of the preliminary questions in the amount of $12,720, and the balance of the costs being referable to any substantive hearing of the proceeding. In total, the defendant projects that its costs will amount to $59,598. The agreed security sum is two thirds of those total costs.
It is just and reasonable in all the circumstances that Mr Burgess pay security in the form of the agreed security sum into Court. The right of Mr Burgess to commence and continue the proceeding in the name of the company is contingent upon him providing the relevant undertakings and paying into Court the agreed security sum.
I turn then to the remaining preliminary question of whether the application was made within the statutory period specified in s 459G(2).
Whether application was made within the statutory period?
Relevant statutory provisions and principles
Section 459G of the Act relevantly provides that:
(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2) An application may only be made within the statutory period[27] after the demand is so served.
(3) An application is made in accordance with this section only if, within that period:
(a) an affidavit supporting the application is filed with the Court; and
(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.
[27]The term ‘statutory period’ is defined in s 9 of the Act as: ‘(a) if a period longer than 21 days is prescribed—the prescribed period; or (b) otherwise—21 days’.
It is beyond doubt that where an application under s 459G has not been filed and served within the statutory period, the Court has no jurisdiction to consider the application and it will be dismissed as incompetent.[28] Further, the statutory period is ‘strict and immutable.’[29] There are no means by which the 21 day statutory period can be extended[30] or service validated[31] after its expiration.
[28]David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265, 277 (Brennan CJ, Dawson, Gaudron, McHugh and Gummow JJ) (‘David Grant’). See also Carinda Homes Pty Ltd v Highlands Austral Pty Ltd [2003] FCA 275 (Lindgren J) (‘Carinda Homes’); Renegade Rigging Pty Ltd v Hanlon Nominees Pty Ltd [2010] VSC 385, [2] (Ferguson J) (‘Renegade Rigging’); Autumn Solar Installations Pty Ltd v Solar Magic Australia Pty Ltd [2010] NSWSC 463, [4] (Barrett J) (‘Autumn Solar Installations’).
[29]Jin Xin Investment and Trade (Aust) Pty Ltd v ISC Property Pty Ltd (2006) 196 FLR 350, [5] (Barrett J) (‘Jin Xin Investment’); David Grant, 276–7.
[30]David Grant v Westpac, 277–8; Golden Plantation Pty Ltd v TQM Design and Construct Pty Ltd [2010] NSWSC 1453, [24]–[25] (Barrett J).
[31]Rochester Communications Group Pty Ltd v Lader Pty Ltd (1997) 143 ALR 648; Marlan Financial Services Pty Ltd v New England Agricultural Traders Pty Ltd (1999) 158 FLR 256, 266 (‘Re Marlan’); Austar Finance Group Pty Ltd v Campbell (2007) 215 FLR 464, 478 [71] (Austin J) (‘Austar Finance’).
To ascertain whether the company has commenced its s 459G application within the statutory period, it is necessary to determine when precisely it was served with the statutory demand.
Section 109X(1) of the Act relevantly provides that a document, including a statutory demand, may be served on a company by:
(a) leaving it at, or posting it to, the company’s registered office; or
…
(c) if a liquidator of the company has been appointed--leaving it at, or posting it to, the address of the liquidator's office in the most recent notice of that address lodged with ASIC; or
(d) if an administrator of the company has been appointed--leaving it at, or posting it to, the address of the administrator in the most recent notice of that address lodged with ASIC; or
…
The provision is ‘permissive and facultative’ in nature and not mandatory[32] or proscriptive.[33]
[32]Deputy Commissioner of Taxation v Starpicket Pty Ltd (2012) 212 FCR 578, 589 [72] (Greenwood J) (‘Starpicket’); Chen v Kornucopia Pty Ltd (No 1) (2019) 59 VR 305, 319 [50] (Sifris J, as his Honour then was) (‘Kornucopia (No 1)’).
[33]Kookaburra Educational Resources Pty Ltd [2021] FCA 797, [57] (Halley J) (‘Kookaburra’), citing Polstar Pty Ltd v Agnew (2007) 208 FLR 226, 229–30 [14]–[16] (Barrett J); Australian Solar Electrics Pty Ltd v IPD Group Ltd [2012] FCA 786, [8] (Gordon J); Intelogent Pty Ltd v Onthego Group Pty Ltd [2021] FCA 257, [33]–[39] (Farrell J).
In Woodgate v Garard Pty Ltd (‘Woodgate’),[34] Palmer J stated:
[I]f a document required to be served on a company by the Corporations Act, whether or not it initiates proceedings, is served in accordance with any of the modes prescribed in s 109X Corporations Act … the document is validly served and once service in a prescribed mode is proved, a proceeding cannot be challenged on the basis that the document did not actually come to the attention of the company …[35]
[34](2010) 78 ACSR 468.
[35]Ibid 476 [44(i)] (citations omitted).
Evidence regarding service of statutory demand
The defendant has adduced evidence that its lawyers arranged for the statutory demand and accompanying affidavit to be couriered to the company’s registered office, c/o Boss Private Clients Pty Ltd, Level 2, 428 Little Bourke Street, Melbourne, Victoria 3000 (‘registered office address’).
On 22 November 2022, Ms Celia Luki, the solicitor with carriage of the matter, ascertained the registered office address from an Australian Securities and Investments Commission (‘ASIC’) company search. Ms Luki then requested the Office Services Clerk in her firm, McCullough Robertson in Redfern, New South Wales, to organise for the documents to be couriered to Melbourne for delivery to the registered office address. Ms Kaya Lehmann, a Client Services Assistant at McCullough Robertson, has given evidence that she received Ms Luki’s instructions on the service of the statutory demand in an email forwarded to her by the Office Services Clerk, who also provided the statutory demand and accompanying affidavit. Ms Luki’s email contained details of the registered office address and the title of the documents to be delivered. Ms Lehmann then logged into the Toll Priority (Aus) system and inputted those details, recording Ms Luki’s email address as the contact person to receive email updates on the progress of the delivery of the demand. She then printed a label from the Toll system, which was automatically generated from the details she had entered, including all of the recipient’s details. She affixed the label onto a Toll Express Services priority satchel and obtained a tracking number and manifest document. She then placed the statutory demand and accompanying affidavit into the satchel/envelope and took a photograph of the documents partially inserted into the envelope before sealing it. While the photograph does not clearly show the registered office address, it does show the label generated by the Toll system, including a QR code. I infer that the QR code facilitated the display of the relevant details Ms Lehmann had entered into the Toll system, including details of the company’s registered office and the title of the documents to be delivered, which would enable the courier to undertake delivery. Ms Lehmann provided all this information to Ms Luki.
Later, in the afternoon of 22 November 2022, a courier from Toll attended the McCullough Robertson office and Ms Lehmann handed him the sealed envelope and two copies of the manifest document. She recalls seeing the courier signing and dating both copies of the manifest, one of which was returned to her and the other copy retained by the courier.
On 16 December 2022, Ms Lehmann accessed the Toll online system and printed a tracking log for the delivery of the statutory demand. The tracking log records a person by the name of Paula as having signed for the document when it was delivered to the registered office address. Ms Lehmann also printed a proof of delivery document with the signature of Paula. The tracking log records the envelope containing the demand and accompanying affidavit was collected by Toll on 22 November 2022 at 4:12pm and delivered to the company at the registered office address on 23 November 2022 at 9:46am. The proof of delivery document clearly records the registered office at which delivery occurred and the signature of Paula accepting delivery of the envelope.
The reference to Paula is a reference to Paula Baldacchino who is a receptionist at Boss Private Clients (’BPC’), an accounting firm engaged by the company, whose business address is the registered office address of the company. Critically, Ms Baldacchino has given evidence that on the morning of 23 November 2022, at the registered office address, a courier hand delivered to her a letter addressed to the company comprising the statutory demand. She was unsure who to forward the demand to and sought confirmation from her principal, Mr Sam Cimino. However, because Mr Cimino was extremely busy that day, she was only able to email him and unable to speak to him in person.
The next day, on 24 November 2022, Ms Baldacchino had a discussion with Mr Cimino, who instructed her to immediately send the statutory demand to Mr Burgess, Mr Dale Harrison and Mr Peter Van De Steeg, who are nominated contact people at the company. Mr Cimino reinforced with her that all statutory demands received at BPC on behalf of clients should immediately be forwarded to the client. Following a discussion with Mr Cimino, Ms Baldacchino emailed the nominated people at the company, attaching an electronic copy of the statutory demand (and presumably also the affidavit in support of the demand). In her email, Ms Baldacchino erroneously stated the demand had arrived by courier at the registered office address on 24 November 2022 when, in fact, it was delivered by courier the day prior.
Mr Cimino has also given evidence which accords with Ms Baldacchino’s account of delivery of the statutory demand and his instructions to her in relation to forwarding it to the company. He explains BPC’s ordinary practice when receiving mail addressed to a client of the firm, which involves the receptionist opening the mail, scanning copy of and sending the document to a nominated recipient of the client as soon as practical following receipt, which is usually the same day. However, he states that as a result of his competing commitments on 23 November 2022 and his inability to respond to Ms Baldacchino’s email query that same day, the statutory demand was delivered to the registered office address on 23 November 2022 but not forwarded to the company until 24 November 2022.
Submissions on service of statutory demand
The defendant contends that it validly effected service on the company on the morning of 23 November 2022 when the Toll courier delivered the statutory demand and supporting affidavit to the current registered office address of the company. It submits that it did so in accordance with the prescribed mode of service found in s 109X(1)(a) of the Act.
In its written submissions, the plaintiff variously contends that:
(a) the company had been in external administration since 14 September 2022, with the address for service to the external administrator being recorded in an ASIC company search produced by the defendant as ‘Said Jahani and Andrew Hewitt: Grant Thornton Australia Limited, Level 17, 383 Kent Street Sydney NSW 2000’;
(b) no formal service had been effected by the defendant as service was not made to the correct address of service of the external administrators;
(c) while formal service by hand delivery failed, the company accepts there was effective informal service of the demand at the time the document actually came to the attention of a responsible officer of the company who was expressly or implicitly authorised by the company to deal with the document;[36]
(d) there was only effective informal service of the demand on 24 November 2022 when it was emailed to the company’s officers, including Mr Burgess; and
(e) the company’s application to set aside the demand was commenced within the statutory period.
[36]Citing the statement of principle of the effective informal service rule set out in Re Mu Meeting Point Pty Ltd [2022] VSC 728, [40] (Hetyey AsJ) and the authorities referred to there.
In my view, these arguments lack merit. Whilst s 109X specifically provides for service of a document on a company by service upon its liquidator or administrator, it does not make any provision for service of the document at the offices of a company’s receivers and managers.[37] The structure of s 109X suggests that specific statutory authority is necessary to allow service upon an external administrator.[38] Further, as Brereton J observed in Pacific General Securities Ltd v Soliman & Sons Pty Ltd:[39]
[T]he appointment of a private receiver (unlike that of a liquidator or administrator) does not have any special consequence so far as service is concerned, and does not mean that service in a manner which would otherwise have been valid is no longer sufficient.[40]
[37]Porter v Australian Prudential Regulation Authority [2010] FCA 125, [25] (Perram J), where the Court rejected an argument that service upon a judicial manager appointed to the company was analogous to service of a liquidator of the company for the purpose of s 109X of the Act.
[38]Ibid [38]. See also Satz v ACN 069 808 957 Pty Ltd [2010] NSWSC 365, [15] (Barrett J), where it was held that service on an administrator under a deed of company arrangement was not the equivalent of service on an administrator for the purpose of s 109X.
[39](2006) 196 FLR 388.
[40]Ibid 401 [62].
The prescribed mode of service found in s 109X(1)(a) was not displaced by the appointment of receivers to the company on 14 September 2022. Put differently, the fact the company was subject to a receivership did not invalidate service of the statutory demand when it was left at the company’s registered office address on 23 November 2022, in accordance with s 109X(1)(a) of the Act.
Further, the use of the disjunctive ‘or’ as it appears following each of the sub-paragraphs in s 109X identifies an alternative or independent basis of service.[41] Service by the defendant under s 109X(1)(a) was therefore permissible and valid even if another mode of service was available.
[41]See Wilde v Morgan [2013] VSCA 250, [22] (Hansen JA, Tate JA agreeing at [36]). See also Dennis Pearce, Statutory Interpretation in Australia (LexisNexis, 9th ed, 2019) [12.2].
As formal service was validly effected under that provision, the effective informal service rule has no application here.
Finding on service of demand and timing of s 459G application
It is clear the statutory demand and accompanying affidavit were duly served by hand delivery to the company’s registered office address on 23 November 2022 at or around 9:53am. Service was validly effected in accordance with a prescribed mode under s 109X(1) of the Act. The fact that the document was only brought to the attention of officers of the company on the following day is beside the point. On that basis, the 21 day statutory period under s 459G expired on 14 December 2022. However, the company’s s 459G application was commenced the following day, on 15 December 2022, which was outside the statutory period. The circumstances surrounding the company’s delay in commencing the proceeding are not relevant to the Court’s enquiry as to whether the jurisdictional requirements of s 459G have been met. The company’s application is incompetent and stands to be dismissed.
Answers to preliminary questions
In view of the above reasons, the answers to the preliminary questions are as follows:
Question (a) — whether the proceeding has been properly commenced with the authority of the company;
Answer: the proceeding was properly commenced with the authority of the company pursuant to the residual power of its director;
Question (b) — depending on the answer to (a), whether the proceeding can continue;
Answer: the proceeding can continue for the hearing and determination of the preliminary questions set by the Court’s orders of 16 March 2023 on condition that Mr Burgess, as director of the company:
(i) indemnify the company in respect of its legal costs associated with the proceeding, including any costs order made against it; and
(ii) pay into Court security in the amount of $39,732 in support of the indemnity; and
Question (c) — whether the application was made within the statutory period specified in s 459G(2);
Answer: the proceeding was not made within the statutory period specified in s 459G(2).
Fair notice argument
The doctrine of fair notice was explained by Palmer J in Woodgate as follows:
[W]here a creditor serves a statutory demand in a prescribed mode and:
— knows, at the time of service or before the s 459G(3) period expires, that the demand has not actually come to the attention of the company;
— knows that the company would dispute the demand if made aware of it;
— refrains from bringing the demand to the actual notice of a responsible officer of the company within the s 459G(3) period; and
— relies on good service of the demand and the presumption of insolvency arising under s 459C(2)(a),
the court may, in its discretion and in the interests of justice, set aside the statutory demand under s 459J(1)(b), not for want of good service but for want of fair notice …[42]
[42]Woodgate, 477 [44(iii)], citing FP Leonard Advertising Pty Ltd v KD Travel Service Pty Ltd (1993) 12 ACSR 136, 139 (Santow J) (‘FP Leonard Advertising’); Re Future Life Enterprises Pty Ltd (1994) 13 ACSR 129, 133 (McLelland CJ) (‘Future Life Enterprises’); Faji (Australia) Constructions Pty Ltd v AC Professional Accounting Pty Ltd [2009] NSWSC 180, [31] (Barrett J) (‘Faji (Australia) Constructions’); Commonwealth Broadcasting Corp Pty Ltd v Pacific Mobile Phones Pty Ltd [2008] QSC 210, [21]–[24] (White J) (‘Pacific Mobile Phones’); Joe Mangraviti Pty Ltd v Lumley Finance Ltd [2010] NSWSC 61, [11]–[16] (Palmer J).
As previously explained, the plaintiff contends that the doctrine of fair notice applies here. The argument is put in the alternative if the Court is against the plaintiff on the question of service of the statutory demand (which it is). The plaintiff seeks an order that the demand be set aside for ‘some other reason’ under s 459J(1)(b) of the Act. In doing so, the plaintiff places reliance on Woodgate, along with an earlier decision of Palmer J cited by his Honour in Woodgate, being Joe Mangraviti Pty Ltd v Lumley Finance Ltd (‘Mangraviti’).[43] In that case, his Honour relevantly held that:
[T]he consequences for failure to file an Originating Process within time should not be visited on a company which is proved never to have received actual notice of the Demand within the time available to oppose it. In my opinion, where those facts are established in a challenge to the Statutory Demand there is, prima facie, “some other reason why the Demand should be aside” under s 459J(1)(b). I say “prima facie” because there may be other circumstances in a particular case which militate against setting aside the Demand.[44]
[43][2010] NSWSC 61.
[44]Ibid [16].
For the following reasons, I am unconvinced that the doctrine of fair notice and s 459J(1)(b) apply here.
First, I have already found that the plaintiff’s s 459G proceeding was initiated after the expiration of the 21-day statutory period contemplated by s 9 of the Act. It is therefore out of time for the purpose of s 459G(3)(b) of the Act. As a consequence, the Court does not have jurisdiction to determine the proceeding to the extent it is made under s 459G.[45]
[45]David Grant, 277. See also Carinda Homes, [4]; Renegade Rigging, [2]; Autumn Solar Installations, [4].
Section 459J of the Act relevantly provides:
(1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
…
(b) there is some other reason why the demand should be set aside.
In other words, the ‘some other reason’ ground contemplated by s 459J(1)(b) may only be raised on an application under s 459G. Therefore, s 459J(1)(b) has no work to do unless the application under s 459G is made within the 21-day statutory period.
Secondly, as the learned author of Assaf’s Winding Up in Insolvency[46] has rightly pointed out, none of the authorities relied upon by Palmer J in Mangraviti and Woodgate in support of the doctrine of fair notice stand as authority for the proposition that s 459J(1)(b) can be used to set aside a statutory demand where it is shown the demand has not come to the attention of the debtor company and a subsequent application is made to set aside the demand after the expiry of the 21-day statutory period.[47] To the extent Woodgate or Mangraviti suggest a court may set aside a statutory demand under s 459J even where the application is made outside the 21 day statutory period, I respectfully consider those decisions to be wrong and I decline to follow them. To do otherwise would ignore the plain wording of ss 459G and 459J and the High Court’s decision in David Grant & Co Pty Ltd v Westpac Banking Corporation (‘David Grant’).[48] I note that in Re LDW Constructions Pty Ltd,[49] Black J declined to follow Mangraviti on a similar basis.
[46]Farid Assaf, Assaf’s Winding Up in Insolvency (LexisNexis, 3rd ed, 2021) (‘Assaf’s Winding Up in Insolvency’).
[47]Ibid [8.107]–[8.108]. The authorities relied on were: FP Leonard Advertising, 139 (a winding up application); Future Life Enterprises, 133 (a winding up application); Faji (Australia) Constructions, [31] (where his Honour held that the grounds for setting aside a statutory demand under ss 459J and 459H(1)(a) are independent); and Pacific Mobile Phones Pty Ltd, [21]–[24] (a winding up application).
[48]David Grant v Westpac, 277.
[49][2019] NSWSC 1159.
Thirdly, even assuming the doctrine of fair notice is available, I accept the defendant’s submission that the necessary preconditions identified by Palmer J in Woodgate have not been met in this case. The company has not put forward sufficient evidence that the defendant knew at the time of service or before the expiry of the 21-day period that the demand had not actually come to the attention of the company. The fact an ASIC company extract obtained by the defendant prior to service disclosed the appointment of receivers does not constitute any such knowledge. Further, there is no evidence the defendant knew the company would dispute the demand if made aware of it. Nor is there material to suggest the defendant deliberately refrained from bringing the demand to the actual notice of a responsible officer of the company within the 21-day period. To the contrary, the evidence shows the demand was in fact brought to the attention of a responsible officer of the company the day after delivery to the registered office address.
I turn then to the remaining argument about whether the statutory demand is a nullity.
Whether statutory demand a nullity
As previously stated, the plaintiff’s registered office address is in Victoria. The registered office of the defendant is 7 North Cliff Street, Milsons Point, New South Wales. The address for service of any application to set aside the statutory demand specified in para 7 of the demand is the address of McCullough Lawyers, at Level 32, 25 Martin Place, Sydney.
Section 15 of the Service and Execution of Process Act 1992 (Cth) (‘SEPA’) allows an initiating process issued in one state to be served in another state. In accordance with s 9(1) of the SEPA, service of a process, order or document on a company is to be effected by leaving it at, or by sending it by post to, a company’s registered office. Personal delivery to a director of the company who resides in Australia is also allowed under s 9(2) of the SEPA. For service to be effective, the initiating process must attach the Form 1 notice prescribed by s 16 of the SEPA. The requirements of SEPA are compulsory rather than facultative.[50]
[50]Re Marlan, 263–4; Energy Conservation Systems Pty Ltd v Downer EDI Engineering Electrical Pty Ltd (2008) 221 FLR 393, [14], [16], [23] (Barrett J) (‘Energy Conservation Systems’); Re MHC Pathology Pty Ltd (2020) 356 FLR 222, 229 (Hetyey AsJ).
Principally relying on the decisions of Senior Master Mahoney in Highfield Woods Pty Ltd v Bayview Crane Hire (‘Highfield’)[51] and the decision of Brereton J in Re International Materials & Technologies Pty Ltd (‘Re International Materials’),[52] the plaintiff submits that the failure of the defendant to nominate in the demand an address for service within the jurisdiction in which it was served (in this case, Victoria), in compliance with s 459E(2) of the Act and Form 509H to the Corporations Regulations, was fatal and rendered the demand a nullity. The plaintiff seeks orders that the demand be set aside on that basis. I am unpersuaded to do so.
[51](1996) 19 ACSR 429.
[52](2013) 282 FLR 362.
In Highfield, Senior Master Mahoney followed his earlier decision in Ultimate Manufacturing Pty Ltd v Lyell Morris (‘Ultimate Manufacturing’),[53] where a plaintiff’s application under s 459G was invalid due to non-compliance with SEPA, in circumstances where a creditor nominated an interstate address for service in the statutory demand. Senior Master Mahoney recognised the Court’s lack of jurisdiction to set aside the demand but, to prevent substantial injustice, instead made orders declaring the demand to be defective and requiring the creditor to attach such declaration to any future winding up application. Such an order is often known as an ‘inhibiting order’.[54] Importantly, in neither Highfield nor Ultimate Manufacturing did the Court consider the applicable demand to be fundamentally invalid or set the demand aside.
[53](1995) 13 ACLC 1268.
[54]See the discussion about the limited application of inhibiting orders in Assaf’s Winding Up in Insolvency, [11.99].
The decision of Brereton J in Re International Materials is in a different category. There, the debtor company filed a s 459G application on the last day of the statutory period and emailed a copy to the creditor’s solicitors the same day. The statutory demand had been served on the plaintiff in New South Wales, but in non-compliance with s 459E(2) of the Act and Form 509H to the Corporations Regulations, the address for service nominated in the demand was the address of the defendant’s solicitors in Victoria. The registered office of the defendant was also in Victoria. His Honour held that because the debtor company did not comply with the strict requirements of SEPA, the s 459G application was not validly served within the 21-day period and there was no basis to set aside the demand under ss 459G, 459H or 459J of the Act. Justice Brereton nevertheless considered it appropriate to declare the statutory demand null and void, with the stated effect of precluding any subsequent reliance upon it. His Honour held that:
[T]he non-compliance with the requirement to provide an address for service within the state in which the demand was served deprived the debtor company of the ability to make a valid application to set aside the demand, and was calculated to mislead it into making an ineffective application. That defect was … so serious and fundamental as to deprive the demand of the quality or character of a demand under s 459E in that it failed, in a material and fundamental way, to comply with the prescribed form …[55]
[55]Re International Materials, 368.
However, the approach taken in Re International Materials has not been universally applied. In Re Urban Solutions Group Pty Ltd,[56] Black J characterised the making of a declaration as to the invalidity of the demand in Re International Materials as exceptional.[57] His Honour cautioned against the exception becoming the rule, lest the time limit within which an application to set aside a statutory demand under s 459G of the Act ‘is subverted and the legislative purpose which it is intended to achieve is defeated.’[58]
[56][2015] NSWSC 1940.
[57]Ibid [3].
[58]Ibid.
The decision of Slap Corp Pty Ltd v Civil, Infrastructure & Logistics Pty Ltd (‘Slap’)[59] involves facts analogous to the present circumstances. The plaintiff debtor was served at an address in Victoria by a creditor company located in Queensland. The address for service of the statutory demand specified by the creditor was the address of its solicitors in Queensland. The plaintiff in Slap conceded at the first return date that the application did not comply with s 9 of SEPA and sought to amend the originating process to seek a declaration that the demand was null and void having regard to the authority of Re International Materials. Associate Justice Randall methodically reviewed the relevant authorities and ultimately declined to follow Re International Materials. Although the relevant demand in that case was not compliant with the prescribed form and is therefore defective, his Honour did not consider the demand to be null and void.[60] His Honour decided not follow Re International Materials having regard to a number of factors, including:
[59](2017) 50 VR 542.
[60]Ibid 549–62 [37]–[76].
(a) the existence of conflicting authority, including a decision of the Full Court of the Supreme Court of South Australia in Elan Copra Trading Pty Ltd v J K International Pty Ltd (‘Elan Copra’);[61]
(b) the risk of direct or indirect subversion of the legislative purpose of the statutory regime found in Div 3 of Pt 5.5 of the Act; and
(c) the availability of other avenues to ventilate the same arguments, including s 459S of the Act in the context of a winding up application.[62]
[61][2005] SASC 501, [19], [46] (Doyle CJ, Perry and White JJ). His Honour also noted the decision in Sustainable Organics (Wooshaway) Pty Ltd v Ranger Loaders Pty Ltd [2011] QSC 45, [19] (Philippides J).
[62]Slap, 561–2.
In SP Hay Pty Ltd v David Gray and Co Pty Ltd,[63] Dart J referred to Randall AsJ’s analysis in Slap and the decision in Elan Copra and determined the failure to provide an address for service in the state where the demand was served was a defect that did not render the demand invalid.[64]
[63](2019) 133 ACSR 504.
[64]Ibid 511.
In my opinion, Re International Materials is distinguishable from this case. There are no exceptional circumstances to warrant a declaration that the statutory demand is a nullity. There is no evidence before the Court to suggest the defendant’s specification of an interstate address for service actually impacted upon the timing of the company’s application under s 459G. There is no evidence about how and when the company actually came to serve its s 459G application. As previously set out, s 459G(3) of the Act requires an application to set aside a statutory demand to be filed and served within the 21-day statutory period. As I have found, the s 459G application was already out of time when it was filed on 15 December 2022.[65] Any difficulties concerning the subsequent service of the s 459G application are therefore irrelevant to the inquiry of whether the application was made within the statutory period. Further, in Re International Materials, Brereton J specifically contemplated that a declaration that the demand in question was a nullity would have the effect of precluding any subsequent reliance on it. Here, because I have determined that the plaintiff’s application is out of time, pursuant to s 459F of the Act, the plaintiff will be taken to not have complied with the statutory demand at the expiration of the 21-day statutory period, being 14 December 2022.[66] This means the statutory presumption of insolvency arising under s 459C(2)(a) may no longer be available for the purpose of any winding up proceeding as more than three months has elapsed since the date of non-compliance. In other words, the statutory demand appears to be stale in any event.
[65]See Kookaburra, [72], where Re International Materials was distinguished on a similar basis.
[66]See Golden Plantation Pty Ltd v TQM Design and Construct Pty Ltd [2010] NSWSC 1453 [25]-[28] (Barrett J).
Even if I am wrong and Re International Materials cannot be distinguished, I respectfully decline to follow it and prefer the analysis and conclusion reached by Randall AsJ in Slap.
Costs
Following the delivery of these reasons, I heard the parties on the question of costs and made a ruling to the following effect.
Section 24 of the Supreme Court Act 1986 (Vic) relevantly provides that ‘the costs of and incidental to all matters in the Court … is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid’. It is clear that the Court has a wide discretion in relation to costs.[67] However, as a general rule, in the absence of good reason to the contrary, a successful litigant should recover their costs.[68] It follows that where a company’s application to set aside a statutory demand is unsuccessful, the Court will usually require the company to pay the creditor’s costs pursuant to the general principle that costs should follow the event.[69]
[67]See also Civil Procedure Act 2010 (Vic) s 65C; Assaf’s Winding Up in Insolvency, [10.101], citing Re Mailrite Pty Ltd (1985) 9 ACLR 863, 867–8 (Master Lee); Re Great Barrier Reef Flying Boats Pty Ltd (1982) 6 ACLR 820, 822 (Thomas J); Morepine Pty Ltd v Crush Pacific Industries Pty Ltd (1996) 20 ACSR 41, 44 (Young J).
[68]Towercom Pty Ltd v Fahour (No 4) [2013] VSC 585 (Derham AsJ); Ritter v Godfrey (1920) 2 KB 47, 54 (Atkin LJ); Donald Campbell & Co Ltd v Pollak [1927] AC 732, 809 (Viscount Cave LC); Milne v Attorney-General (Tas) (1956) 95 CLR 460, 477 (Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ); Oshlack v Richmond River Council (1998) 193 CLR 72, 86 (Gaudron and Gummow JJ).
[69]See Assaf’s Winding Up in Insolvency, [9.19].
An award of costs is usually on a standard basis unless there are special or unusual features warranting an order for costs on an indemnity basis.[70] Such circumstances include where:
[70]See Colgate Palmolive Company v Cussens Pty Ltd (1993) 46 FCR 225 (Sheppard J) (‘Colgate v Cussens’); Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189 (Harper J); Yap v Lee [2019] VSC 743 (McDonald J).
(a) proceedings are commenced or continued in disregard of known facts or clearly established law;[71]
[71]J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) (1993) 46 IR 301 (French J).
(b) there is unreasonable conduct causing unnecessary costs to be incurred;[72]
(c) a party, properly advised, knew or should have known that it had no chance of success and has persisted with its claim[73] (in other words, the proceeding was brought on the basis that the case advanced was hopeless); or
(d) there is an imprudent refusal of an offer to compromise.[74]
[72]Ballam v Ferro (No 2) [2022] NSWSC 1358, [68] (Hallen J), citing Vector Corrosion Technologies Ltd v E-Chem Technologies [2022] FCA 519, [38] (Jagot J).
[73]Banksia Securities Ltd v Insurance House Pty Ltd [2020] VSC 234, [15] (J Dixon J); Winslow Constructors Pty Ltd v Head, Transport for Victoria (2021) 64 VR 200, 204 (Riordan J).
[74]Colgate v Cussens, 223.
In Carinda Homes Pty Ltd v Highlands Austral Pty Ltd,[75] a company persisted with its application to set aside a statutory demand despite it being commenced three days outside the 21-day time limit set by s 459G of the Act. The plaintiff company did not file any evidence on the question of whether the application was filed out of time. Justice Lindgren noted that the High Court’s decision in David Grant[76] had made clear the strict and immutable nature of the time period contained in s 459G. On that basis, his Honour held that the proceeding was doomed to fail and it was unreasonable for the company to have pursued the application. Indemnity costs were ordered in favour of the creditor.
[75][2003] FCA 275.
[76](1995) 184 CLR 265.
In this matter, the company’s application to set aside the statutory demand was made outside the time limited by the legislation and must be dismissed for want of jurisdiction. Moreover, none of the plaintiff’s further arguments, which were raised for the first time at the hearing of the matter, proved to be successful. It is undoubtedly the case that the ventilation of those arguments significantly extended the duration of the hearing, which went for most of the day. There is no reason why costs should not follow the event. The plaintiff does not resist that result.
However, the defendant also seeks an order for costs on a standard basis up to 16 December 2022 and on an indemnity basis after that date. On 16 December 2022, McCullough Robertson sent Welner Lawyers a letter asserting that the application had been made outside the statutory period and offering to consent to the withdrawal of the application with no order as to costs so long as the company withdrew the proceeding by 5:00pm on 21 December 2022. The letter enclosed documents from the Toll online system, namely the tracking log and proof of delivery document signed by Ms Baldacchino, which showed the delivery of the statutory demand to the company’s registered office address on 23 November 2022. The defendant submits that from the time of receipt of the letter of 16 December 2022, the company knew, or should have known, that its application was doomed to fail. However, the company did not accept the offer and there was apparently no response to the letter of 16 December 2022.
The company submits there are no special or unusual features warranting an order for costs on an indemnity basis and that all of the points raised by the company were arguable. The company also says that Ms Baldacchino’s erroneous statement in her email that the demand was received on 24 November 2022 (as opposed to the correct date of 23 November 2022) was only discovered after the commencement of the proceeding and in connection with the preparation of the affidavits of Ms Baldacchino and Mr Cimino around 23 March 2023. It is suggested that this is a factor which militates against an order for indemnity costs. However by 27 January 2023, the defendant had already formally filed compelling evidence concerning the true date of service of the statutory demand, exhibiting the relevant documents from the Toll online system. It had also unequivocally contended in its written submissions dated 31 January 2023 that the company’s s 459G application was made outside the statutory period.
In the exercise of the Court’s discretion, and balancing all of the considerations referred to above, the Court’s disposition on costs is that the defendant should have its costs of the s 459G application on a standard basis up to 27 January 2023 and on an indemnity basis after that date. The evidence formally filed by the defendant on that date put the question of service of the statutory demand beyond doubt and gave rise to the conclusion that the plaintiff’s application was doomed to fail. The evidence later filed by the plaintiff on 23 March 2023 did not dispute that the application was filed out of time.
Lastly, the defendant seeks the costs order be made against Mr Burgess as a non-party, rather than the company given its receivership status. I note that as a general rule, an order for costs will only be made against a party to the litigation.[77] However, the Court has the power to make a costs order against a non-party in exceptional circumstances as a matter of discretion, including where the non-party has played an active part in the conduct of the litigation, has a real interest in the subject matter of the litigation, and where the interests of justice require that such an order be made.[78]
[77]Knight v FP Special Assets Ltd (1992) 174 CLR 178, 192–3 (Mason CJ, Deane, Dawson, Gaudron and McHugh JJ) (‘Knight v FP Special Assets’).
[78]Knight v FP Special Assets, 192–3; 1165 Stud Road v Power (No 2) [2015] VSC 735, [73] (Vickery J). See also the further discussion of the principle and its limitations in FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 (Beazley, Giles and Basten JJA); Buckingham Gate International Pty Ltd v Australia New Zealand Banking Group Limited (2000) 35 ACSR 411 (Santow J), where a non-party costs order was made against a solicitor where the application to set aside a statutory demand with no prospects of success.
In circumstances where:
(a) Mr Burgess did not oppose an order for non-party costs made against him as a matter of principle, but did resist such an order made on an indemnity basis;
(b) Mr Burgess commenced the proceeding in the name of the company without the consent of the receivers;
(c) the Court has required Mr Burgess to indemnify the company in respect of its costs and any adverse costs order and to provide security in support of that indemnity; and
(d) Mr Burgess has given the relevant undertakings and agreed to pay the agreed security sum into Court as security for the defendant’s costs,
I am prepared to frame the costs order so that it is made against Mr Burgess as a non-party.
Conclusion
In light of the above reasons, the following orders will be made:
1. The plaintiff’s application is dismissed.
2. By 4:00pm on 19 April 2023, Mr Burgess provide to the Senior Master of the Supreme Court of Victoria $39,732.00 by a payment into Court, with such amount to remain as funds paid into Court until further order as security for any costs order made in favour of the defendant.
3. Mr Burgess pay the defendant’s costs of the proceeding up to 27 January 2023 on the standard basis and on the indemnity basis thereafter, such costs to be taxed in default of agreement.
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