Re MHC Pathology Pty Ltd
[2020] VSC 789
•1 December 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2020 02668
| MHC PATHOLOGY PTY LTD (ACN 145 161 486) | Plaintiff |
| v | |
| MIDVALE TRIAL PTY LTD (ACN 007 392 001) | Defendant |
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JUDGE: | Hetyey AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 7 September 2020 and 9 September 2020, last submissions filed 25 September 2020 |
DATE OF JUDGMENT: | 1 December 2020 |
CASE MAY BE CITED AS: | Re MHC Pathology Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2020] VSC 789 |
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CORPORATIONS – Corporations Act 2001 (Cth) – Part 5.4 – Insolvency – Statutory demand – Application to set aside – Section 459G – Originating process served interstate – Requirements of Service and Execution of Process Act 1992 (Cth) – Whether service effective - Section 459H(1)(a) – Whether genuine dispute about existence and/or amount of debt – Section 459E(2)(e) – Failure to comply with prescribed form for statutory demands – Failure to refer to 6 month statutory period for compliance set by Coronavirus Economic Response Package Omnibus Act 2020 (Cth) – Failure to specify address for service in State in which demand served – Section 459J(1)(a) – Whether defect in demand – Whether substantial injustice caused unless set aside – Section 459J(1)(b) – Whether some other reason to set demand aside.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr O Polichtuk, solicitor | DSA Law |
| For the Defendant | Mr P Gleeson, solicitor | Moama Law |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Procedural history.............................................................................................................................. 1
Jurisdictional question – service of s 459G application............................................................. 3
Engaging the Court’s jurisdiction..................................................................................... 4
Requirements of the Service and Execution of Process Act 1992 (Cth)....................... 4
Service of s 459G applications on corporate creditors................................................... 5
Finding on service and jurisdiction.................................................................................. 7
Applicable law relating to genuine dispute ground................................................................. 12
Evidence concerning genuine dispute ground........................................................................... 14
Plaintiff’s material............................................................................................................. 14
Defendant’s material......................................................................................................... 19
Consideration of genuine dispute ground..................................................................... 20
Section 459J grounds....................................................................................................................... 24
Failure to refer to extended 6-month period for compliance...................................... 25
Failure to nominate an address for service within Victoria........................................ 28
Solvency............................................................................................................................................. 30
Conclusion......................................................................................................................................... 31
HIS HONOUR:
Introduction
The plaintiff, MHC Pathology Pty Ltd, is in the business of breeding, raising, and selling horses. The defendant, Midvale Trial Pty Ltd, is the owner of property located at 3974 Maryborough-Bendigo Road, Eddington (‘the property’). Although the details are the subject of disagreement, in late 2018 or early 2019, there was an arrangement by which a number of horses owned by the plaintiff were permitted to be kept at the defendant’s property. By a statutory demand issued on 4 June 2020, the defendant sought payment of $32,117.27 from the plaintiff in respect of agistment fees and feed said to be owing pursuant to this arrangement (‘the statutory demand’).[1]
[1] The statutory demand is found at exhibit KJS-2 to the affidavit of Kaylene Janice Sullivan affirmed 22 June 2020 and filed on 23 June 2020 (‘Sullivan affidavit affirmed 22 June 2020’). Whilst the statutory demand has been issued by ‘Midvale Trial Pty Ltd (AKA Midvale Trail Pty Ltd)’, it is common ground between the parties that the correct name of the defendant is the former of these variants.
The plaintiff seeks to set the statutory demand aside on the ground that there is a genuine dispute about the existence and / or the amount of the debt the subject of the demand. The plaintiff also contends the demand is defective because it erroneously requires the plaintiff to comply within 21 days and fails to refer to the statutory period for compliance set by the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (‘the Coronavirus Legislation’), which is now six months. Further, the plaintiff argues that the statutory demand should otherwise be set aside because it fails to nominate an address for service within the same State in which the demand was served. This last issue has given rise to the threshold question of whether the plaintiff has properly served its application in accordance with s 459G(3)(b) of the Corporations Act 2001 (Cth) (‘the Corporations Act’) so as to give the Court jurisdiction to determine the application.
Procedural history
The plaintiff filed its originating process to set aside the statutory demand on 23 June 2020. On 13 July 2020, the Court made orders by consent listing the proceeding for a videoconference hearing on 7 September 2020. The orders made provision for the filing of further material by the parties, including the defendant’s affidavit material by 29 July 2020 and its submissions no later than seven days prior to trial. The defendant failed to comply with these orders and instead filed its material on 1 September 2020.
As a consequence, the plaintiff objected to the defendant being permitted to rely upon its affidavit evidence. Following an exchange of correspondence between the parties on this issue, the Court listed the matter for mention on 3 September 2020. Orders were made on that day granting the defendant leave to rely upon the affidavit of Mr Ian McPherson sworn 31 August 2020 and filed on 1 September 2020, together with its exhibits at the hearing of the matter on 7 September 2020.
At the hearing on 7 September 2020, the plaintiff raised for the first time an argument that the defendant’s statutory demand should be set aside under s 459J of the Corporations Act on the basis that the defendant had provided the address of its solicitors in Moama, NSW, as the address for service of any application to set aside the statutory demand, rather than an address in Victoria as required by Form 509H to the Corporations Regulations 2001 (Cth) (‘the Corporations Regulations’) and s 459E(2) of the Corporations Act.
As it happened, the plaintiff had not filed any evidence going to the question of when and how it had effected service of its s 459G application, and at what address. Nor was there any evidence of the date of receipt of the statutory demand or the current registered office of the defendant. The significance of these omissions became apparent immediately after the hearing of the plaintiff’s application.
As already noted, there is an important jurisdictional question which the Court is obliged to deal with first; namely, whether the plaintiff’s originating process and affidavit material have been served in accordance with s 459G(3)(b) of the Corporations Act and whether the plaintiff’s application to set aside the statutory demand is properly constituted. In addition, there are ancillary questions of whether certain provisions of the Service and Execution of Process Act 1992 (Cth) (‘SEPA’) were required to be complied with at the time of service and, if so, whether those provisions were in fact complied with. Accordingly, the Court called the matter on for mention on 9 September 2020 to enable the parties to address these matters.
At the mention, the plaintiff’s solicitor made submissions about the manner in which the statutory demand was served on his client and the particulars of service of the s 459G application. He accepted there was no evidence before the Court in this regard but maintained that the defendant had been effectively served with the application and that the Court had jurisdiction to determine the matter. The defendant’s solicitor argued the plaintiff had not properly effected service of its application and that the plaintiff’s case was now effectively closed.
The Court made orders permitting the plaintiff to file and serve any affidavit going to the issue of service of the originating process and supporting affidavits. The parties were also directed to file short supplementary submissions on the jurisdictional issue which had arisen. An order was also made permitting the parties to rely upon all of the previous material filed in the proceeding and to adopt their oral submissions made at the hearing on 7 September 2020. The supplementary material contemplated by the Court’s orders of 9 September 2020 has now been filed by the parties.
Jurisdictional question – service of s 459G application
Section 459G of the Corporations 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 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.
As a consequence of the commencement of the Coronavirus Legislation, the statutory period for compliance with statutory demands was temporarily extended from 21 days to 6 months.[2]
[2]See Part 2 of Schedule 12 of the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) which replaced, by way of temporary relief, the reference to 21 days for compliance with a statutory demand (found throughout Part 5.4 of the Corporations Act) with a new ‘statutory period’. The ‘statutory period’ is, in turn, relevantly defined in s 9 of the Corporations Act as the ‘prescribed period’. The prescribed period has been set at 6 months by a new regulation 5.4.01AA of the Corporations Regulations 2001 (Cth). This change applied in respect of statutory demands served on or after 25 March 2020 and was set to be repealed 6 months after commencement.
Engaging the Court’s jurisdiction
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.[3] The time period is ‘strict and immutable’.[4] Further, the statutory period cannot be extended,[5] or service validated after its expiration.[6]
[3]David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 (‘David Grant’). See also Carinda Homes Pty Ltd v Highlands Pty Ltd [2003] FCA 275; Renegade Rigging Pty Ltd v Hanlon Nominees Pty Ltd [2010] VSC 385, [2] (‘Renegade Rigging’); Autumn Solar Installations Pty Ltd v Solar Magic Australia Pty Ltd [2010] NSWSC 463, [4].
[4]Jin Xin Investment & Trade (Australia) Pty Ltd v ISC Property Pty Ltd (2006) 196 FLR 350, 352 [5] (Barrett J) (‘Jin Xin Investment’). See David Grant (1995) 184 CLR 265, 276–7.
[5]David Grant (1995) 184 CLR 265.
[6]Rochester Communications Group Pty Ltd v Lader (1997) 23 ACSR 380; Re Marlan Financial Services Pty Ltd (1999) 33 ACSR 259, 266 (‘Re Marlan’); Austar Finance Group Pty Ltd v Campbell (2007) 215 FLR 464, 478 [71] (Austin J) (‘Austar Finance’).
The Court has prima facie jurisdiction upon the filing of a s 459G application, unless that is displaced by evidence which confirms the filing and service of the application has not occurred within the requisite statutory period.[7] Here, the absence of evidence about service of the application has negated the presumption the Court has jurisdiction to determine the matter. It is clear that the plaintiff bears the onus of satisfying the Court that service has been carried out in accordance with s 459G(3)(b) of the Corporations Act.[8]
[7]Re Edifice Australia Pty Ltd [2017] NSWSC 1620, [12].
[8]Jin Xin Investment (2006) 196 FLR 350, 352 [6] (Barrett J).
Requirements of the Service and Execution of Process Act 1992 (Cth)
The position at common law is that service may not be effected outside the jurisdiction of the court in which the proceeding is commenced.[9] This brings into play the provisions of SEPA. Section 15 of SEPA allows an initiating process issued in one State to be served in another State. In accordance with s 9(1) of 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 SEPA. Section 9(9) of SEPA and s 109X(3) of the Corporations Act make clear that ss 109X(1) and (2) of the Corporations Act do not apply to any process, order or document that may be served under SEPA. Critically, in order for service to be effective, the initiating process must attach the Form 1 notice prescribed by s 16 of SEPA.[10] The requirements of SEPA are compulsory rather than facultative.[11]
[9]Re Marlan (1999) 33 ACSR 259, 262 (Byrne J).
[10]See Form 1 – Notice when serving initiating process in civil proceedings, found in Schedule 1 of the Service and Execution of Process Regulations 2018 (Cth).
[11]Re Marlan (1999) 33 ACSR 259, 265–6 (Byrne J); Energy Conservation Systems Pty Ltd v DownerEDI Engineering Electrical Pty Ltd (2008) 221 FLR 393, 395 [14], [16], 396 [23] (Barrett J) (‘Energy Conservation Systems’).
Service of s 459G applications on corporate creditors
There are a number of authorities concerning service on a corporate defendant of an application to set aside a statutory demand. Each case turns on its own facts and there are different circumstances which have informed the result, such as the location of the plaintiff, the registered office of the defendant, the address nominated for service in the statutory demand, and the location of the defendant’s solicitors. Nevertheless, the following guiding principles emerge from those decisions:
(a) the Corporations Act does not specify the manner in which an application under s 459G must be served.[12] Except where SEPA applies, service can be undertaken in accordance with the modes authorised in s 109X of the Corporations Act and s 28A of the Acts Interpretation Act 1901 (Cth);[13]
[12]CFC Corporation Pty Ltd v Lanier (Australia) Pty Ltd (1993) 11 ACSR 772, 774 (Mildren J).
[13]Re Marlan (1999) 33 ACSR 259, 263 (Byrne J); Woodgate v Garard Pty Ltd (2010) 78 ACSR 468, 476 (Palmer J) (‘Woodgate’).
(b) service of the s 459G application at the address nominated in paragraph 6 of a statutory demand is not actually a requirement of the Corporations Act or the Corporations Regulations.[14] Where the nominated address is within the jurisdiction of the court in which the application is filed, it is simply an address at which the plaintiff may choose to serve the defendant creditor[15] and service at that address will constitute valid service.[16]
[14]Re Marlan (1999) 33 ACSR 259, 265–6 (Byrne J).
[15]Ibid.
[16]Howship Holdings Pty Ltd v Leslie (1996) 41 NSWLR 542; Players Pty Ltd v Interior Projects (1996) 133 FLR 265; Jin Xin Investment (2006) 196 FLR 350, 353 [15] (Barrett J); Fonza Finance Pty Ltd v Vergepoint Sales and Management Pty Ltd [2010] QSC 46.
(c) similarly, where a facsimile number is included in a statutory demand as part of the nominated address for service, service via the facsimile number will be sufficient service for the purpose of s 459G(3)[17];
[17]Renegade Rigging [2010] VSC 385, [41]–[48].
(d) where a plaintiff employs some other method of service, the question of whether it is good service depends on whether the plaintiff can prove the document actually came to the attention of an officer of the defendant company who was either expressly or implicitly authorised by the company to deal with the document.[18] This is known as ‘the effective informal service rule’. Service by email or facsimile are modes of service which fall within the informal service rule.[19]
[18]Woodgate (2010) 78 ACSR 468, 477 (Palmer J). See 475–8 for a discussion of the scope of the effective informal service rule.
[19]Austar Finance (2007) 215 FLR 464, 473–4 [49]; Woodgate (2010) 78 ACSR 468, 477; Greenmint Pty Ltd v O’Keefe [2015] VSC 326.
(e) where a corporate creditor stipulates an interstate address for service in paragraph 6 of its statutory demand which is outside the jurisdiction, unless the address is also the registered office of the defendant creditor, or an address at which personal service upon a director may take place, any purported service at the nominated interstate address will not comply with s 9 of SEPA so as to constitute effective service. [20] That is the case even if the notice prescribed by s 16 of SEPA is attached to the originating process; [21]
[20]Highfield Woods Pty Ltd v Bayview Crane Hire Pty Ltd (1996) 130 FLR 238, 242–3 (Mahoney M) (‘Highfield’); Re Marlan (1999) 33 ACSR 259, 263–4 (Byrne J); Dominican Capital Pty Ltd v Pico Holdings Inc (2001) 4 VR 195, 142–3; Re International Material & Technologies Pty Ltd [2013] NSWSC 787, [8]–[9] (Brereton J); Elan Copra Trading Pty Ltd v JK International Pty Ltd (2005) 56 ACSR 416, 424 [30] (White J, with Doyle CJ and Perry J agreeing) (‘Elan Copra’).
[21]Re Marlan (1999) 33 ACSR 259, 264–5 (Byrne J); Complete Equipment Solutions Pty Ltd v Tesab Engineering Ltd [2016] VSC 253.
(f) failure to include the Form 1 notice required by s 16 of SEPA will also render any attempted service of a s 459G application outside of the jurisdiction ineffective;[22]
[22]Re Marlan (1999) 33 ACSR 259, 263 (Byrne J); Elan Copra (2005) 56 ACSR 416, 424 [30].
(g) the principle of effective informal service has no application where the purported service of a s 459G application is interstate.[23] Even if the application actually came to the attention of the defendant by service interstate, the requirements of SEPA must still be met;[24]
(h) it is doubtful whether there can be an agreement between the parties as to a mode of service different from that prescribed by SEPA,[25] or for a party to waive the requirements of SEPA;[26] and
(i) because effective service within the statutory period under s 459G(3) is a precondition to the jurisdiction of the Court under s 459G, the entry by the defendant of an appearance will not confer jurisdiction retrospectively.[27]
[23]Re 8D Pty Ltd [2013] NSWSC 1297, [7].
[24] Energy Conservation Systems (2008) 221 FLR 393, 396 [23].
[25]Elan Copra (2005) 56 ACSR 416, 425 [33].
[26]Ibid [38]–[43].
[27]Highfield (1996) 130 FLR 238, 241–2; ReMarlan (1999) 33 ACSR 259, 267–8 (Byrne J).
Finding on service and jurisdiction
In the present proceeding, the following circumstances arise. The plaintiff’s current registered office is an address in Mitcham, Victoria.[28] The defendant’s current registered office and principal place of business is an address in Clifton Hill, Victoria.[29] That is also the address given by the directors of the defendant.[30] On 4 June 2020, the plaintiff’s solicitor received an email from the defendant’s solicitor attaching an unsigned copy of the statutory demand and noting that the document had been sent by registered post that same day to the plaintiff’s registered office.[31] The demand was delivered to the plaintiff’s registered office shortly after that time, although there was a delay in the plaintiff’s solicitors receiving the statutory demand as a consequence of the COVID-19 pandemic.[32] The precise date of service of the statutory demand is unclear but ultimately not critical in this case, given that it was issued on 4 June 2020 and was caught by the legislative change enacted by the Coronavirus Legislation.[33] The plaintiff’s solicitors emailed the defendant’s solicitors on 18 June 2020 requesting a copy of all documents served at the plaintiff’s registered address for the sake of completeness, and the defendant’s solicitors did so that same day.[34]
[28]Exhibit KJS-1 to the Sullivan affidavit affirmed 22 June 2020.
[29]Exhibit OP-1 to the affidavit of Oren Polichtuk sworn 17 September 2020 and filed 18 September 2020 (‘Polichtuk affidavit sworn 17 September 2020’).
[30]Ibid.
[31]Polichtuk affidavit sworn 17 September 2020, [3]–[4].
[32]Ibid [5]–[6].
[33]As explained at n 2, the statutory period for compliance with the statutory demand was 6 months. This change applied in respect of statutory demands served on or after 25 March 2020 and was set to be repealed 6 months after commencement.
[34]Polichtuk affidavit sworn 17 September 2020, [6].
For the purpose of service of any application, paragraph 6 of the statutory demand nominated the address of the defendant’s solicitors in Moama, New South Wales (‘the Moama address’).[35] This did not conform with s 459E(2) of the Corporations Act and Form 509H to the Corporations Regulations, which require a creditor to nominate an address for service within the jurisdiction in which the statutory demand was served (in this case, Victoria).
[35]Exhibit KJS-2 to the Sullivan affidavit affirmed 22 June 2020.
On 23 June 2020, the plaintiff’s solicitor emailed the defendant’s solicitor a sealed copy of the plaintiff’s originating process of 23 June 2020, together with its supporting affidavits.[36] Physical copies of these documents were apparently also sent that same day to the Moama address, as specified in paragraph 6 of the statutory demand;[37] although I note that a copy of the covering letter and bundle of material have not been produced as an exhibit to the plaintiff’s affidavit. In its written supplementary submissions of 24 September 2020, the defendant denies receiving physical copies of the plaintiff’s application by post at the Moama address. The evidence is equivocal in this respect. However, even if the s 459G application and accompanying material were sent to the Moama address, the documents were not accompanied by the Form 1 notice required by s 16 of SEPA.[38] Nor was the Form 1 included with the application sent to the email address of the defendant’s solicitors.[39] Notwithstanding this, the defendant filed a notice of appearance in the proceeding on 7 July 2020. The notice of appearance referred to the address of its registered office, an alternative address of its solicitors in Echuca, Victoria, and an email address for the defendant’s solicitors.
[36]Polichtuk affidavit sworn 17 September 2020, [8]–[9].
[37]Ibid.
[38]The plaintiff’s solicitor confirmed this in oral submissions at the mention on 9 September 2020. The plaintiff’s supplementary submissions of 25 September 2020 proceed on this basis and the Polichtuk affidavit sworn 17 September 2020 does not suggest otherwise.
[39]Polichtuk affidavit sworn 17 September 2020, [8], together with exhibit OP-5 to that affidavit.
It is apparent from the above that:
(a) the plaintiff’s s 459G application was not served at the defendant’s registered office in Clifton Hill, Victoria, nor on either of the directors personally, following the filing of the application or prior to the hearing on 7 September 2020;
(b) whilst there may be doubt as to whether the plaintiff served the application at the address specified in paragraph 6 of the defendant’s statutory demand (the Moama address), assuming it did, the application was not accompanied by a s 16 SEPA Form 1 notice; and
(c) no SEPA notice was attached to the plaintiff’s application sent to the email address of the defendant’s solicitors on 23 June 2020.
The plaintiff seeks to overcome these difficulties by relying upon the defendant’s unconditional appearance filed on 7 July 2020, and r 6.02(2) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) which provides that: ‘Where a defendant to any originating process files an unconditional appearance, the originating process shall be taken to have been served on the defendant personally on the day on which the appearance is filed or on such earlier day as may be proved’. Accordingly, it is argued that the relevant documents are deemed to have been served in Victoria and the requirements of SEPA are not engaged. In addition, the plaintiff maintains that, in any event, there has been effective informal service of the s 459G application which was sent by email to the defendant’s solicitors on 23 June 2020 and thereby brought to the defendant’s attention.
Given the strictures of the statutory demand regime in Part 5.4 of the Corporations Act, it is clear that these arguments cannot succeed. As already noted, informal service will not circumvent the mandatory requirements of SEPA.[40] Further, the defendant’s unconditional appearance cannot operate retrospectively to enliven the Court’s jurisdiction to determine the plaintiff’s s 459G application where a precondition of the jurisdiction has not been satisfied.[41]
[40]Energy Conservation Systems (2008) 221 FLR 393, 396 [23]; Re 8D Pty Ltd [2013] NSWSC 1297, [7].
[41]Elan Copra (2005) 56 ACSR 416, 425 [33].
It follows that despite the steps taken by the plaintiff, it did not effectively serve the defendant for the purposes of s 459G(3)(b). At common law, the originating process was not capable of being served beyond the territorial limits of Victoria. The defendant had stipulated an interstate address for service in paragraph 6 of the statutory demand (the Moama address) which was outside the jurisdiction and was not the defendant’s registered office or an address at which personal service upon a director could occur. By serving at that address, the plaintiff did not comply with s 15 of SEPA. To the extent that the plaintiff purported to serve the defendant by post to the Moama address and by email to its solicitors, that service was also ineffective because of the failure to attach a Form 1 notice in accordance with s 16 of SEPA.
To some extent, this may seem artificial. The plaintiff contends it did exactly as the defendant instructed at paragraph 6 of the statutory demand by sending the s 459G application to the Moama address. There is also an argument that compliance with s 15 of SEPA was unnecessary because the defendant company and its directors were located in Victoria, in any event. But the fact remains that the plaintiff did not serve the defendant or its directors in Victoria. It would have been prudent to do so. Moreover, the purported service on the defendant’s solicitors at the Moama address was outside the Court’s jurisdiction and the requirements of SEPA were not observed. For the purpose of s 459G(3)(b) of the Corporations Act, there was simply no service ‘on the person who served the demand on the [plaintiff] company’ at all.
What then should become of the plaintiff’s application? Despite its fundamental deficiency, the plaintiff’s application is still capable of engaging the Court’s jurisdiction under s 459G. I have already mentioned that the statutory period for compliance with statutory demands issued after 25 March 2020 was temporarily extended from 21 days to 6 months under the Coronavirus Legislation.[42] As the relevant statutory demand was issued on 4 June 2020, it was therefore caught by the legislative change. As a consequence, following the hearing on 7 September 2020, the plaintiff’s solicitors served the defendant by registered post at its registered office in Clifton Hill, Victoria, on 9 September 2020. They also sent the application and relevant documents to the defendant’s solicitors via email and by registered post to their alternative address in Echuca, Victoria (an address identified in the defendant’s notice of appearance) and by email and registered post to a PO Box in Moama, along with a Form 1 notice. I accept that the plaintiff has now effected service of its application to set aside the statutory demand in accordance with s 459G(3)(b) and within the extended statutory period contemplated by the Coronavirus Legislation. Accordingly, I am satisfied that the application is now properly constituted and the Court’s jurisdiction is enlivened.
[42]See n 2.
The defendant, however, contends that as the plaintiff’s case has been heard and is now closed, it would be inappropriate to allow the plaintiff to re-open its case. I am unpersuaded by that argument. The Court has inherent jurisdiction to determine whether it has statutory jurisdiction in a particular case.[43] That is precisely what has occurred. I do not consider that the plaintiff is seeking to re-open its case, in form or in substance. It is not applying to rely upon any new evidence going to the grounds upon which it seeks to set aside the statutory demand.
[43]See Canada Trust Co v Stolzenberg [1997] 4 All ER 983, 988 (Millett LJ, with Nourse and Ward LJJ agreeing), which characterised a court as having two distinct jurisdictions: ‘One is the jurisdiction to try the issues in the action. That is disputed … The other is the jurisdiction to decide whether it has jurisdiction to try the issues in the action. This is an inherent jurisdiction. … Its existence is beyond dispute.’ This doctrine was approved by Kirby J in Residual Assco Group Ltd v Spalvins (2000) 202 CLR 629, 657 [69], who stated that ‘[i]t is inherent in the rule of law itself that somewhere in any judicial system there must be a court which possesses jurisdiction to determine the limits of its own jurisdiction’.
However, in the event that I am wrong in this analysis and the filing of new material as to service constitutes an application to re-open the plaintiff’s case, the justice of the case favours the grant of leave to do so.[44] As the plaintiff has recently effected service of the application, the Court’s jurisdiction is engaged. Given the parties have already relied upon their evidence and made submissions at the hearing on 7 September 2020, all that remains is for the application to be determined. In those circumstances, there would be no sense in the Court dismissing the application only for the plaintiff to make a new application on the same grounds or to raise those grounds as part of an application for leave under s 459S of the Corporations Act to oppose any winding up application brought by the defendant. That would not be an outcome consistent with the policy underlying the regime contained in Part 5.4 of the Corporations Act, to ensure that disputes relating to statutory demands are dealt with expeditiously and applications to wind up companies in insolvency are determined without delay.[45] Nor would it be consonant with the overarching purpose set out in s 7 of the Civil Procedure Act 2010 (Vic) to ‘facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’. Finally, it must also be remembered that the present situation has, in large part, been caused by the defendant. The defendant failed to nominate an address for service within the jurisdiction as required by Form 509H and s 459E(2), and the plaintiff purported to serve its application at that address. The defendant must take some responsibility for the difficulties which have arisen.
[44]Spotlight Pty Ltd v NCON Australia Ltd (2012) 46 VR 1, 17.
[45]David Grant (1995) 184 CLR 265; Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corp Ltd (2008) 232 CLR 314, 323–4; Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (recs and mgrs apptd) (2011) 244 CLR 1, 13 [27].
Having found that the Court has jurisdiction under s 459G, I turn now to the merits of the plaintiff’s application to set aside the statutory demand.
Applicable law relating to genuine dispute ground
Section 459H(1) of the Corporations Act relevantly provides that:
(1)This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a)that 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)that the company has an offsetting claim.
The principles concerning what constitutes a genuine dispute for the purpose of s 459H(1) of the Corporations Act are well established. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd,[46] the Full Court of the Federal Court comprising Northrop, Merkel and Goldberg JJ said: ‘In our view a “genuine” dispute requires … the dispute be bona fide and truly exist in fact [and] the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived’.[47]
[46](1997) 76 FCR 452 (‘Spencer Constructions’).
[47]Ibid 464, cited with approval by the Victorian Supreme Court of Appeal in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330 (‘Malec’).
In the Victorian Supreme Court of Appeal case of TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd,[48] Dodds-Streeton JA (with whom the rest of the Court agreed) explained what a company is required to establish for the purposes of s 459H:
[T]he company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile … it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something ‘between mere assertion and the proof that would be necessary in a court of law’ may suffice.[49]
[48](2008) 66 ACSR 67 (‘TR Administration’).
[49]Ibid 79 [71].
In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd,[50] the New South Wales Court of Appeal approved McClelland CJ in Eq’s characterisation of a genuine dispute in Eyota Pty Ltd v Hanave Pty Ltd[51] as involving a ‘plausible contention requiring investigation’ and raising the same sort of considerations as the ‘serious question to be tried’ test that applies in the case of interlocutory injunctions.[52]
[50](2013) 85 NSWLR 601 (‘Britten-Norman’).
[51](1994) 12 ACSR 785, 787 (‘Eyota’).
[52]Britten-Norman (2013) 85 NSWLR 601, 608 [31].
However, it is clear that the Court should not uncritically accept statements about an alleged genuine dispute which are ‘equivocal, lacking in precision, inconsistent with undisputed contemporary documents … or inherently improbable’.[53] Further, if the dispute appears to be something ‘merely created or constructed in response to the pressure represented by the service of the statutory demand’, then it is not advanced in good faith and will not be regarded as genuine.[54]
[53]Eyota (1994) 12 ACSR 785, 787 (McClelland CJ), cited with approval by the Victorian Supreme Court of Appeal in TR Administration (2008) 66 ACSR 67 and Malec [2015] VSCA 330.
[54]Creata v Faull (2017) 125 ACSR 212, 224 [47] (Barrett AJA, with Gleeson and White JJA agreeing).
In determining whether there is a genuine dispute between the parties, the Court is not expected to ‘embark upon any extended inquiry…and certainly will not attempt to weigh the merits of that dispute’.[55] The legislation only requires the Court to conclude that there is a dispute and it is genuine.[56] Put slightly differently, whilst the underlying nature of the dispute about the existence of a debt must be exposed, the Court will not deal with the merits and nothing of substance will be decided.[57] Instead, the Court’s role is to ‘determine whether there [is] plausible evidence to establish the existence of a genuine dispute, not whether the evidence [is] disputed or even likely to be accepted on a final hearing of any such claim’.[58]
[55]Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1994) 2 VR 290, 295 (Hayne J).
[56]Ibid.
[57]Quadrant Constructions Pty Ltd v HSBC Bank Australia Ltd [2004] FCA 111, [4] (Finkelstein J).
[58]Britten-Norman (2013) 85 NSWLR 601, 611 [47].
Finally, a plaintiff’s affidavit in support of an application under s 459G of the Corporations Act must contain sufficient evidence to support its case.[59] The affidavit need not detail the evidence supporting the dispute and may assert material facts in the nature of a pleading.[60]
[59]Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452, 459 (Sundberg, J).
[60]Ibid; Kortz Ltd v Data Acquisition Pty Ltd (2006) 155 FCR 556, 565–6 (Greenwood J).
Evidence concerning genuine dispute ground
Plaintiff’s material
The plaintiff relies upon two affidavits in support of its application: one affirmed by its director, Ms Kaylene Sullivan, and an affidavit affirmed by its shareholder, Mr Jonathan Holmes.
The statutory demand itself can be found at exhibit KJS-2 to Ms Sullivan’s affidavit affirmed on 22 June 2020. The schedule to the statutory demand sets out each month between January 2019 and May 2020 (‘the relevant period’) in which charges were levied by the defendant for agistment and feed. The schedule also specifies the number of horses agisted each month at a rate of $12.00 per day per horse and provides an accompanying monthly total.
In her affidavit, Ms Sullivan asserts that the debt underlying the statutory demand is disputed because ‘there was no agreement pursuant to which the [d]efendant is entitled to charge the [p]laintiff in the sum demanded’.[61] She says that at the time the statutory demand was issued, Mr Ian McPherson, a director of the defendant company, was fully aware that the amount claimed was the subject of dispute because of a letter from the plaintiff’s solicitors to the defendant’s solicitors dated 19 May 2020. The relevant parts of that correspondence are extracted below:
MHC Pathology Pty Ltd and/or Ms Sullivan has never been a party to any agreement with your client in relation to the provision of agistment and feed.
Further, there has never been any discussions let alone an agreement pursuant to which your client would be entitled to charge MHC Pathology Pty Ltd, Ms Sullivan or Mr Holmes for agistment and feed.
In the circumstances, our client was shocked to receive your letter dated 6 May 2020 enclosing an invoice for Agistment and Feed in the sum of $31,812.00. We note that the invoice fails to provide any details as to the relevant time period and the method of calculation by which the amount asserted to be owing has been calculated.
Accordingly, our clients reject any assertion that there is an agreement in place with Midvale Trail Pty Ltd or Midvale Trial Pty Ltd and that either is entitled to demand payment from MHC Pathology Pty [sic] or Ms Sullivan.
Please obtain your client’s instructions and provide details as to the alleged agreement between the parties including details as to how the sum of $31,812 has been calculated.[62]
[61]Sullivan affidavit affirmed 22 June 2020, [7].
[62]Exhibit KJS-3 to the Sullivan affidavit affirmed 22 June 2020.
Ms Sullivan says that following the 19 May 2020 letter, Mr McPherson left her a voice message which included statements such as: ‘This is all getting out of hand’ and ‘[a]ll I ever wanted is payment for feed’.[63]
[63]Sullivan affidavit affirmed 22 June 2020, [9].
The 19 May 2020 letter also elicited a response from the defendant’s lawyers on 22 May 2020. That correspondence relevantly stated:
The Agistment Agreement arose following the need of Holmes to relocate some horses and for the first few months there was no charge proposed as it was only expected short term but as it continued ongoing the parties agreed at $12.00 per day instead of the going rate of at least $20.00 per day (Quantum Meruit) plus feed of $490.00 weekly and labour and fuel of $150.00 weekly, altogether $7,264.00 monthly.
…
… the Agisted horses were branded MHC which clearly identifies the Business Name MHC Breeding. The Holder thereof is MHC Pathology Pty Ltd and Sullivan is the Sole director thereof albeit Holmes is the only Shareholder purporting, at all times material, to represent the Company as its Manager.
… there were payments on behalf of MHC Breeding to McPherson during the course of the Agistment by way of Bank Transfers and we presume Holmes kept records thereof.
… previous Invoices/Statements were either emailed or personally delivered to Holmes from 22 April 2019 which recorded ‘the relevant time period and the method of calculation’. In the event that Holmes denies receiving them we will arrange copies thereof.[64]
[64]Exhibit KJS-4 to the Sullivan affidavit affirmed 22 June 2020.
Ms Sullivan ‘categorically reject[s] that the [p]laintiff agreed to paying $12.00 per horse per day plus feed of $490.00 weekly and labour and fuel of $150.00 weekly, altogether $7,264 monthly’.[65] She says that, had the defendant advised in January 2019 that it sought to charge the rates referred to above, the plaintiff would have immediately caused the horses to be removed from the property.
[65]Sullivan affidavit affirmed 22 June 2020, [11].
On 27 May 2020, the defendant’s solicitors provided more detailed calculations of the payments demanded in the form of a spreadsheet. These further particulars suggested that, during the period from December 2018 to May 2020, the plaintiff kept up to 14 horses at the property. Ms Sullivan refutes that there were so many horses at the property over the relevant period. She has produced her own table recording the number of horses she believes were at the property, at any given month, throughout the relevant period. In addition, she points to apparent inconsistencies between the information contained in the spreadsheet and the invoices from the defendant for January, February, and March 2019, which were apparently emailed to Mr Holmes around the time of receipt of the letter from the defendant’s lawyers dated 22 May 2020.
In his affidavit affirmed on 22 June 2020, Mr Holmes deposes to being acquainted with Mr McPherson for a number of years and to having reached a ‘gentlemen’s agreement’[66] with him to keep the relevant horses on the property. That agreement was apparently preceded by an earlier agreement in September 2018 with Mr McPherson for the sale of the property. According to Mr Holmes, the purchasers of the property were to be the trustee of his family trust and Ms Sullivan, and the agreement was subject to Mr Holmes and Ms Sullivan selling their own home. Mr Holmes says that, pending settlement of the sale of their property, he and Ms Sullivan were entitled to keep the horses at the property. Ultimately, the sale of the property owned by Mr Holmes and Ms Sullivan did not settle. However, Mr McPherson allegedly told Mr Holmes that he could still keep the horses on the property whilst he and Ms Sullivan continued to advertise their property for sale.
[66]Affidavit of Johnathon William Holmes affirmed 22 June 2020 and filed on 23 June 2020, [15] (‘Holmes affidavit affirmed 22 June 2020’).
The narrative given by Mr Holmes about a prior agreement to purchase the property leading to the arrangement for the agistment of the horses is also set out in the letter from the plaintiff’s lawyers dated 19 May 2020. It is also partially supported by an email dated 12 September 2018 from the defendant’s then lawyers, together with an attached disclosure statement, in relation to a proposed sale of land owned by the defendant,[67] although it does not appear that these negotiations resulted in any signed contract of sale.
[67]Exhibit JWH-3 to Holmes affidavit affirmed 22 June 2020.
In any event, Mr Holmes says he purchased hay from Mr McPherson in cash, on a number of occasions, and undertook certain fencing work on the property in order to contain the horses. In addition, Mr Holmes asserts he had a separate agreement with another person to attend the property on a daily basis to look after the horses and to feed them.
Mr Holmes says that, on 12 May 2020, he received a letter from the defendant’s solicitors dated 6 May 2020 and addressed to the plaintiff.[68] The letter enclosed a single tax invoice dated April 2020 in respect of agistment and feed in the sum of $31,812. The invoice is addressed to each of Mr Holmes, Ms Sullivan, and ‘MHC Breeding’, which is apparently a business name of the plaintiff. It was the 6 May 2020 correspondence which resulted in the plaintiff instructing its lawyers to send the letter of 19 May 2020. Mr Holmes sets out the same history of correspondence recounted by Ms Sullivan, and takes issue with the calculations set out in the invoices provided by the defendant and the additional particulars sent on 27 May 2020. He suggests that the particulars recently provided do not factor in total payments of $10,592.38 made by him to the defendant, between October 2018 to May 2019, in respect of fencing, council rates, and feed. He says that after receiving the letter from the defendant’s lawyers on 22 May 2020, which referred to prior invoices, he checked his email account and located an invoice from the defendant for January and February 2019,[69] and another for March 2019.[70] Neither invoice is addressed to Mr Holmes, Ms Sullivan, or the plaintiff. Further, the invoices are for feed and sundry expenses but do not relate to agistment fees.
[68]Exhibit JWH-4 to Holmes affidavit affirmed 22 June 2020.
[69]Exhibit JWH-8 to Holmes affidavit affirmed 22 June 2020.
[70]Exhibit JWH-9 to Holmes affidavit affirmed 22 June 2020.
Mr Holmes also ‘categorically reject[s] that [he] agreed to paying $12.00 per horse per day plus feed of $490.00 weekly and labour and fuel of $150.00 weekly, altogether $7,264.00 monthly’.[71] Like Ms Sullivan, he says that had the defendant advised of its proposed charges in January 2019, he would have immediately arranged for the horses to be removed from the property. He further deposes to Mr McPherson having contacted him at some point during the relevant period and suggesting that he should organise to move additional horses onto the property, but at no time specifying any charges for agistment and feed.
[71]Holmes affidavit affirmed 22 June 2020, [18].
Defendant’s material
The defendant relies upon the late filed affidavit of one of its directors, Mr Ian McPherson, sworn on 31 August 2020 and filed on 1 September 2020. Mr McPherson denies there was any prior agreement to sell the property to Ms Sullivan and the trustee of Mr Holmes’ family trust. He says that the disclosure statement referenced by the plaintiff was an old document and that no contract of sale was ever entered into. Instead, Mr McPherson says he ‘allowed Holmes to keep the horses on the property on payment of charges’.[72] Although he does not suggest that the arrangement was formally documented, he denies it was a ‘gentleman’s agreement’.
[72]Affidavit of Ian McPherson sworn 31 August 2020 and filed on 1 September 2020, [13] (‘McPherson affidavit sworn 31 August 2020’).
Mr McPherson deposes to rendering multiple invoices to the plaintiff in respect of agistment fees.[73] He says he provided the invoices to Mr Holmes at the property and sent a number of replacement invoices to Mr Holmes by email. He does not depose to when the invoices were provided, although I note that some invoices bear specific dates (such as ‘22/4/2019’ or ‘October 2019’) and that others refer to a range of dates over a period of time in the manner of a consolidated invoice. Some of the invoices exhibited are for agistment, some are for feed, and others charge for both. It is unclear whether a number of the invoices overlap or repeat charges. The invoices have been rendered by ‘Midvale Trail Pty Ltd’, which is accepted as a reference to the defendant, and are mostly addressed to Mr Holmes and ‘MHC Breeding’. A number of the invoices contain handwritten annotations.
[73]A bundle of invoices can be found at exhibit IM-3 to the McPherson affidavit sworn 31 August 2020.
Mr McPherson says Mr Holmes never protested in respect of the invoices, but instead responded by indicating that they would be paid once the horses were sold. Whilst he does not deny Mr Holmes made total payments to the defendant of $10,592.38 between October 2018 to May 2019, he says that this did not include a contribution towards council rates and that feed was treated separately.
Mr McPherson denies leaving a voice message with Ms Sullivan on 21 May 2020. Instead, he recounts a direct conversation with Ms Sullivan in which she indicated she had mortgaged her home to fund the plaintiff and that Mr Holmes was endeavouring to sell the horses. He attaches significance to the fact that, on 25 May 2020, the plaintiff’s lawyers emailed the defendant’s lawyers and stated that they were taking instructions with a view to putting forward an offer of settlement.[74] The 25 May 2020 email is in response to an earlier email of 23 May 2020 from the defendant’s lawyers, which is not exhibited.
[74]See exhibit IM-4 to the McPherson affidavit sworn 31 August 2020.
Lastly, Mr McPherson exhibits a document styled ‘default notice’, dated 4 June 2020[75] and issued by the defendant, which purports to assert a lien over the remaining horses on the property under s 24B of the Impounding of Livestock Act 1994 (Vic) in respect of monies owing under an ‘Agistment Agreement’. Like the statutory demand which bears the same date, the default notice also refers to agistment rates of $12.00 per day per horse.
[75]See exhibit IM-6 to the McPherson affidavit sworn 31 August 2020.
Consideration of genuine dispute ground
It is common ground between the parties that horses were agisted on the property during the relevant period and that the horses belonged to the plaintiff. However, the circumstances in which the plaintiff’s horses came to be upon the property are a matter of contention. Not only are there differing accounts of the genesis of the agistment arrangement, there is also disagreement about the parties to the arrangement and its terms. Nothing has been recorded in writing other than the invoices for agistment and feed now relied upon by the defendant.
Mr Holmes insists that the arrangement for the agistment of the plaintiff’s horses was negotiated between himself and Mr McPherson. This is not contradicted by Mr McPherson who says that he allowed Mr Holmes to keep the horses on the property. It is the plaintiff’s evidence in this proceeding that there was simply no agreement between the plaintiff and the defendant in relation to the agistment of the plaintiff’s horses. That position was unequivocally conveyed in the 19 May 2020 correspondence from the plaintiff’s solicitors to the defendant’s solicitors, which predated the statutory demand by more than two weeks. The plaintiff’s contention is also supported by the uncontradicted evidence of Mr Holmes that it was him and not the plaintiff who paid the defendant $10,592.38 between October 2018 to May 2019. Critically, nowhere in his affidavit does Mr McPherson actually say that there was any agistment agreement between the plaintiff and the defendant.
Nor does Mr McPherson say precisely when he provided the relevant invoices to Mr Holmes. Whilst Mr Holmes does not explicitly deny receiving the invoices said to have been rendered by the defendant in respect of agistment, his evidence is that he was only able to locate two invoices for feed following receipt of the 22 May 2020 letter from the defendant’s lawyers, which caused him to search for those invoices. The invoices relied upon by the defendant are somewhat difficult to reconcile as to dates, amounts, and items charged.[76] Further, the invoices themselves do not sit comfortably with Mr McPherson’s own evidence. In particular, despite the suggestion in Mr McPherson’s affidavit that the invoices were in respect of agistment only and that feed was treated separately, the invoices do not necessarily reflect this distinction.[77] Further, in her affidavit, Ms Sullivan has identified instances in which invoices for January and February 2019, and for March 2019, are inconsistent with the further and better particulars of the debt claimed by the defendant and provided to the plaintiff on 27 May 2020.
[76]For example, the unchronological invoice bundle at exhibit IM-3 to the McPherson affidavit sworn 31 August 2020 includes the following: an undated invoice for January to April (without a reference to a year) for the sum of $31,961 in respect of agistment; an invoice dated 22 April 2019 for agistment over the same months and the same amount; an invoice dated 30 April 2019 for the same months but for the sum of $24,920 and for both agistment and feed; an invoice for January and February 2019 in respect of feed only; an invoice for March 2019 for feed only; an invoice dated 31 May 2019 in the sum of $31,882 for both agistment and feed; an invoice dated June 2019 for $34,370 in respect of agistment and feed; a July 2019 invoice for $35,114 for agistment and feed; an invoice for September 2019 in respect of $36,578 for agistment and feed; an invoice for October 2019 for the same amount and the same items (allowing for a payment of $1,000); an invoice for November 2019 in respect of $32,352 for agistment and feed (allowing for a payment of $1,000); an invoice for December 2019 in respect of $31,812 for agistment and feed (allowing for a payment of $1,000); invoices for January, February, and March (presumably the 2020 calendar year) in respect of agistment and feed, also for $31,812; and an invoice for April 2020 in respect of the same sum and the same charges.
[77]See above.
I do not put any great store in the fact that the plaintiff’s lawyers indicated in their open correspondence of 25 May 2020 that they would seek to put forward a settlement offer in respect of the defendant’s claim after taking instructions. It was proper for them to approach the matter in this way and entirely consistent with their overarching obligation in s 22 of the Civil Procedure Act 2010 (Vic), to use their reasonable endeavours to resolve the dispute.
Having regard to the above matters, I am of the view that there is a genuine dispute as to the existence of the alleged agreement between the plaintiff and the defendant concerning the agistment of the plaintiff’s horses on the property. The dispute is real, bona fide, and rises above mere assertion. It is supported by the clear evidence of Ms Sullivan and Mr Holmes which, in certain respects, is unrefuted by Mr McPherson. The dispute also finds objective existence in the 19 May 2020 letter from the defendant’s solicitors.
Conversely, aside from the bundle of invoices exhibited to Mr McPherson’s affidavit, there is no other contemporaneous evidence which would tend against the contention put forward by the plaintiff. However, as already explained, those invoices are difficult to follow. The defendant’s attempts to reconcile them occurred only recently (just prior to the issuing of the statutory demand). Further, it is unclear on the evidence when the invoices were said to have been rendered to the defendant, or if Mr Holmes ever received them on the defendant’s behalf.
It follows from the above that the statutory demand should be set aside in its entirety under s 459H(1)(a). However, if I am wrong in this regard, it is appropriate that I briefly deal with the plaintiff’s alternative submission that there is a genuine dispute as to the amount of the debt to which the demand relates.
As previously noted, the plaintiff takes issue with the further particulars of the debt provided by the defendant on 27 May 2020. These particulars indicate that during the period from December 2018 to May 2020, the plaintiff kept up to 14 horses at the property. Ms Sullivan has provided her own analysis of the number of horses kept on the property for each month during the relevant period, based on a review of her records.[78] On the basis of the agistment charge rate referred to in the statutory demand of $12.00 per day per horse, and including the month of December 2018, which is not included in the schedule to the statutory demand itself, the plaintiff submits that the applicable charges would only be $26,496 for the relevant period. My calculations, based on the details provided by Ms Sullivan, also result in that figure. Ultimately, the plaintiff and the defendant are at odds over how many horses were kept at the property for each month over the relevant period.
[78]See table at paragraph [17] of the Sullivan affidavit affirmed 22 June 2020.
The plaintiff also argues that the defendant has failed to take into account the $10,592.38 in payments made by Mr Holmes to the defendant between October 2018 to May 2019. As previously noted, the fact of these payments is not disputed by the defendant. However, having regard to the bundle of invoices exhibited to Mr McPherson’s affidavit, it seems that at least three payments of $1,000 ($3,000 in total) have been allowed by the defendant over the months of October 2019 to December 2019.
Notwithstanding that I have accepted the plaintiff’s primary submission of a genuine dispute as to the existence of the debt the subject of the statutory demand, if I am wrong in this regard, I also consider that there is a genuine dispute about the amount the defendant is entitled to charge the plaintiff. The information provided by the plaintiff gives the dispute a prima facie plausibility and a sufficient factual basis to be something more than a mere assertion. Applying the relevant adjustments, the defendant would only be entitled to claim $18,903.62.[79] This figure constitutes the ‘substantiated amount’ for the purposes of ss 459H(2) and (5) of the Corporations Act.
[79]This alternative figure is based on the $26,496 provided by Ms Sullivan in her alternative account of the number of horses at the property, less $7,592.38 (ie, $10,592.38 in payments made less $3,000 in payments allowed in the invoices dated October 2019 to December 2019).
By operation of the Coronavirus Legislation, the statutory minimum amount for a statutory demand referred to in s 459E(1) of the Corporations Act was temporarily changed from $2,000 to $20,000.[80] This change applied in respect of statutory demands served on or after 25 March 2020 and was set to be repealed 6 months after commencement. As the defendant’s demand was dated 4 June 2020, it was covered by the legislative change. Given the substantiated amount referred to above is less than the new statutory minimum of $20,000, s 459H(3) of the Corporations Act expressly requires the Court to make an order setting aside the statutory demand. The defendant’s statutory demand will also be set aside on this alternative basis.
[80]See Part 2 of Schedule 12 of the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) which replaced, by way of temporary relief, the definition of the ‘statutory minimum’ found in s 9 of the Corporations Act. The change increased the statutory minimum amount of statutory demands made under Part 5.4 of the Corporations Act, from $2,000 to $20,000, in accordance with new regulation 5.4.01AA of the Corporations Regulations 2001 (Cth).
Section 459J grounds
The plaintiff’s remaining grounds to set aside the statutory demand rely upon s 459J of the Corporations Act. That provision is in the following terms:
(1)On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
(a)because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b)there is some other reason why the demand should be set aside.
(2)Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.
The case law makes clear that sub-paragraphs (a) and (b) of s 459J(1) are mutually exclusive.[81] The only source of power to set aside a demand on the basis of a defect is found in s 459J(1)(a) and not s 459J(1)(b).[82] In other words, the provisions do not overlap.
[81]See Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 13 ACSR 525; Spencer Constructions (1997) 76 FCR 452.
[82]Spencer Constructions (1997) 76 FCR 452, 458–9; Daewoo Australia Pty Ltd v Suncorp-Metway Ltd (2000) 33 ACSR 481, 493–4 [44]–[45] (Austin J) (‘Daewoo v Suncorp-Metway’).
The term ‘defect’ as it appears in s 459J is given a wide and inclusive definition by s 9 of the legislation and may encompass an irregularity, a misstatement of an amount or total, a misdescription of a debt or other matter, or a misdescription of a person or entity. But the expression ‘defect’ in s 459J does not imply any degree of proportionality or distinguish between defects which are major or minor in nature.[83] Even significant defects in a demand are to be determined under s 459J(1)(a).[84]
[83]Main Camp Tea Tree Oil Ltd v Australian Rule Group Ltd (2002) 20 ACLC 726. See also Farid Assaf, Statutory Demands and Winding Up in Insolvency (Lexis Nexis, 2nd ed, 2012) [7.12].
[84]Spencer Constructions (1997) 76 FCR 452, 459.
The question of whether substantial injustice will arise unless the demand is set aside depends on the nature of the particular defect identified and the surrounding circumstances.[85] The requisite injustice must be experienced by the debtor company itself, but the concept cannot be treated as a proxy for disciplining a creditor who has failed to adhere to the form of the demand.[86]
[85]Condor Asset Management Ltd v Excelsior Eastern Ltd (2005) 56 ACSR 223, 231 [25] (Barrett J); Randall Pty Ltd [2009] NSWSC 848, [15] (Barrett J).
[86]Hornet Aviation Pty Ltd v Ansett International Air Freight (1994) 16 ACSR 21, 24 (Northrop J) (‘Hornet Aviation v Ansett’).
The plaintiff relies on both sub-paragraphs of s 459J(1) to impugn the statutory demand for the following reasons:
(a) the statutory demand erroneously refers to the previous 21-day period for compliance rather than the temporary 6-month statutory period set by the Coronavirus Legislation; and
(b) the statutory demand fails to nominate an address for service within the same State in which the demand was served.
I will deal with each argument in turn.
Failure to refer to extended 6-month period for compliance
Section 459E(2) of the Corporations Act requires that a statutory demand must be in the prescribed form. That form is contained in Schedule 2 of the Corporations Regulations 2001 (Cth) and is Form 509H. The statutory period for compliance with statutory demands issued after 25 March 2020 was temporarily extended from 21 days to 6 months by the Coronavirus Legislation. I have already held that the 6-month period for compliance applied to the defendant’s statutory demand. Further, Form 509H was also amended by the Coronavirus Legislation to include replacement instructional notes 2 and 5, which deal with the revised statutory minimum amount for demands and the extended statutory period of compliance, respectively.[87]
[87]See Part 2 of Schedule 12 of the Coronavirus Legislation which effected this change.
The Explanatory Memorandum to the Coronavirus Economic Response Package Omnibus Bill (2000) states that the economic impact of the coronavirus pandemic could place ‘numerous … Australian businesses at risk of insolvency’, and explains that to avoid unnecessary insolvencies, the relevant amendments contained in the Coronavirus Legislation grant ‘a safety net to help businesses to continue to operate during a temporary period of illiquidity, rather than enter voluntary administration or liquidation’.[88]
[88]Explanatory Memorandum to the Coronavirus Economic Response Package Omnibus Bill (2000), [12.2].
Despite this, paragraph 3 of the statutory demand incorrectly requires the plaintiff to pay the amount of the debt or to secure or compound for the amount of the debt within 21 days after service. Similarly, paragraph 5 of the demand erroneously instructs the plaintiff that an application under s 459G may be made within 21 days after service. Further, the replacement instructional notes in Form 509H were omitted entirely.
The plaintiff submits that the reference to a 21-day period for compliance as opposed to the extended 6-month period is a defect for the purposes of s 459J(1)(a). Further, it argues that it has suffered substantial injustice because it was compelled to make an application to set aside the statutory demand within 21 days, rather than the extended period of six months allowed by Parliament under the Coronavirus Legislation. Whilst I accept the reference in the statutory demand to 21 days for compliance is a defect under s 459J, I am not convinced that it has occasioned any substantial injustice. The following question can be posed: is the plaintiff any worse off as a result of filing its s 459G application within 21 days as opposed to the extended period of 6 months? The answer must be in the negative. There is no evidence before the Court to suggest the plaintiff would have acted any differently had the correct statutory period of 6 months been referred to in the statutory demand.
The increase of the statutory period to 6 months was an important amendment to the statutory demand regime contained in Part 5.4 of the Corporations Act. It provides companies with a regulatory safety net during a period of enormous economic and social disruption. The failure to refer to this extended period is undoubtedly a significant defect for the purpose of s 459J(1)(a). However, as there is no substantial injustice, s 459J(2) makes clear that the demand cannot be set aside on that basis.
At the hearing on 7 September 2020, the lawyers for the plaintiff properly conceded that the defendant’s failure to include the instructional notes in the statutory demand as required by Form 509H was unlikely to give rise to any substantial injustice. That was an appropriate concession. Whilst the failure to include the notes is a defect, it is also not one that is capable of causing substantial injustice.[89] The notes are directed to assisting a creditor in drafting a statutory demand, as opposed to providing guidance to a debtor company.[90]
[89]Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 13 ACSR 525.
[90]See Wildtown Holding Pty Ltd v Rural Traders Co Ltd [2001] WASC 216, [3], which was overturned on appeal, on other grounds, in Wildtown Holding Pty Ltd v Rural Traders Co Ltd (2002) 172 FLR 35.
The plaintiff also submits that the failure to refer to the correct statutory period in the statutory demand constitutes ‘some other reason’ why the demand should be set aside under s 459J(1)(b). However, the authorities are clear that the ‘other reason’ required by s 459J(1)(b) cannot be a defect in the demand.[91] Something else is required. In Arcade Badge Embroidery Co Pty Ltd v DCT,[92] the Court of Appeal of the Australian Capital Territory found that the other reasons envisaged by s 459J(1)(b) include ‘conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice’.[93] Whilst the discretion conferred by the provision is broad, a judge should not set aside a statutory demand under s 459J(1)(b) simply because she or he subjectively considers it fair to do so.[94] The Court’s power under the sub-section exists to maintain the integrity of the statutory demand procedure in Part 5.4 of the Corporations Act and to counter its subversion.[95]
[91]Spencer Constructions (1997) 76 FCR 452, 458–9; Daewoo v Suncorp-Metway (2000) 33 ACSR 481, 493–4 [44]–[45].
[92](2005) 157 ACTR 22.
[93]Ibid 26 [27] (Crispin P, Gray and Marshall JJ). See also Hoare Bros Pty Ltd v DCT (1996) 19 ACSR 125; Neutral Bay Pty Ltd v DCT (2007) 25 ACLC 1341.
[94]Meehan v Holdings Pty Ltd (2005) 53 ACSR 229, 240 [60]–[61].
[95]Rinfort Pty Ltd v Arianna Holdings Pty Ltd (2016) 111 ACSR 607, 633 [84] (Black J).
Here, the plaintiff does not suggest that the reference to the previous 21-day period for compliance constitutes anything other than a defect. The plaintiff does not identify any conduct of the defendant which is unconscionable or suggestive of an abuse of process. The reference to a 21-day period is unexplained by the defendant but would seem to be an innocently made mistake. Moreover, there does not appear to have been any obvious subversion of the statutory demand regime contained in Part 5.4 of the legislation.
I turn now to the question of whether the statutory demand should be set aside under s 459J on account of its failure to specify an address for service within the jurisdiction in which the demand was served.
Failure to nominate an address for service within Victoria
As already noted, paragraph 6 of the statutory demand nominated the Moama address as the address of the defendant for the purpose of service of any application.[96] This did not comply with s 459E(2) of the Corporations Act and Form 509H to the Corporations Regulations 2001, which require a creditor to nominate an address for service within the jurisdiction in which the statutory demand was served (in this case, Victoria). In the recent case of Re O’Brien Real Estate Pty Ltd,[97] I explained the reason for this requirement:
The purpose of specifying such an address for service is to facilitate service of an application to set aside the statutory demand, not to impede service or make service of such an application more difficult.[98] This is because the policy underlying the regime contained in Part 5.4 of the Corporations Act, is to ensure disputes relating to statutory demands are dealt with expeditiously and applications to wind up companies in insolvency are determined without delay.[99]
[96]Exhibit KJS-1 to the Sullivan affidavit affirmed 22 June 2020.
[97][2020] VSC 697, [22] (‘Re O’Brien Real Estate’).
[98]Farid Assaf, Statutory Demands and Winding Up in Insolvency (Lexis Nexis, 2nd ed, 2012) [4.56], citing Players Pty Ltd v Interior Projects (1996) 20 ACSR 189, 193 (Lander J).
[99]David Grant (1995) 184 CLR 265; Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corp Ltd (2008) 232 CLR 314, 323–4; Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (recs and mgrs apptd) (2011) 244 CLR 1, 13 [27].
I accept that the failure to state an address for service within the jurisdiction in which a debtor company is served is an inherent defect in the statutory demand. To require a plaintiff, already under pressure to file and serve a s 459G application within time, to make inquiries about where and upon whom the application should be served is clearly undesirable.[100] However, despite the fact the plaintiff failed to initially serve the defendant for the purposes of s 459G(3)(b), it has now successfully served the application within the extended statutory period for compliance set by the Coronavirus Legislation. A critical precondition for activating the Court’s jurisdiction under s 459G has therefore been met and the plaintiff is not prevented from maintaining its application. That being the case, it is difficult to see how the defect in the statutory demand has caused any substantial injustice to the plaintiff within the meaning of s 459J(1)(a) of the Corporations Act.[101] None has been referred to. Accordingly, there is no basis to set aside the demand under s 459J(1)(a) by reason of this defect.
[100]Fairstar Resources Ltd (Receivers & Managers Appointed) v Bhalla [2017] WASC 74, [12] (Sanderson M).
[101]See Re Ad-A-Cab Holdings Pty Ltd [1997] 1 Qd R 115; Daewoo v Suncorp-Metway (2000) 33 ACSR 481; RH Mortgage Corporation Ltd v Kerry Ann Properties Pty Ltd [2011] NSWSC 298.
At the hearing, the plaintiff’s solicitor placed reliance on the decision of Mahony SM of this Court in Scandon Pty Ltd v Dome Supplies Pty Ltd,[102] in support of the argument that the demand should be set aside under s 459J because of the failure to nominate an address for service within the jurisdiction. The case stands for the proposition that a defect in a demand, including a failure to give an address for service in the relevant State, could be treated as ‘some other reason’ for setting the demand aside under s 459J(1)(b), even if there was no substantial injustice involved. However, as previously explained, the ‘other reason’ required by s 459J(1)(b) must be a reason aside from a defect in the demand.[103] Further, the analysis in Scandon was not met with approval by the Full Court of the Federal Court in Spencer Constructions[104] and, respectfully, may no longer be considered good law.[105]
[102]17 ACSR 662 (‘Scandon’).
[103]Spencer Constructions (1997) 76 FCR 452, 460–1; Daewoo (2000) 33 ACSR 481, 493–4 [44]–[45].
[104]Ibid 458–61.
[105]See the discussion in Farid Assaf, Statutory Demands and Winding Up in Insolvency (Lexis Nexis, 2nd ed, 2012) [7.10]-[7.11].
In Re O’Brien,[106] I held that the relevant statutory demand was liable to be set aside under s 459J(1)(b) because the overall conduct of the defendant was unconscionable and amounted to an abuse of process. The relevant conduct included the defendant opportunistically obtaining a default judgment, which was used to found the statutory demand in circumstances where the plaintiff had a pending summary judgment application; the specification of an address for service in Delaware, United States of America, which was designed to hinder the ability of the plaintiff to make a s 459G application; and the commencement of a winding up application by reason of the debtor company’s alleged non-compliance with the statutory demand, despite the extended statutory period allowed by the Coronavirus Legislation. The setting aside of the statutory demand in that case was necessary to protect the integrity of the statutory demand regime.
[106][2020] VSC 697.
The plaintiff has not pointed to any similar conduct by the defendant in this case which would justify an order under s 459J(1)(b). The defendant’s failure to specify an address for service within the jurisdiction is a defect which has not caused any substantial injustice. But it is nothing more than a defect. No sufficient ‘other reason’ has been established to set the statutory demand aside.
Solvency
For the sake of completeness, there is one further point raised by the defendant which can be dealt with briefly. At the hearing and in the defendant’s written submissions of 1 September 2020, the defendant argued that the statutory demand should not be set aside because the plaintiff was trading whilst insolvent. In particular, the defendant relied upon evidence provided by Mr McPherson to the effect that the plaintiff owed various debts to other third-party creditors.[107] However, evidence as to the insolvency of a debtor company is not strictly relevant for the purposes of determining an application to set aside a statutory demand.[108] Of course, pursuant to s 459C(2)(a) of the Corporations Act, a statutory presumption of insolvency arises where a debtor company fails to comply with a statutory demand or is unsuccessful in an application to set it aside. That said, the question of solvency of the debtor company may become relevant in a s 459G application in the following limited circumstances:
(a) where a statutory demand is served upon a company that is obviously solvent, the court is entitled to take this into account in determining whether the issue of the statutory demand constitutes an abuse of process under s 459J(1)(b);[109] or
(b) where the court considers ‘[i]t may be easier to conclude that a dispute about a debt or an offsetting claim is “genuine’’ when raised or made by a solvent company than in other cases’.[110]
[107]McPherson affidavit sworn 31 August 2020, [21].
[108]Hornet Aviation v Ansett (1994) 16 ACSR 21, 28.
[109]Paperlinx Ltd v Skidmore (2004) 51 ACSR 614, 616 [9] (Finkelstein, J). See also the discussion in Farid Assaf, Statutory Demands and Winding Up in Insolvency (Lexis Nexis, 2nd ed, 2012) [7.76]–[7.77].
[110]Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 15 ACSR 682, 695 (Lindgren J). See also Leda Developments Pty Ltd v Orion Consolidated Pty Ltd [2001] QSC 400, [3]; Reavill Farm Management Pty Ltd v Ashford Properties Pty Ltd [2010] NSWSC 1128, [27]–[28] (Barrett J).
In this case, the plaintiff does not rely on solvency to support any of the grounds advanced to set aside the statutory demand. Further, the plaintiff has clearly established on the evidence that there is a genuine dispute as to the existence and / or amount of the debt claimed by the defendant. It is unnecessary for the Court to have regard to the more peripheral matter of the plaintiff’s solvency in arriving at that conclusion. Moreover, the source of Mr McPherson’s understanding of other debts allegedly owed by the plaintiff is not made clear and would only present a partial picture of the plaintiff’s overall financial position, in any event. For all these reasons, I need not take the point concerning the plaintiff’s solvency any further.
Conclusion
Whilst the plaintiff’s arguments to set aside the statutory demand on either of the grounds set out in s 459J have not succeeded, it has demonstrated that there is a genuine dispute about the existence and/or amount of the debt the subject of the defendant’s statutory demand. Accordingly, the statutory demand will be set aside. I will hear the parties on the question of costs.
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