Ziegler as trustee for the Doris Gayst Testamentary Trust v Cenric Group Pty Ltd

Case •

[2020] NSWCA 85

•

06 May 2020

No judgment structure available for this case.

Court of Appeal


Supreme Court


New South Wales

Medium Neutral Citation: Ziegler as trustee for the Doris Gayst Testamentary Trust v Cenric Group Pty Ltd [2020] NSWCA 85
Hearing dates: 14 April 2020 and on the papers
Date of orders: 14 April 2020
Decision date: 06 May 2020
Before: Meagher JA at [1]
Gleeson JA at [2]
McCallum JA at [78]
Decision:

14 April 2020

 

(1)   Summons for leave to appeal dismissed.

 

(2)   Notice of Appeal filed 4 December 2019 dismissed as incompetent.

 

(3)   Applicant pay the respondent’s costs of the concurrent hearing on the application for leave and appeal.

 

6 May 2020

 

(1)   Dismiss the respondent’s application for a special costs order.

 (2)   Respondent to pay the applicant’s costs of the application to vary the costs order made on 14 April 2020.
Catchwords: CORPORATIONS – winding up – leave to appeal from decision setting aside a statutory demand – Corporations Act 2001 (Cth) s 459G – where offsetting claim to retention monies founded on contractor’s acceptance of owner’s repudiation of construction contract – whether affidavit “supported” the s 459G application – whether necessary for supporting affidavit to contain the legal basis of the claim – challenge to primary judge’s factual finding that affidavit supported the s459G application – whether injustice demonstrated
Legislation Cited: Corporations Act 2001 (Cth), ss 459C, 459E, 459F, 459G, 459H(1)(b), 459J, 459K
Judiciary Act 1903 (Cth), ss 79, 80
Supreme Court Act 1970 (NSW), s 101(2)(p)
Uniform Civil Procedure Rules, rr 36.4(3), 42.1, 51.1(3)
Cases Cited: Bendigo and Adelaide Bank Ltd v Pekell Delaire Holdings Pty Ltd [2017] VSCA 51; (2017) 118 ACSR 529
Bevic Holdings Pty Ltd v Wright [2015] NSWCA 210
Britton-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344
Buckland Products Pty Ltd v Deputy Commissioner of Taxation [2003] VSCA 85
Calderbank v Calderbank [1975] 3 All ER 333
Diploma Construction (WA) Pty Ltd v CTC Commercial Pty Ltd [2016] WASCA 191
Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (Administrator Appointed) [2020] NSWCA 1
Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560
Evans Shire Council v Richardson (No 2) [2006] NSWCA 61
Financial Solutions Australasia Pty Ltd v Predella Pty Ltd (2002) 26 WAR 306; [2002] WASCA 51
Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60
Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452
Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd [2007] NSWSC 103; (2007) 61 ACSR 321
Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2004] VSCA 298
Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; (2011) 286 ALR 768
Infratel Networks Pty Ltd v Gundry’s Telco and Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27
Jem Developments Pty Ltd v Hansen Yuncken [2006] NSWSC 1378; (2006) 60 ACSR 393
Jones v Bradley (No 2) [2003] NSWCA 258
Leveraged Capital Pty Ltd v Modena Imports Pty Ltd [2009] NSWSC 509
McDonald v Denny’s Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25
Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229
Miwa Pty Ltd v Siatan Properties Pte Ltd (No 2) [2011] NSWCA 344
Modena Imports Pty Ltd v Leveraged Capital Pty Ltd (in liq) [2009] NSWSC 20
NA Investment Holdings Pty Ltd v Perpetual Nominees Limited [2010] NSWCA 210; (2010) 79 ACSR 544
Pacific Islands Express Pty Ltd v Empire Building Development Pty Ltd [2008] NSWSC 576
Passion Projects (ALLYOUNEEDISLOVE) Pty Ltd v Concept Moulding Pty Ltd [2014] NSWCA 415
POS Media Online Ltd v B Family Pty Ltd [2003] NSWSC 147; (2003) 21 ACLC 533
Process Machinery Australia Pty Ltd v ACN 057 262 590 Pty Ltd [2002] NSWSC 45
Reale Bros Pty Ltd v Reale [2003] NSWSC 666
Re Citadel Financial Corporation Pty Ltd [2019] NSWSC 65
Re Hobash Holdings Pty Ltd [2012] NSWSC 1501
Re Kay Investment Holdings Pty Ltd [2011] NSWSC 1033
Re Minister for Immigration and Multicultural Affairs; Ex parte Lam (2003) 214 CLR 1; [2003] HCA 6
Rizeq v The State of Western Australia (2017) 262 CLR; [2017] HCA 23
Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 214 FLR 393
Secretary, Department of Family and Community Services v Smith (2017) 95 NSWLR 597; [2017] NSWCA 206
Shakespeares Pie Co Pty Ltd v Multipye Pty Ltd [2005] NSWSC 1201
Tati v Stonewall Hotel Pty Ltd (No 2) [2012] NSWCA 124
TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67
TQM Design & Construct Pty Ltd v KCL Developments Pty Ltd & Golden Plantation Pty Ltd [2011] NSWCA 7
Category:Principal judgment
Parties: Carolyn Ziegler as trustee for the Doris Gayst Testamentary Trust (Appellant / Applicant)
Cenric Group Pty Ltd (Respondent)
Representation:

Counsel:
M Christie SC / D Hume (Appellant / Applicant)
C D Wood SC / D Parish (Respondent)

  Solicitors:
Blackstone Waterhouse Lawyers (Appellant/Applicant)
MDW Law (Respondent)
File Number(s): 2019/3821842020/80248
 Decision under appeal 
Court or tribunal:
Supreme Court of New South Wales
Jurisdiction:
Equity – Corporations List
Citation:
[2019] NSWSC 1586
Date of Decision:
14 November 2019
Before:
Leeming JA
File Number(s):
2019/287206

Judgment

  1. MEAGHER JA: My reasons for joining in the orders made on 14 April 2020 are those given by Gleeson JA. I also agree, for the reasons his Honour gives, that the respondent’s application for indemnity costs from 9 April 2020 should be rejected.

  2. GLEESON JA: The applicant, Carolyn Ziegler, as trustee for the Doris Gayst Testamentary Trust (Ms Ziegler), seeks leave to appeal against an order made on 14 November 2019 setting aside a statutory demand dated 27 August 2019 served by Ms Ziegler on the respondent, Cenric Group Pty Ltd (Cenric) under s 459E of the Corporations Act 2001 (Cth): Cenric Group Pty Ltd v Ziegler as trustee for the Doris Gayst Testatmentary Trust [2019] NSWSC 1586.

  3. The statutory demand claimed three debts said to be owing by Cenric in respect of deemed judgments totalling $253,556.91 created by the registration in the Supreme Court of three costs certificates in respect of costs orders obtained by Ms Ziegler against Cenric in other proceedings. The primary judge set aside the statutory demand on the ground that he was satisfied that Cenric had an arguable offsetting claim in an amount of $255,106.50, which exceeded the debt claimed in the statutory demand: s 459H(1)(b), Corporations Act. That conclusion was based on his Honour’s finding that there was a sufficient supporting affidavit filed and served within the 21-day period after service of the statutory demand: s 459G(3).

  4. Although Ms Ziegler filed a notice of appeal, she correctly accepted that leave to appeal is required by s 101(2)(p) of the Supreme Court Act 1970 (NSW). The hearing proceeded as a concurrent hearing of the application for leave to appeal, and subject to leave being granted, the appeal itself.

  5. At the conclusion of oral argument, the Court made the following orders:

(1)   Summons for leave to appeal dismissed

(2)   Notice of Appeal filed 4 December 2019 dismissed as incompetent

(3)   Applicant pay the Respondent’s costs of the concurrent hearing on the application for leave and appeal.

(4)   Reasons reserved.

After the Court made those orders, Cenric foreshadowed its intention to make an application for a special costs order. The Court granted leave to the parties to file submissions on any application to vary the costs order as follows:

(5)   The parties to exchange, and forward to the Associate to Meagher JA, written submissions (not exceeding 3 pp) on any application to vary the costs order in (3) above.

  1. Pursuant to that grant of leave, Cenric filed submissions seeking a variation of the costs order, based on a Calderbank offer made on 8 April 2020. The costs order sought by Cenric is that Ms Ziegler pay Cenric’s costs on the ordinary basis up to and including 8 April 2020, and on an indemnity basis on and from 9 April 2020. Ms Ziegler filed submissions opposing the variation sought to the costs order.

  2. My reasons for joining in the orders made on 14 April 2020 and for rejecting Cenric’s application to vary the costs order are as follows.

Factual circumstances

  1. The factual circumstances giving rise to these proceedings are described in some detail in the reasons of the primary judge at Judgment [7]-[28] [1] . The following summary, taken from the judgment, is sufficient to provide the context for this present application.

    1.

  2. Cenric and Ms Ziegler were parties to a construction contract in respect of a development at Oxford Street, Paddington. It was a term of the contract that the contractor, Cenric, was obliged to “provide security for performance of its obligations under the contract”, relevantly, in the form of a “cash retention sum”. The contract entitled the owner, Ms Ziegler, to withhold rather than pay 10% of the first $2.5 million of payments to Cenric. The contract obliged Ms Ziegler to hold the cash retention as trustee for Cenric.

  3. The contract provided for the circumstances in which Ms Ziegler could draw on the security and the circumstances in which the cash retention was payable to Cenric. With respect to the latter circumstances, the contract provided that the contractor was entitled to a release of 50 per cent of the security then held when the architect issued the notice of practical completion, and that the owner must release to the contractor any remaining security when the architect issued the final certificate for the works, or a certificate after termination or frustration of the contract. The architect did not issue any such certificates.

  4. It is common ground that the cash retention presently held by Ms Ziegler is $255,106.50.

  5. The statutory demand was served by Ms Ziegler on Cenric on 27 August 2019. Cenric’s application under s 459G to set aside the demand was made by originating process filed 13 September 2019 and an affidavit of Cenric’s construction manager, Mr Stephen Tambouras, dated 13 September 2019 (Tambouras affidavit), which were filed and served within the 21-day period referred to in s 459G(3).

  6. The Tambouras affidavit annexed a copy of the construction contract dated July 2016, identified the work performed on site by Cenric between 18 July 2016 and 1 February 2018, and noted the amount of retention monies withheld by Ms Ziegler of $255,106.50. The affidavit also referred to and annexed copies of (a) an email sent by Cenric to Ms Ziegler on 19 February 2019 attaching a Request for Release of Security, being the retention monies of $255,106.50, and (b) a statement of claim in District Court proceedings commenced by Cenric against Ms Ziegler, which was verified by Cenric, and claimed as relief “An order that [Ms Ziegler] pay [Cenric] the sum of $255,106.50”, together with interest, costs, interest on costs and any further or other orders as the Court deems fit. No claim for damages was pleaded.

  7. The Tambouras affidavit read with the annexures, including the statement of claim, raised contentions that:

  • Cenric had performed work under the contract;

  • Ms Ziegler had withheld the sum of $255,106.50 under the contract;

  • Ms Ziegler had evinced an intention no longer to be bound by the terms of the contract and had repudiated the contract by wrongfully purporting to terminate the contract on 23 November 2018 and wrongfully taking possession of the site on 25 November 2018;

  • Cenric had elected to accept Ms Ziegler’s repudiation and had terminated the contract by letter to Ms Ziegler dated 28 November 2018; and

  • despite demand, Ms Ziegler had refused to release the retention monies of $255,106.50 to Cenric.

Primary judge’s reasons

  1. The primary judge commenced by identifying the main issue raised by Cenric’s application, namely, the extent to which an offsetting claim can properly be discerned from the affidavits supplied within the 21 days specified by s 459G(3) of the Corporations Act in support of the originating process. His Honour continued at Judgment [1]:

… For the reasons I shall provide below, it is tolerably clear that the plaintiff debtor, Cenric Group Pty Ltd, has a sufficiently arguable offsetting claim, which in certain respects resembles that articulated in the affidavit, insofar as it is said to be a consequence of an acceptance of the defendant creditor’s repudiation of a contract and her non-payment of amounts withheld by her. However, it is also clear that some aspects of that claim have been deficiently articulated. Is that fatal?

  1. No complaint is made in relation to his Honour’s statement of principles concerning the supporting affidavit requirement in s 459G(3). At Judgment [27], his Honour proceeded on the basis, which was common ground, of the summary of principle by Ward J in Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; (2011) 286 ALR 768 (Hopetoun) at [36]:

There need not be an explicit articulation in the supporting affidavit of the ground(s) on which the application to set aside is to be raised, provided the ground is raised expressly or by necessary or a reasonably available inference.

(The summary of principle by Ward J was based on the decisions of Austin J in POS Media Online Ltd v B Family Pty Ltd[2003] NSWSC 147; (2003) 21 ACLC 533 (POS Media) and White J in HansmarInvestments Pty Ltd v Perpetual Trustee Ltd[2007] NSWSC 103; (2007) 61 ACSR 321 (Hansmar).)

  1. After outlining the facts and noting that there were deficiencies in the way the statement of claim had been pleaded in the District Court proceedings, his Honour considered the provisions of the contract, addressed Ms Ziegler’s submissions and stated the position at Judgment [49]-[51] in these terms:

[49]   The matter reduces to this. Cenric has done work, but has been underpaid to the extent of some $250,000, with Ms Ziegler holding the underpayment. Prior to the termination of the contract, Ms Ziegler was entitled to retain up to 10% of the amounts due to Cenric, to a maximum of $255,106.50, being 5% of the original contract price. The litigation has been conducted on the basis that that is what occurred. Cenric puts forward, by way of a concededly bona fide claim, the allegations that Ms Ziegler wrongfully repudiated the contract, which repudiation it accepted. Cenric has demanded that it be paid the amounts retained by Ms Ziegler. Her entitlement to retain those amounts was founded in the terms of the contract, but through her repudiatory conduct accepted by Cenric, those rights have been brought to an end.

[50]   It seems to be reasonably arguable, to say the least, that Cenric is entitled to claim a legal entitlement to the unpaid price of the price for the works that it has done and in respect of which Ms Ziegler is no longer authorised to decline to pay as to 10% of the price.

[51]   True it is that the demand made by Cenric for repayment identified clauses of the contract which were no longer in existence, and its pleading in the District Court to be paid the same amount failed to identify the legal basis. I do not regard that as determinative. It has at all times been plain that Cenric contends that it was wrongfully kept out of the building site, and that Ms Ziegler wrongfully repudiated the contract and that the contract was brought to an end by its acceptance of her repudiation. At all times it has been plain that Cenric claims to be paid the amounts retained. [Emphasis added.]

  1. His Honour then addressed Ms Zeigler’s reliance, by analogy, on the rejection of an offsetting claim by the debtor based on rectification in equity in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60 (Grandview). At Judgment [52], his Honour distinguished the present case, noting that in Grandview the claim:

… was rejected on the bases that “no evidentiary foundation whatsoever was laid to make out that there was a genuine or arguable case for rectification” and that the affidavit “did not set out any material facts that could sustain a claim to rectify the contract”: at [38] and [39]. But the opposite is true of the present case. The only material facts are the written contract between the parties, the wrongful repudiation of the contract by Ms Ziegler, Cenric’s acceptance of that repudiation, and the retention by her of part of the price otherwise payable for work done by Cenric. [Emphasis added.]

  1. Addressing Ms Ziegler’s submission, which his Honour considered amounted to an insistence that Cenric be bound to the precise way in which its entitlement to the retention amount had been articulated in the District Court pleading, his Honour said that this “sets the bar too high”, giving two reasons at Judgment [54].

  2. The first reason was that Ms Ziegler knew that she was facing a claim that she had wrongly terminated the contract, and wrongly kept Cenric off-site, and that Cenric had demanded the payment of the amounts withheld by her for work done. The second reason was that Ms Ziegler also knew, if properly advised, that there were deficiencies in the legal basis of Cenric’s claim as articulated, but the material facts on which the claim was based were clear, and were contained in the material supplied within 21 days, and that was sufficient in the circumstances of this case.

  3. His Honour summarised his assessment of the evidence and set out his conclusions at Judgment [59]-[62] as follows:

[59]   The position may be analysed as follows. There is evidence that Cenric performed demolition and construction work on Ms Ziegler’s land, and rendered claims for payment of some $5,000,000. Ms Ziegler withheld an amount now totalling slightly more than $250,000 in a separate trust account (the contract entitled her to withhold rather than pay 10% of the first $2.5 million of payments to Cenric). Cenric claims that Ms Ziegler wrongly repudiated the contract when she purported to terminate and locked it out from the premises, and that Cenric was entitled to accept her repudiation and bring the contract to an end. Ms Ziegler disputes that, but accepts that Cenric’s claim is advanced bona fide. In those circumstances, Cenric requires payment of the outstanding $250,000 owed by Ms Ziegler for work previously done and invoiced. I have outlined above reasonably arguable bases for Cenric being entitled, at law and in equity, in support of that claim. Cenric’s claim turns merely on the contract, the fact that Ms Ziegler has retained part of the agreed price, and Cenric’s acceptance of her repudiation.

[60]   As Mr Christie emphasised, those claims were not articulated in their legal detail, although they were adopted with appropriate opportunism during the course of the hearing by Cenric. Further, as Mr Christie emphasised, a different legal basis was articulated in the request for the return of the retention monies and in the District Court pleading.

[61]   But it was quite clear from the outset that Cenric was insisting that Ms Ziegler could not retain beneficially the $250,000 she had not paid Cenric. …

[62]   I have concluded that Cenric does have a reasonably arguable claim, and in my view it was sufficiently articulated in the affidavit accompanying the originating process. In effect it was “Pay me in full for the work which you have only partly paid me for, now that I have validly terminated the contract which permitted you to retain 5% of the contracted amount”. The fact that there are difficulties in the precise way in which that claim had been articulated does not detract from its gravamen having been made out in the supporting affidavit. [Emphasis added.]

Proposed ground of appeal

  1. The single proposed ground of appeal is that the primary judge erred in holding that Cenric had an arguable offsetting claim which was sufficiently articulated in the affidavit accompanying the originating process under s 459G.

  1. Ms Ziegler submitted that a grant of leave is warranted because a point of principle is involved and a substantial injustice has occurred. Cenric submitted that leave to appeal should not be granted. It does not accept that any issue of principle is at stake or that there has been injustice. At most, it says, the primary judge was arguably in error and that, of itself, is not sufficient to justify granting leave.

  2. Cenric also says that there is no utility in an appeal because the statutory demand is now stale, referring to the operation of s 459F, s 459C and s 459K of the Corporations Act. Ms Ziegler disputes that the proposed appeal lacks utility.

Leave to appeal

  1. The requirement for leave to appeal to challenge any judgment or order of the Court on an application under s 459G of the CorporationsAct reflects “a policy discouraging appeals in relation to statutory demands”: Passion Projects (ALLYOUNEEDISLOVE) Pty Ltd v Concept Moulding Pty Ltd [2014] NSWCA 415 at [3] (Leeming JA, McColl JA agreeing).

  2. Ordinarily it is only appropriate to grant leave to appeal in respect of matters that involve issues of principle, questions of general public importance or where it is reasonably clear there has been an injustice in the sense of going beyond it being reasonably arguable that the primary judge was in error: Secretary, Department of Family and Community Services v Smith (2017) 95 NSWLR 597; [2017] NSWCA 206 at [28].

  3. These principles have been applied where s 101(2)(p) is the sole source of the requirement for leave to appeal: Bevic Holdings Pty Ltd v Wright [2015] NSWCA 210 at [20] (McColl JA, Sackville AJA agreeing). In Infratel Networks Pty Ltd v Gundry's Telco and Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27 (Infratel), Young AJA said at [25]:

The grant of leave is in the general discretion of the court and if the court considers that there is sufficient injustice in permitting the decision below to stand, it will be inclined to give leave.

Disposition of application

  1. The proposed appeal does not raise any issue of principle or question of public importance. As indicated, Ms Ziegler does not challenge his Honour’s acceptance of the parties’ common position that the appropriate formulation of the supporting affidavit requirement in s 459G is that stated by Ward J in Hopetoun at [36] (see [16] above). Rather, Ms Ziegler’s challenge is directed to the application of those principles in the present case.

  2. Whether there is an injustice cannot be assessed without addressing Ms Ziegler’s submissions that the primary judge erred in setting aside the statutory demand essentially for three reasons:

  1. the primary judge inverted the order of the inquiry and addressed the wrong question;

  2. whilst the Tambouras affidavit raised an offsetting claim, that claim was based on a formal request for release of security under the provisions of the contract, and the primary judge erred because the affidavit did not raise an “alternative” ground of the type ultimately found by his Honour; and

  3. the Tambouras affidavit did not “fairly alert” Ms Ziegler to the nature of the case Cenric would make in seeking to resist the demand.

Preliminary observations

  1. Before addressing these complaints, reference should be made to three matters: (a) the supporting affidavit requirement in s 459G(3); (b) the scope of Ms Ziegler’s attack on the sufficiency of the Tambouras affidavit as a supporting affidavit; and (c) the correct approach to assessing the sufficiency of the evidence to give rise to an offsetting claim.

  2. As to the first matter, an application to set aside a statutory demand must be filed within 21 days of service of the statutory demand and accompanied by an affidavit “supporting” the application: s 459G(3). An application is not validly made for the purposes of s 459G(3) unless there is a sufficient supporting affidavit: Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 (Graywinter) at 459 (Sundberg J); Pacific Islands Express Pty Ltd v Empire Building Development Pty Ltd [2008] NSWSC 576 at [7] (Austin J); Modena Imports Pty Ltd v Leveraged Capital Pty Ltd (in liq) [2009] NSWSC 20 at [13] (Barrett J); Leveraged Capital Pty Ltd v Modena Imports Pty Ltd [2009] NSWSC 509 at [8] (Brereton J), upheld on appeal in TQM Design & Construct Pty Ltd v KCL Developments Pty Ltd & Golden Plantation Pty Ltd [2011] NSWCA 7 at [20]-[21] (Spigelman CJ, Macfarlan JA agreeing); at [41] (Hodgson JA).

  3. In Infratel this Court (Young AJA, Hoeben and Ward JJA agreeing) at [32] approved the summary of principle by Ward J in Hopetoun at [36], and noted that:

… the vital question was whether, expressly or by reasonably available inference, the grounds of challenge of the statutory demand were sufficiently identified in the affidavit.

  1. The precise nature of the application under s 459G will determine whether the initial affidavit(s) filed and served in accordance with s 459G(3)(a) “support” it: Financial Solutions Australasia Pty Ltd v Predella Pty Ltd (2002) 26 WAR 306; [2002] WASCA 51 at [34] (Parker J, Anderson and Scott JJ agreeing); Infratel at [29]-[32] (Young AJA, Hoeben JA and Ward J agreeing); Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (Administrator Appointed) [2020] NSWCA 1 (Drama Unit) at [29] (Gleeson JA, Macfarlan and Payne JJA agreeing).

  2. It is also to be borne in mind, as this Court said in Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 (Britten-Norman) at [54], that the procedure for challenging a statutory demand is intended to be an essentially summary one, referring to the observations of Young AJA in Infratel at [41]:

… it is of considerable concern that many of the hearings of cases in this type of matter spend time considering piles of decided cases discussing nuances in the different terminology used by judges throughout Australia who basically are saying the same thing. This approach defeats the whole purpose of the Act, which is to enable the court to dispose of this sort of dispute in a short, summary way.

  1. Some cases have drawn an analogy between the supporting affidavit and pleadings in an action, noting that the articulation of a dispute or an offsetting claim in a supporting affidavit may read more like a pleading: Graywinter at 459. However, there is no requirement that the supporting affidavit read like a pleading: Hansmar at [27]. What is required by the supporting affidavit requirement in s 459G(3) will depend upon the facts of the particular case.

  2. As Newnes JA observed in Diploma Construction (WA) Pty Ltd v CTC Commercial Pty Ltd [2016] WASCA 191 at [29], citing the passage in Infratel at [41] (set out at [32] above):

What an affidavit must contain in order to ‘support’ an application has been described in many cases in many different ways. Because that question depends critically upon the facts of the particular case, descriptions of what is necessary are invariably stated at a high level of generality and are often of limited use. Indeed, their proliferation is apt to cause confusion.

  1. And the context in which the Court undertakes its summary procedure is also to be borne in mind. In Diploma Construction (WA) Pty Ltd v CTC Commercial Pty Ltd, Newnes JA said at [30]:

What that requires will depend upon the facts of the particular case, but in determining whether the grounds have been sufficiently raised it is necessary to bear in mind the summary nature of the procedure and the limited time for the filing of the supporting affidavit, and that the task of the court is simply to determine whether there is a genuine dispute or offsetting claim, not to determine its merits.

  1. As to the second matter, Ms Ziegler accepts that the Tambouras affidavit did “support” the s 459G application. The complaint made is that the Tambouras affidavit only supported an offsetting claim to the unpaid price of the work, based on the legal consequences of specific provisions of the contract which his Honour found did not survive termination of the contract, not an offsetting claim, as his Honour found, based on the legal consequences of the event of repudiation by Ms Ziegler and acceptance by Cenric for Ms Ziegler’s right to withhold payment of the amount of the retention monies.

  2. As to the third matter, in assessing the sufficiency of the evidence to give rise to an offsetting claim, the question is not whether the evidence is sufficient to establish the offsetting claim or its amount, but whether it is sufficient to establish that the offsetting claim is genuine and its genuine level. In Grandview, Bell P (Sackville AJA agreeing) at [65] referred with approval to the summary by White J in Re Citadel Financial Corporation Pty Ltd [2019] NSWSC 65 at [30]:

In judging the sufficiency of the evidence to give rise to an offsetting claim, the question is not whether the evidence is sufficient to establish the offsetting claim or its amount, but whether it is sufficient to establish that the offsetting claim is genuine and its genuine level (Re Morris Catering (Australia) Pty Ltd(1993) 11 ACSR 601 at 605; Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 at [48] and [49]). It is sufficient if there be a plausible contention requiring investigation (Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd at [70]). The offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion and not be merely fanciful or futile (TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67 at [71] cited with approval in Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd at [52]-[53]).

Did the primary judge address the correct question?

  1. Ms Ziegler’s first complaint involved a misreading of the question which his Honour posed for consideration at the commencement of his reasons, which is reproduced at [15] above. That question took as its starting point his Honour’s assessment that Cenric’s asserted offsetting claim was one which, in certain respects, resembled that articulated in the Tambouras affidavit, whilst also noting that “some aspects of the claim have been deficiently articulated”. In posing the question “[i]s that fatal?”, his Honour correctly identified in a shorthand manner the main issue in contention, namely, did the Tambouras affidavit and its annexures “support” the s 459G application on the ground that Cenric had an offsetting claim. Contrary to Ms Ziegler’s submission, his Honour addressed the correct question.

Whether the offsetting claim was sufficiently articulated in the Tambouras affidavit

  1. Ms Ziegler’s second complaint directs attention to the contents of the Tambouras affidavit and its annexures, in particular, whether that affidavit sufficiently raised an offsetting claim of the type which his Honour found.

  2. Importantly, the word “affidavit” in s 459G(3)(a) connotes evidence. A finding that an affidavit answers the description of a supporting affidavit involves an evaluative judgment as to whether the affidavit provided evidentiary support for the asserted offsetting claim: Drama Unit at [30], and [33]. The evidentiary function of the supporting affidavit is critical to understanding what is required for an affidavit to “support” the s 459G(3) application. As this Court said in Britten-Norman at [52], referring to the remarks of Dodds-Streeton J in TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67 at [71]:

As the terms of s 459H of the Corporations Act 2001 and the authorities make clear, the 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. … [Emphasis added.]

  1. The difficulty with the second complaint is that it confused what is sufficient to raise the claim in the supporting affidavit required by s 459G(3) to be served within 21 days of service of the statutory demand, with how the claim would later be supported as an offsetting claim, which could be raised by later submissions, or further evidence and submissions: Grandview at [88] (White JA); Reale Bros Pty Ltd v Reale [2003] NSWSC 666 at [24] (Young CJ in Eq).

  2. Whilst the supporting affidavit filed within the 21-day period delimits the grounds of the offsetting claim, it does not delimit the legal conclusions based on the evidence contained in the affidavit that may be advanced at the hearing of the s 459G application.

  3. Plainly, the Tambouras affidavit contained sufficient evidence of a genuine claim by Cenric that it had “unconditionally acquired” the right to receive payment from Ms Ziegler under the contract, in the sense spoken of in McDonald v Denny’s Lascelles Ltd (1933) 48 CLR 457 at 476-477; [1933] HCA 25. And his Honour was correct to find that there is a plausible contention worthy of investigation that the event of repudiation by Ms Ziegler and its acceptance by Cenric, had the consequence that the condition authorising Ms Ziegler to retain 10 per cent of the first $2.5 million of the price no longer does so.

  4. His Honour was correct to find that there was a genuine claim by Cenric and that its genuine level exceeded the amount claimed in the statutory demand.

Significance of natural justice considerations

  1. Ms Ziegler’s third complaint confused the concept of “support” (as in an affidavit in support) with natural justice considerations. In NA Investment Holdings Pty Limited v Perpetual Nominees Ltd[2010] NSWCA 210; (2010) 79 ACSR 544, Lindgren AJA (Beazley and Handley JJA agreeing) said at [86] that there is no requirement that the party seeking to set aside a statutory demand draw to the attention of the defendant the particular issue on which reliance will be sought to be placed, observing that such a submission confused the concept of "support" in the requirement for an affidavit in support with natural justice considerations.

  2. Insofar as Ms Ziegler relied on statements in some authorities, such as by Barrett J in Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 at [7] and in Process Machinery Australia Pty Ltd v ACN 057 262 590 Pty Ltd [2002] NSWSC 45 at [22], that the Graywinter principle requires that the affidavit in support of the application “must fairly alert the claimant to the nature of the case the company will seek to make in seeking to have the statutory demand set aside”, subsequent authority takes a less strict view of the scope of the so-called “Graywinter principle” and accepts that the requirement in s 459G(3)(a) is satisfied if the ground is raised expressly, by necessary inference, or by a reasonably available inference: POS Media at [40]; Hansmar at [31]-[32]; Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 214 FLR 393 at [25] (Barrett J); Hopetoun at [36]; Infratel at [32]; Re Hobash Holdings Pty Ltd [2012] NSWSC 1501 at [15] (Black J). As to the caution to be adopted in using the shorthand label “the Graywinter principle”, see generally the remarks of Bell P in Grandview at [40].

  3. Nor is there a requirement that the supporting affidavit contain submissions or arguments as to the legal basis of the asserted offsetting claim. That is not the function of an affidavit, as Lindgren AJA correctly observed in NA Investments Pty Ltd v Perpetual Nominees Ltd at [90]. See also POS Media at [30], where Austin J observed that assertions in an affidavit in the nature of submissions are normally held inadmissible, if challenged.

  4. In any event, his Honour was correct to find that the material facts on which the offsetting claim was based were clear, those facts were contained in the Tambouras affidavit, and Ms Ziegler was on notice of those material facts. It was not suggested that Ms Ziegler had suffered any forensic disadvantage in the way Cenric’s offsetting claim was later supported by submissions at the hearing of the s 459G application. In the context of procedural fairness or natural justice “the concern of the law is to avoid practical injustice”: Re Minister for Immigration and Multicultural Affairs; Ex parte Lam (2003) 214 CLR 1; [2003] HCA 6 at [37] (Gleeson CJ). None was identified by Ms Ziegler.

  5. For these reasons, Ms Ziegler failed to show that the judgment appealed from involved even arguable error. Accordingly, I concluded that the application for leave to appeal should be dismissed.

Other matters – utility of an appeal

  1. As indicated, Cenric submitted that there is an additional reason for refusing leave on the ground that the proposed appeal lacks utility, because the statutory demand is now stale.

  2. Section 459F provides:

459F When company taken to fail to comply with statutory demand

(1)   If, as at the end of the period for compliance with a statutory demand, the demand is still in effect and the company has not complied with it, the company is taken to fail to comply with the demand at the end of that period.

(2)   The period for compliance with a statutory demand is:

(a) if the company applies in accordance with section 459G for an order setting aside the demand:

(i) if, on hearing the application under section 459G, or on an application by the company under this paragraph, the Court makes an order that extends the period for compliance with the demand – the period specified in the order, or in the last such order, as the case requires, as the period for such compliance; or

(ii) otherwise – the period beginning on the day when the demand is served and ending 7 days after the application under section 459G is finally determined or otherwise disposed of; or

(b)   otherwise – 21 days after the demand is served.

  1. When the company fails to comply with a statutory demand, s 459C(2) relevantly provides for the purposes of a winding up application:

459C Presumptions to be made in certain proceedings

(2)   The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made:

(a) the company failed (as defined by section 459F) to comply with a statutory demand; or …

  1. Where a statutory demand has been set aside by an order under s 459H or s 459J, s 459K provides:

459K Effect of order setting aside demand

A statutory demand has no effect while there is in force under section 459H or 459J an order setting aside the demand.

When is the s 459G application “finally determined”?

  1. Cenric submitted that an application under s 459G is “finally determined” for the purposes of s 459F(2)(a)(ii), when the court at first instance determines the application, referring to Buckland Products Pty Ltd v Deputy Commissioner of Taxation [2003] VSCA 85 (Buckland) at [5]-[9] (Phillips JA, Chernov and Eames JJA agreeing); and Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229 at [63]-[65] (Young CJ in Eq). Cenric noted that Buckland has been followed in Shakespeares Pie Co Pty Ltd v Multipye Pty Ltd [2005] NSWSC 1201 at [6]-[11] (Barrett J); and Jem Developments Pty Ltd v Hansen Yuncken [2006] NSWSC 1378; (2006) 60 ACSR 393 at [14] (Austin J).

  2. In the present case, applying the meaning given in Buckland to the words “finally determined” in s 459F(2)(a)(ii), the “end” of the period for compliance with the statutory demand served on Cenric was 7 days after the orders made on 14 November 2019, being 21 November 2019. However, the demand was not “still in effect” at the “end” of that period because the demand had been set aside by the order made on 14 November 2019. For the same reason it is said that Cenric did not fail to comply with the demand at the “end” of that period so as to trigger the presumption of insolvency under s 459C(2)(a). That accords with the effect of s 459K – the demand has no effect while this is in force, as there was on 21 November 2019, an order under s 459H setting aside the demand. For this reason it is said that there is no utility in an appeal.

  1. Ms Ziegler responded that the proposed appeal has utility because if she is successful in obtaining an order on appeal dismissing the s 459G application, the statutory demand will be “revived”. It is said that the period for compliance will be 7 days from this Court’s orders, and if there is no extension under s 459F(2)(a)(i), and non-compliance within those 7 days, s 459C(2)(a) will be engaged. How such legal consequences flow from the language of ss 459F, 459K and 459C was not explained.

  2. Ms Ziegler submitted that Buckland is distinguishable because it involved an appeal against an order dismissing an application under s 459G to set aside a statutory demand, which is the converse situation to the present case. Alternatively it was submitted that, to the extent that Buckland and cases which have followed it are contrary to her submission that line of authority is “plainly wrong” and should not be followed.

  3. Ms Ziegler’s utility submissions placed reliance on cases where leave to appeal was granted against an order setting aside a statutory demand, however none of those cases addressed the meaning of the words “finally determined”, except the remarks of Young CJ in Eq in Meehan v Glazier Holdings Pty Ltd, which were contrary to Ms Ziegler’s construction. There that leave to appeal was granted for other reasons. Although the appeal was allowed and an order made dismissing the s 459G application, the other members of the Court (Santow JA and Tobias JA) did not address the issue of construction of s 459F(2)(a)(ii).

  4. Similarly, the construction of s 459F(2)(a)(ii) was not addressed in TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd, where leave to appeal was granted against an order setting aside the statutory demand, but the appeal was dismissed, or in Bendigo and Adelaide Bank Ltd v Pekell Delaire Holdings Pty Ltd [2017] VSCA 51; (2017) 118 ACSR 529, where leave to appeal was granted against an order setting aside the statutory demand, the appeal allowed and an order made dismissing the s 459G application.

  5. Whilst there is force in Cenric’s submission that the words “finally determined” in s 459F(2)(a)(ii) should not be given a differential meaning depending upon the outcome of the s 459G application at first instance, it is preferable that this issue be determined in a case where it is dispositive. Nor is it necessary to address the submission that Buckland is plainly wrong, when the Court has refused to grant leave to appeal.

  6. It is also to be borne in mind that this Court is exercising federal jurisdiction when dealing with an application under s 459G to set aside a statutory demand. If an applicant for leave to appeal against an order setting aside a statutory demand succeeded on appeal, one question that may arise is whether this Court should make an order with retrospective effect dismissing the s 459G application, relying upon the power in the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 36.4(3) (which is made applicable to proceedings in the Court of Appeal by UCPR, r 51.1(3)), to specify the date the new order takes effect as being an earlier date, for example, the date of the orders of the primary judge (cf Re Kay Investment Holdings Pty Ltd [2011] NSWSC 1033 at [26]-[27]).

  7. In that circumstance a further question may need to be addressed, namely, whether these State provisions are rendered invalid by reason of inconsistency with Commonwealth laws, specifically s 459F, s 459K and s 459C: see s 79 of the Judiciary Act 1903 (Cth); and Rizeq v The State of Western Australia (2017) 262 CLR; [2017] HCA 23.

  8. Although Ms Ziegler indicated that, if successful, she did not seek a retrospective order dismissing the s 459G application, the implications of the Court exercising federal jurisdiction were not considered by the parties in their argument. That is another reason for not addressing the utility issue in the present case.

Cenric’s application for a special costs order

  1. As indicated, Cenric applied to vary the costs order made by this Court on 14 April 2020. Cenric sought a special costs order from 9 April 2020 based on Ms Ziegler’s implicit rejection of an offer of settlement in Cenric’s solicitor’s letter of 8 April 2020, which offered to resolve the appeal on the following basis:

(1) Appeal be dismissed.

(2) Your client pay our client 50 per cent of our client’s costs of the appeal on an ordinary basis as agreed or assessed.

  1. The offer was sent by email at 7.39 pm on Wednesday, 8 April 2020 and was open for acceptance until 9 am on 14 April 2020, the date of the hearing in this Court. The offer was headed “Without Prejudice Save as to Costs” and expressed to be made in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333.

  2. There is no presumption that an offeree who does not accept an offer, and does not obtain a more favourable judgment, will necessarily pay indemnity costs from the date of the offer: Tati v Stonewall Hotel Pty Ltd (No 2) [2012] NSWCA 124 at [9]; Miwa Pty Ltd v Siatan Properties Pty Ltd (No 2) [2011] NSWCA 344 (Miwa) at [8]; Jones v Bradley (No 2) [2003] NSWCA 258 at [6]-[9].

  3. The principles on which indemnity costs will be ordered as a consequence of non-acceptance of a Calderbank offer are well-known: see, for example, the remarks of Basten JA in Miwa at [6]-[16]. Basten JA identified at [8] two questions, namely, whether:

(1)   there was a genuine offer of compromise;

(2)   it was unreasonable for the offeree not to accept it.

  1. His Honour also referred at [12] to a number of factors relevant to determining whether the rejection of an offer was unreasonable, including those identified in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 at [25]; [2005] VSCA 298. Three matters there stated have present relevance:

(a)   the stage of the proceeding at which the offer was received;

(b)   the time allowed to the offeree to consider the offer; and

…

(e)   the clarity with which the terms of the offer were expressed.

  1. Turning to the question whether the offer was a genuine offer of compromise, Basten JA explained in Miwa at [9], that to characterise an offer as “real” or “genuine” adds little to the requirement of compromise, and may imply (wrongly) that the appropriate inquiry is as to the subjective intentions of the offeror.

  2. Compromise involves a party giving something away: Miwa at [9]. Here, at the time the offer was made it may be inferred that Cenric had incurred significant costs in preparing its written submissions for the concurrent hearing, including its separate note on the issue of utility of an appeal. Although the offer invited capitulation by Ms Ziegler with respect to the outcome of her application, the difference between a liability to pay the whole of Cenric’s costs of the proceedings in this Court compared to paying 50 per cent of such costs was not a trivial or contemptuous offer. I consider that the offer was genuine.

  3. However, I do not consider that it was unreasonable for Ms Ziegler not to accept the offer. First, as a practical matter, the time allowed was only one business day given the Easter break before the hearing which commenced on the Tuesday of the following week. In all the circumstances, that did not allow sufficient time for advice to be taken and a decision made.

  4. Second, while the offer was not bettered in the litigation, its timing so close to the hearing date meant that the parties had already reached the stage of preparing for the concurrent hearing with its inevitable expenditure of, and commitment to, significant legal costs: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [22]. It would have been more appropriate for Cenric to have made a Calderbank offer shortly after receipt of Ms Ziegler’s written submissions dated 5 February 2020. Instead, Cenric did not file its outline of submissions until 29 March 2020 and did not make an offer until 8 April 2020, being only one business day prior to the hearing.

  5. Third, the terms of the offer were deficient in a material respect in offering to resolve the matter on the basis that the appeal be dismissed. Presumably what was intended was that the summons for leave to appeal be dismissed. Whilst that is a matter which Ms Ziegler could have sought to clarify with Cenric, had she wished to accept the offer, given the timing of the offer so close to the hearing, the lack of clarity with which the terms of the offer were expressed is another factor tending against the non-response to the offer being unreasonable.

  6. In my view, given the circumstances in which the offer was made and its timing, it was not unreasonable for Ms Ziegler not to respond to it. The application by Cenric to vary the costs order should be rejected. Costs of that separate application should follow the event: UCPR, r 42.1.

Conclusion

  1. For the reasons given above I joined in the orders that the application for leave to appeal should be dismissed. Given that the notice of appeal was filed without leave, the appropriate order was that it should be dismissed as incompetent. As to costs of the concurrent hearing, there was no reason why costs should not follow the event: UCPR, r 42.1. Nor is there any reason to make a special costs order as sought by Cenric, the costs of which separate application should be paid by Cenric.

  2. McCALLUM JA: The reasons given by Gleeson JA reflect my reasons for joining in the orders of the Court made on 14 April 2020. As to Cenric’s application for a special costs order, I agree with the orders proposed by Gleeson JA, for the reasons his Honour has stated.

**********

Endnote

Decision last updated: 06 May 2020

Most Recent Citation
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