Siddhartha Holdings Pty Ltd v Hilda Pty Ltd [1995] ACTSC 134 (6 December 1995)

SUPREME COURT OF THE ACT

SIDDHARTHA HOLDINGS PTY LTD v. HILDA PTY LTD
No. SCA117 of 1994
Number of pages - 5
Appeal - Corporations Law

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
HIGGINS J

CATCHWORDS

Appeal - appeal from decision of Registrar - rehearing de novo.

Corporations Law - application for extension of time to set aside a statutory demand notice - whether failure to apply within time could be regarded as a 'mere' irregularity for the purposes of s467A Corporations Law - mistake in good faith as to date of service of demand notice - whether court has power to entertain applications to extend time limits imposed by s459G or to waive non-compliance with it.

Corporations Law, ss459G, 459F, 459S, 467A, 1322(4)(d)

Mauntill Pty Ltd v Cadoroll Pty Ltd and Ors [1994] ACTSC 109; (1994) 123 ACTR 6
David Grant and Co Pty Ltd v Westpac Banking Corporation (1995) 15 ACSR 771; 13 ACLC 261
David Grant and Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 69 ALJR 778; Vol 16 No 16 Leg Rep 29

Re J and E Holdings Pty Ltd (1995) 17 ACSR 319; 13 ACLC 867
Cavetina Pty Ltd v Synthetic Dyeworks Industries Pty Ltd (1994) 14 ACSR 274;

12 ACLC 768

HEARING

CANBERRA, 18 August 1995
6:12:1995

Counsel for the Appellant/Respondent: Mr R Thomas

Instructing solicitors: Pappas J - Attorney

Counsel for the Respondent/Applicant: Mr B Meagher

Instructing solicitors: Clayton Utz

ORDER

THE COURT ORDERS THAT:

1. The appeal be upheld.
2. The orders of the Registrar be set aside.

DECISION

HIGGINS J This was an application, made to the Registrar, Mr Towill, pursuant to s1322(4)(d) of the Corporations Law for an order extending time within which to apply to set aside a statutory demand notice pursuant to s459G. Alternatively, the applicant sought an order, pursuant to s467A that the failure to apply within the time limited by s459G(3) to set aside the demand notice should be regarded as a mere irregularity which should not be permitted to require the dismissal of the application to extend time if, otherwise, substantial injustice would result.

2. The Registrar found that there was no defect or irregularity in the demand notice, the affidavit supporting it, or the service of those documents.

3. The respondent took the point that the application before the Registrar had been made outside the time limited for doing so by s459G(2).

4. The affidavit of service deposed to service of the notice on Tuesday, the 13th day of September 1994 at 11.30am. It was dated 9 September 1994. The 21 day period was, therefore, due to expire on 4 October 1994.

5. The application and affidavit in support were filed that day. Thus the application was made in time. However, service of those documents on the creditor issuing the demand notice is, by virtue of s459G(3)(b), required to be effected within the same time period.

6. The person in charge of the registered office of the applicant, Mr William Everall, had, on 14 September 1994, written a letter to a director of the applicant company enclosing a copy of the Creditor's Statutory Demand. Mr Everall made an assumption that the demand notice had been received in his office on 14 September 1994. That assumption was mistaken. The demand notice had, unfortunately, been received late on the previous day.

7. Therefore, when the applicant's solicitor inquired of Mr Everall on 27 September 1994, as to the date of service of the demand notice, Mr Everall told him, in good faith but mistakenly, that it had been received on 14 September 1994.

8. Acting in reliance on that advice, the applicant's solicitor did not serve the application and affidavit until 5 October 1994. There had been correspondence between the solicitors dated 20 September 1994, 22 September 1994, 26 September 1994, 28 September 1994 and 4 October 1994.

9. It is unnecessary to set out that correspondence in detail. It amounted to an attempt by the solicitors for the applicant to persuade the solicitors for the respondent to concede that there was a genuine dispute as to the amount claimed which should be litigated in the usual way. That contention was rejected. The solicitors for the respondent declined to withdraw the demand notice.

10. The final refusal of the respondent to withdraw the demand notice was conveyed by the letter of 28 September 1994 referred to above. It was on 4 October 1994 that the application and affidavit were prepared and filed.

11. At about 3.40pm on 4 October 1994, Mr Smith, then solicitor for the applicant, telephoned the solicitor for the respondent to arrange for service of the application and affidavit. The latter was not then available and did not return Mr Smith's telephone call.

12. The documents were served on 5 October 1994 during the morning. The application was returnable on 10 October 1994.

13. On 17 October 1994, the Registrar heard the application. In essence, it was common ground that the debt claimed was incurred by a Ms Gloria Peake. She had purported to act on behalf of the applicant. However, the applicant contended that she had not at any time had any authority to do so. Affidavits were filed in support of those factual contentions.

14. The Registrar was satisfied that the debt claimed was, on apparently reasonable grounds, genuinely in dispute.

15. But for the contention that the service of the documents was out of time, it was quite clear from the outset that the demand notice would inevitably be set aside. The late service of the application and affidavit had no effect in delaying either the hearing of the application or the time available to the respondent to prepare for the hearing.

16. On 28 November 1994, following my decision in Mauntill Pty Ltd v Cadoroll Pty Ltd and Ors [1994] ACTSC 109; (1994) 123 ACTR 6, the Registrar held that he could entertain the application to extend time to set aside the demand notice if "substantial injustice" would otherwise result. There was clearly no prejudice whatsoever to the respondent. On the other hand, as was pointed out in Mauntill (supra), at 15, it would have been unjust to deny the opportunity to a prosperous and solvent applicant,

... to both reject an unmeritorious demand and avoid the potentially
ruinous consequences of the advertisement of a winding up application,
merely because of a procedural failure or misunderstanding.

17. That injustice would have been further compounded by the statutory consequences of a failure to comply with a demand notice. Under s459F the Court "must presume" that the company is insolvent if it has failed to comply with a demand notice. Further, the company may not oppose a winding up application on any ground relied upon, or which could have been relied upon, to set aside the demand notice: see s459S. The Court may grant leave for such a ground to be raised but must not grant such leave unless it is satisfied that the ground is material to proving that the company is solvent: see s459S(2).

18. It may well be, of course, that a finding that the debt claimed was not due and owing would be "material to proving that the company is solvent". On the other hand, it may be that the very fact that a petition has been presented and advertised will by then have caused the company to become insolvent.

19. The Registrar ordered that the demand notice be set aside, with costs.

20. The respondent appealed to this Court by Notice of Appeal dated 1 December 1994. That appeal is by way of rehearing de novo.

21. Mr Thomas, for the respondent, relied upon David Grant and Co Pty Ltd v Westpac Banking Corporation (1995) 15 ACSR 771; 13 ACLC 261, a decision of a Full Court of the Supreme Court of Victoria, in which it had been held that there was no discretion to extend the time limit imposed by s459G(3). That fairly raised the issue of the power of a court to extend that time limit.

22. The appeal was heard before me on 21 June 1995. Due to some apparent technical deficiencies in the evidence, Mr Meagher, for the applicant, requested an adjournment in order to file further evidentiary material. That request was granted.

23. The matter resumed on 18 August 1995. The further evidence presented supported the view that there was a genuine dispute. I then reserved my decision.

24. At the time I reserved, there had been disagreement between various Full Courts, particularly in the States of Queensland and Victoria, as to whether there was a power to extend time in such matters. Some appeals were then pending. In one of those, the Court of Appeal of New South Wales has endorsed the conclusion that there was no power to extend time.

25. There was then pending an appeal to the High Court of Australia on the question. I was requested to refrain from delivering a decision until that matter had been determined. I agreed to do so. On 11 October 1995, the High Court handed down its decision in that matter, see David Grant and Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 69 ALJR 778; Vol 16 No 16 Leg Rep 29. The judgment of the Court was delivered by Gummow J with Brennan CJ, Dawson, Gaudron and McHugh JJ concurring. It was, in fact, an appeal from the decision upon which Mr Thomas had primarily relied.

26. In the reasons for decision, Gummow J acknowledged the drastic and unjust consequences of the primary argument advanced in that case by the creditor giving the demand notice. He said, at 785,

... reference was made (by Sheller JA in Re J and E Holdings Pty Ltd
(1995) 17 ACSR 319; 13 ACLC 867) to the drastic commercial
consequences which may follow the issue of process for winding up and
to the inability of a company, which for good reason had been late in
filing or serving an application to set aside the statutory demand, to
prevent the issue of that winding up process. The damage to the
commercial reputation of the company in the meantime might not be
answered by the eventual success of the company in defeating the
application to wind it up as insolvent. Further, default clauses in
securities given by the company may have been so drawn as not to take
full account of the new statutory scheme, with the consequence that
floating charges may have crystallised and the whole of the principal
and interest become payable.

27. Notwithstanding these potentially harsh and unjust consequences, the Court preferred the view of the Supreme Court of Victoria in David Grant and Co Pty Ltd v Westpac Banking Corporation (supra) and of the New South Wales Court of Appeal in Re J and E Holdings Pty Ltd (1995) 17 ACSR 319; 13 ACLC 867, to that of the Supreme Court of Queensland in Cavetina Pty Ltd v Synthetic Dyeworks Industries Pty Ltd (1994) 14 ACSR 274; 12 ACLC 768, and held that there was no power to entertain any application to extend the time limit imposed by s459G(3) or to waive non-compliance with it. That lack of power does not depend on whether the non-compliance was as to filing or merely as to service of the required documents.

28. Gummow J noted, at 785-6, the consequences of that conclusion,

No doubt, in some circumstances, the new Pt 5.4 may appear to operate
harshly. But that is a consequence of the legislative scheme which
has been adopted to deal with perceived defects in the pre-existing
procedure in relation to notices of demand.

29. Thus, if the scheme now adopted seems to have created unintended injustice, it is for the Parliament to deal with that consequence, not the courts.

30. However, the judicial door was not entirely closed to a company unjustly subjected to a notice of demand which it had accidentally failed to challenge.

31. His Honour said at 786,

It also may transpire that a winding up application in respect of a
solvent company is threatened or made for an improper purpose which
amounts to an abuse of process in the technical sense of that term, as
explained in Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509, 518-22, 532-537).
However, in an appropriate case, injunctive relief may then be
available to the company in a court of general equity jurisdiction
(see Bryanston Finance v de Vries (No. 2) (1976) Ch 63 at 78, 79-80;
L and D Audio Acoustics Pty Ltd v Pioneer Electronic Australia Pty Ltd
(1982) 7 ACLR 180 at 183; 1 ACLC 536 at 538; Pacific Communication
Rentals Pty Ltd v Walker (1993) 12 ACSR 287 at 289; 12 ACLC 5 at 6-7;
Re J and E Holdings Pty Ltd (1995) 17 ACSR 319 at 324; 13 ACLC 867 at
871). (Footnotes incorporated in text.)

32. In this case, the applicant has not sought to make out a case of abuse of process.

33. The orders sought by the applicant, in the light of the High Court's decision, must be refused. The Registrar's decision to the contrary cannot stand. I uphold the appeal and set aside the orders made by the Registrar.

34. I will hear the parties as to consequential orders, directions and costs.