K.C. Parksafe (Vic) Pty Ltd & Ors v Dallbrook Pty Ltd [1998] FCA 1279 (9 October 1998)

Last Updated: 14 October 1998

FEDERAL COURT OF AUSTRALIA

CORPORATIONS - statutory demand - application to set aside - whether statutory demand may be set aside once the debt has been paid - whether application an abuse of process - power of court to deal with an abuse of process - whether court has power to vary the time for compliance with a statutory demand

Corporations Law s 459F

Apted v Apted [1930] P 246 mentioned

Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397 mentioned

Metropolitan Bank Ltd v Pooley (1885) 10 App.Cas. 210 mentioned

Williams v Spautz [1992] HCA 34; (1991-1992) 174 CLR 509 mentioned

K.C. PARKSAFE (VIC) PTY LTD & ORS V DALLBROOK PTY LTD

VG 3285 OF 1998

FINKELSTEIN J

9 OCTOBER 1998

MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
Victoria DISTRICT REGISTRY	vg 3285 of 1998

between: K.C. parksafe (vic) pty ltd

K.C. parksafe (sa) pty ltd

K.C. parksafe (wa) pty ltd

K.C. parksafe (aust) pty ltd

K.C. parksafe (brisbane) pty ltd

K.C. parksafe (nsw) pty ltd and

K.C. parksafe (tas) pty ltd

Applicants

and: dallbrook pty ltd

Respondent

JUDGE:	finkelstein j
DATE OF ORDER:	9 october 1998
WHERE MADE:	melbourne

THE COURT ORDERS THAT:

1. The respondent's motion dated 1 September 1998 be dismissed.

2. The application be dismissed.

3. The applicants pay the respondent's costs of and incidental to the application, other than the costs incurred by it on 25 September 1998, such costs to include all costs incurred by the respondent except insofar as they are unreasonable in amount or have been unreasonably incurred so that, subject to the exceptions mentioned, the respondent is indemnified by the applicants for its costs.

Note: Settlement and entry of orders are dealt with in Order 36 of the Federal Court Rules

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 3285 OF 1998

BETWEEN: K.C. PARKSAFE (VIC) PTY LTD

K.C. PARKSAFE (SA) PTY LTD

K.C. PARKSAFE (WA) PTY LTD

K.C. PARKSAFE (AUST) PTY LTD

K.C. PARKSAFE (BRISBANE) PTY LTD

K.C. PARKSAFE (NSW) PTY LTD AND

K.C. PARKSAFE (TAS) PTY LTD

APPLICANTS

AND: DALLBROOK PTY LTD

RESPONDENT

JUDGE:	FINKELSTEIN J
DATE OF ORDER:	9 OCTOBER 1998
WHERE MADE:	MELBOURNE

REASONS FOR JUDGMENT

HIS HONOUR: The first applicant is the tenant of premises at 448-458 Flinders Lane, Melbourne under a lease granted by the respondent. The remaining applicants are the guarantors of the due performance by the first applicant of its obligations under that lease.

On 4 August 1998 the respondent served a statutory demand on each applicant. The statutory demand that was served on the first applicant was in relation to debts totalling $519,192.16 allegedly due to the respondent. The debts were described in the schedule to the demand. Each debt was said to be due under the lease. It was alleged that $20,035.48 was owing for unpaid water rates, $42,490.00 was owing for unpaid land tax and $456,666.68 was owing for unpaid rent. The statutory demands served on the other applicants alleged that those amounts were payable by them under the guarantee.

The applicants have applied under s 459G of the Corporations Law for orders that the statutory demands be set aside. In the affidavit of Robert Paul Belteky filed in support of the application (see s 459G(3)) there are set out the grounds upon which the applicants based their claim for relief. First, it was said that there is a genuine dispute about the amount of the debts to which each demand relates and thus the demands must be set aside under s 459H(1). I will defer for a moment a description of this dispute.

Secondly, it was alleged that the demands are defective such that substantial injustice would be caused to the applicants unless they are set aside. Section 459J(1)(a) permits the court to set aside a demand in those circumstances. The basis for contending that there is a defect in the demands is that a separate demand was served on each applicant in respect of the same debts, whereas it was necessary to do no more than prepare one demand, presumably addressed to all applicants, and to serve a copy of that demand on each applicant.

The third ground was that the service of the demands was oppressive. Before the demands had been served the applicants had offered to pay the claimed debts by instalments and the respondent had refused to accept the offer. The applicants say that by serving the demands the respondent was attempting to put undue pressure on them to pay the claimed debts immediately and in full. It was submitted that the demands should be set aside under
s 459J(1)(b) pursuant to which the court is empowered to set aside a demand if there is some reason to do so not being a reason expressly provided for.

The respondent had served the demands in anticipation of making applications under s 459P of the Corporations Law that the applicants be wound up in insolvency. A creditor of a company has standing to apply for the winding-up of a company in insolvency if the creditor is able to establish a prima facie case that the company is insolvent (s 459P(3)). The court hearing the application is required to presume that the company is insolvent if the company has failed to comply with a statutory demand: s 459C(2). A statutory demand is a demand in writing that is served on a company by a creditor in relation to a single debt or two or more debts payable to the creditor requiring the company to pay the debt or debts or to secure or compound that debt or those debts to the reasonable satisfaction of the creditor within 21 days after the service of the demand (s 459E). Section 459F sets out when a company will be taken to have failed to comply with a statutory demand. It will be necessary to consider this section in more detail later but at present it will suffice to note that it provides that the company will be taken to have failed to comply with a demand if it is not complied with within 21 days after service unless the company has made application to set aside the demand in which case it need not be complied with until 7 days after the determination of that application, unless the court has fixed some other time for compliance.

After the application to set aside the statutory demands was instituted the applicants paid the total amount that was claimed in the demands. The payment was made by instalments, the last instalment being on the morning of the second day of the hearing. Prima facie, then, the applicants have complied with the demands and those demands are no longer in effect.

It will be evident that one effect of s 459F is to enable a company to extend the time within which it must comply with a statutory demand simply by making an application under s 459G to have the demand set aside whether or not there is any substance to or merit in the application. For example, where a company is not in a position immediately to pay a debt that is due to its creditor within 21 days of the demand being served upon it but will be able to do so shortly thereafter, the company can simply apply to have the statutory demand set aside and then pay the debt within the extended period for compliance to avoid the presumption of insolvency that is brought about by s 459C(2).

The respondent says that this is precisely what has occurred in this case. It argues that the application under s 459G was not a bona fide application made for the purpose of proceeding to a successful verdict but was made in the knowledge that it would be unsuccessful. The respondent's case is that the sole purpose of the application was to obtain an extension of the time for compliance with the demand, from 21 days after service until 7 days after the determination of the application, to enable the applicants to pay the claimed debts within the extended period.

Shortly after the institution of the s 459G application the respondent moved to have it stayed as an abuse of the processes of the court. However, as events turned out, it was not possible to hear that motion before the hearing of the application, by which time the applicants had paid the debts due to the respondent. This notwithstanding, the respondent maintains that it is entitled to some relief on the basis that it can establish that the s 459G application was an abuse of process.

What the respondent hopes to achieve, by an appropriate order of the court, is to deprive the applicants of their ability to contend that they have complied with the statutory demands by payment of the claimed debts within the extended time for compliance. The respondent has good reason for seeking that relief. Further debts are accruing under the lease and if those debts are not paid the respondent proposes to apply for the winding-up of the applicants. If the respondent can bring about the result that the statutory demands have not been complied with it could, for a period of three months, rely on the presumption of insolvency brought about by s 459C(2) in an application to wind up the applicants. That is to say, the respondent has standing to apply to wind up the applicants based on one debt and can establish the insolvency of the applicants based upon their failure to comply with statutory demands that relates to other debts although those other debts had been paid before the winding-up application was commenced.

The respondent accepts that if an order is made that the s 459G application is dismissed or stayed as an abuse of process, or if an order is made dismissing that application on the merits, that will not be sufficient to bring about the result that the respondent wishes to achieve. A stay or dismissal of the s 459G application will not alter the fact that, by the operation of
s 459F, the time for compliance with the demands has been extended until 7 days after the disposal of the application.

So, the question that arises is whether the court has jurisdiction to make some other order that will bring about what is sought by the respondent. It is only if there is jurisdiction to make such an order that it will necessary to consider the merits of the respondent's motion.

The respondent says that the court does have power to make an appropriate order. It points to s 459F(2)(i) where the court is given power to fix a time for compliance with a statutory demand. It asks for an order that a time be fixed that predates the date of the payment of the debts. Alternatively, the respondent says that the court has inherent power to make whatever order is appropriate to eliminate any advantage that might be obtained by a party who has abused its processes.

First, it is convenient to deal with the argument based on s 459F(2)(a)(i). To appreciate the operation of this sub-paragraph it is necessary to set out s 459F in full:

"(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."

Section 459F has the following effect. If, after the service of a demand, the company does not apply to have that demand set aside the demand must be complied with within 21 days of service. If the company does apply under s 459G for an order that the demand be set aside, the period of compliance is automatically extended until 7 days after the determination of the application. By s 459F(2)(a)(i) the court is given power to extend the period of compliance. However, the only period that is capable of being extended by the court is that fixed by
s 459F(2)(a)(ii), namely the period that ends 7 days after the disposition of the application. In other words s 459F(2)(a)(i) gives the court power to extend the time for compliance fixed by
s 459F(2)(a)(ii).

Here the respondent is seeking an order to extend the time for compliance with the demands fixed by s 459F(2)(b) namely, the period that expired 21 days after the demands were served. However, once the application to set aside the demands was made the period for compliance fixed by s 459F(2)(b) was no longer the applicable period: the period of compliance had automatically been extended by s 459(2)(a)(ii). In reality what the respondent seeks is not an order extending the time for compliance but an order abridging that time. Such a power has not been conferred on the court by s 459F.

I appreciate that this is an unsatisfactory result. It does mean that s 459G can be utilised to frustrate creditors. Yet the Law Reform Commission, whose report into General Insolvency (Report No. 45) recommended the enactment of the provisions dealing with statutory demands, contemplated this very possibility. In its report the Commission said (vol 1 at 72-73):

"It was proposed that a company be able to apply to set aside a statutory demand before the time for compliance with it expires and that once an application is filed, the time for compliance should be automatically extended until the application is determined or such later time as the court decides. The Australian Bankers Association expressed concern that this proposal would allow insolvent companies to frustrate creditors and that the present system was preferable. However, the Commission considers that the existing, largely unregulated, procedure in relation to notices of demand too often produces disputes about the debt at the hearing of a winding up application. The Commission is anxious that this should be avoided."

I should point out that I have not taken any account of the Commission's report in determining the proper construction and effect of s 459F(2). I only make mention of it because the report does confirm the view that I have taken about the operation of the sub-section: compare s 15AB(1)(a) of the Acts Interpretation Act 1901 (Cth).

Appealing to the court's inherent power to deal with an abuse of its processes does not assist the respondent. As far as I am aware, and no decision to a contrary effect has been brought to my attention, the means by which a court deals with an abuse of process is by striking out or staying the proceeding or by prohibiting the taking of further proceedings without leave: Metropolitan Bank Ltd v Pooley (1885) 10 App.Cas. 210. In an extreme case a misuse of the processes of the court may be punishable as a contempt: Apted v Apted [1930] P 246 at 262-263; see also the cases cited in Halsbury's, Laws of England (4th ed) vol 9 para 38 fn 5. In my opinion, the court does not have inherent power to make the order that is sought by the respondent. In any event, even if the power did exist, what is being sought is an order that would establish a period for compliance that is in conflict with the periods set by s 459F, and such an order could not be made.

This is not to say that the respondent is without redress at least in a theoretical sense. The facts which establish an abuse of process of the type here under discussion might also go to establish the tort of collateral abuse of process: see generally Williams v Spautz [1992] HCA 34; (1991-1992) 174 CLR 509. In an appropriately constituted action, if the elements of the tort are proved, the respondent may be entitled to relief that would prevent the applicants retaining the benefits of their tortious conduct. This is a matter that I need not explore for no proceeding in tort has been commenced against these applicants.

The next matter to be resolved is how should the s 459G application be disposed of. As I have already mentioned the demands have been satisfied and they are no longer in effect. Thus it is doubtful whether an order can now be made that they be set aside. Even if there was jurisdiction to make that order, and I doubt that there is, no purpose would be served if a setting aside order was made. Accordingly, whether or not the application had merit when it was instituted, the application must now be dismissed.

This then brings me to the question of costs. So far each side has had some measure of success and some of failure. It would be attractive, in those circumstances, to allow the costs to lie where they fall. However, each side asks for their costs and that requires me to consider the merits of the s 459G application at the time of its issue for, if it was an application that was likely to succeed but for the payment of the claimed debts, the applicants may be entitled to recover at least some of their costs.

In this context I can return to the contention that there was a genuine dispute about the existence of the debts to which the demands relate. This submission overstates that argument somewhat. The applicants did not contend that each claimed debt was not due and payable to the respondent. What they did say was that the amount of land tax allegedly due under the lease was overstated.

The provision of the lease that imposes the obligation to pay land tax is clause 3.4. It provides that the lessee is to pay or to reimburse to the lessor:

"All municipal and other rates levies taxes and assessments including State Land Tax charged assessed or attributable on or in respect of the premises and to reimburse to the Lessor all such rates levies taxes and assessments charged to the Lessor and where the same apply to an area greater than the premises to refund to the Lessor a proportionate part thereof determined by the ratio which the Municipal Nett Annual value of the premises bears to the total of the Municipal Nett Annual Value of the Property or that part of the Property to which the said rates levies taxes or assessments apply;"

In his affidavit sworn on 16 September 1998 Mr Belteky, the chief executive officer of the first applicant, described the dispute concerning land tax in the following terms:

"7. I believe on my reading of the above clause [a reference to clause 3.4] that the lease says that the lessee is to pay land tax calculated by reference to Municipal Net Annual Value. In my opinion, this has important implications with regard to the calculation of this year's land tax and how the last two years land tax have been calculated and paid.

8. The calculation of site value in the land tax "single holding" calculation is, in my opinion, prejudiced by the fact that this is not a free standing car park but a composite i.e. an office building with a car park. I believe that this increases its site value as calculated by the land tax office. If the car park stood alone it would be worth less but because there is an office building attached, there is a greater plot ratio which artificially increases the site value. For this reason, the lease was worded to have reference to the Municipal Net Annual Value which incorporates the municipality's calculation as to rent value for rating purposes of the car park."

It is clear enough that the dispute as regards land tax is based upon a misconstruction of
clause 3.4. By that clause the quantum of the land tax that is to be paid or reimbursed by the lessee is to be determined on one of two alternative bases. If the land tax is assessed solely in respect of the demised premises then the amount assessed is the amount that must be paid or reimbursed. On the other hand, if the land tax is assessed on an area greater than the area of the demised premises, as in the case where the demised premises forms only a part of the land the subject of the assessment, then the lessee is only required to pay a portion of that tax calculated by the ratio which the municipal net annual value of the demised premises bears to the total municipal net annual value of the land assessed. In this case the land tax assessment notice clearly shows that the amount of the assessment relates solely to the demised premises. It follows, as a simple matter of construction, that clause 3.4 required the amount of the assessment to be paid or reimbursed by the lessee. No sensible argument to a contrary effect can be put.

The second ground relied upon, namely that the demands are defective, is also without merit. Each applicant was indebted to the respondent in the amounts claimed in the demand. The obligation of each applicant was a several obligation. That is a sufficient reason for concluding that it was appropriate to serve a separate demand upon each of them. Even if the obligation was joint there is nothing in the provisions dealing with statutory demands that would require the conclusion that a single demand addressed to all applicants was required to be served. Further, I know of no principle of the common law that would require a respondent to proceed in this way and none was referred to during argument.

The third contention, namely that the respondent's failure to accept the applicants' offer to pay the debts by instalments and its insistence that the debts be paid in full is also not a basis for setting aside the demands. The obligation of a company that is admittedly indebted to its creditor and is served with a demand, if it wishes to avoid the consequence of non-compliance with the demand, is to pay, secure or compound the debt that is due to its creditor. Even if it be assumed that the failure to accept an offer to pay a debt on terms can, in an appropriate case, constitute a reason for setting aside a demand under s 459J(1)(b) that would not assist the applicants in this case. The applicants have a history of failing to meet their obligations under the lease and guarantee. This has led to a number of proceedings in both state and federal courts which were resolved when the applicants agreed to meet their obligations. In these circumstances it would be an unreasonable denial of the rights of the respondent to, in effect, compel it to accept an offer of compromise which it does not wish to accept.

It follows that but for the payment of the debts due to the respondent, the application under
s 459G would have been dismissed. In my judgment then, the appropriate order to make in relation to the costs of the application is for the applicants to pay the respondent's costs save for those incurred on the last day of the hearing. I have not allowed the respondent the whole of its costs because of the time taken up in its unsuccessful argument concerning the power of the court to alter the period for compliance with the demands. The applicants should pay the costs on an indemnity basis. Their application was bound to fail and, if properly advised, as I think they were, the applicants would have realised they had no chance of success: see Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397.

I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein J

Associate:

Dated: 9 October 1998

Counsel for the Applicant:	Mr S Horgan
Solicitor for the Applicant:	Best Hooper
Counsel for the Respondent:	Mr N Lucarelli
Solicitor for the Respondent:	Stamfords
Date of Hearing:	24 and 25 September 1998
Date of Judgment:	9 October 1998