Soolen Hotels Pty Ltd v NZI Workers' Compensation (Victoria) Ltd [1998] FCA 739 (26 June 1998)

Last Updated: 1 July 1998

FEDERAL COURT OF AUSTRALIA

CORPORATIONS - winding-up - statutory demand - application to set aside statutory demand on grounds of disputed debt - whether genuine dispute about the existence or amount of debt

Corporations Law (Vic) ss 459G, 459H

Accident Compensation (WorkCover Insurance) Act 1993 (Vic) ss 17, 26

Mibor Investments Pty Ltd v Commonwealth Bank (1993) 11 ACLC 1062

McPherson, The Law of Company Liquidation (3rd ed. p.63)

Scanhill Pty Ltd v Century 21 Australasia Pty Ltd [1993] FCA 618; (1994) 12 ACLC 111

John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716

Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37

JSW Parts Pty Ltd v Dacaro Pty Ltd, (unreported, 11 August 1997)

Spencer Constructions Pty Ltd v G and M Aldridge Pty Ltd [1997] FCA 681; (1997) 147 ALR 444

Moyall Investment Services Pty Ltd v White (1993) 12 ACSR 320

Morris Catering (Australia) Pty Ltd (1993) 11 ACLC 919

SOOLEN HOTELS PTY LTD v NZI WORKERS' COMPENSATION (VICTORIA) LIMITED

VG 3086 of 1998

Judicial Registrar Ryan

Melbourne

26 June 1998

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 3086 of 1998

BETWEEN:	Soolen Hotels Pty Ltd Applicant
AND:	NZI WORKERS' COMPENSATION (Victoria) LIMItEd Respondent
JUDICIAL REGISTRAR:	RYAN
DATE OF ORDER:	26 JUNE 1998
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The statutory demand for payment of debt dated 4 March 1998 and served upon the applicant on or about 6 March 1998 be set aside.

2. The respondent pay the applicant's costs of the application.

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

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 3086 of 1998

BETWEEN:	Soolen Hotels Pty Ltd Applicant
AND:	NZI workers' compensation (Victoria) limited Respondent

JUDICIAL REGISTRAR:	RYAN
DATE:	26 JUNE 1998
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

THE APPLICATION

By application filed 23 March 1998 the applicant seeks an order to set aside a creditor's statutory demand for payment of debt. The demand is dated 4 March 1998 and requires payment of the sum of $20,830.97 allegedly due for WorkCover insurance premiums and interest.

The applicant owns and runs the Keilor Hotel and seeks to set aside the statutory demand on the grounds that there is a genuine dispute as to the amount and existence of the debt claimed by the respondent as WorkCover insurer.

THE AUTHORITIES

"It has long been held that as a matter of discretion, a winding-up order will not be made on a debt which is bona fide disputed, provided that the dispute is based on some substantial grounds": Mibor Investments Pty Ltd v Commonwealth Bank (1993) 11 ACLC 1062 at 1064.

"The changes made to the provisions governing statutory demands by the Corporate Law Reform Act 1992 are substantial but the basic question remains - whether the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence or amount of the debt to which the notice relates - and that question obviously raises considerations that at the least are similar to those arising under the old rule that a winding up order would not, as a matter of discretion, be made on a debt which was bona fide disputed.": Mibor at 1065.

"The principal reason for the rule is that a winding up application is not to be used for the improper purpose of compelling a solvent company to pay a disputed debt which would certainly be discharged as soon as the company's liability was clearly shown to exist": McPherson, The Law of Company Liquidation (3rd ed. p.63).

"It is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute": Mibor at 1066.

In this Court Her Honour Beazley J cited the comments above of Hayne J in the Supreme Court of Victoria in Mibor and stated in Scanhill Pty Ltd v Century 21 Australasia Pty Ltd [1993] FCA 618; (1994) 12 ACLC 111 at 113 "in my opinion the test to be applied for the purposes of s 459H is whether the court is satisfied that there is a serious question to be tried that the applicant has an offsetting claim".

A mere assertion of a dispute would rarely, if ever, be enough to justify the use of discretion to set aside a statutory demand. Normally some sort of material short of proof would be required, material which backs up the claim that is made that the amount of the debt is disputed. Young J describes the requirements in John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716 at 718 as follows:

"It is clear that what is required in all cases is something between mere assertion and the proof that will be necessary in a court of law. Something more than mere assertion is required because if that were not so then anyone could merely say it did not owe a debt."

Again, in this Court, Lockhart J in Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 at 39 commented on the authorities cited above and said "However, what appears clearly enough from all the judgments is that a standard of satisfaction which a court requires is not a particularly high one .... Certainly the court will not examine the merits of the dispute other than to see if there is in fact a genuine dispute. The notion of a genuine dispute in this context suggests to me that the court must be satisfied that there is a dispute that is not plainly vexatious or frivolous. It must be satisfied that there is a claim that may have some substance."

In JSW Parts Pty Ltd v Dacaro Pty Ltd, (unreported, 11 August 1997), Finkelstein J said that to demonstrate that a dispute is genuine will, in the ordinary case, require evidence to show that the dispute is based on reasonable or substantial grounds.

In Spencer Constructions Pty Ltd v G and M Aldridge Pty Ltd [1997] FCA 681; (1997) 147 ALR 444, the Full Court said that a genuine dispute will exist if the dispute is bona fide and the grounds for alleging the existence of the dispute are real and not spurious, hypothetical, illusory or misconceived.

THE CIRCUMSTANCES SURROUNDING THE DEMAND FOR PAYMENT OF DEBT

In this case the respondent, in compliance with a Registrar's order, filed a submission or statement in summary form and asserted therein that "The amount of the debt is based upon the classification by the Respondent of the applicant's workplace, the Keilor Hotel, as WorkCover Industry Classification L9232A, "Hotels, bars etc (mainly drinking places)".

This no doubt is an accurate description of the ultimate ground on which the amount of the debt claimed is based but the background to the classification of the applicant's workplace is relevant to a determination as to whether there is a genuine dispute as to the amount and existence of the debt.

In essence, the respondent, in the written statement, asserts:

* "the applicant bears the onus of establishing that there is a genuine dispute about the existence or amount of the debt: Moyall Investment Services Pty Ltd v White (1993) 12 ACSR 320"

* "the applicant has no genuine offsetting claim, nor do its allegations disclose a serious question to be tried"

* "the applicant's arguments are frivolous and have no substance ... and ... there is no genuine dispute about the existence or amount of the debt".

The circumstances leading to the classification, for WorkCover industry purposes, of the applicant's workplace under the "hotels" classification are addressed in the applicant's statement of contentions (also filed in compliance with a Registrar's order). These circumstances are not, in general terms, in dispute, although there may be dispute as to what representations were or were not made by a representative of the respondent. Nevertheless, there is no dispute that:

* prior to 1 November 1994 the applicant had been insured for WorkCover purposes with another insurer and under the "hotels" classification

* with effect from 1 November 1994 the applicant transferred WorkCover insurance to the respondent and under the different and less expensive classification of "gambling services"

* on 11 October 1996, almost two years after the applicant began to pay insurance premiums under the lower, "gambling services" classification, Mr Chris Warneke of the auditors, B.D.O. Nelson Parkhill, signed a Victorian WorkCover Authority audit report of the Keilor Hotel for a period of audit examination of financial year 1 July 1994 to 30 June 1995 including a workplace summary for the period 1 November 1994 to 30 June 1995 and a workplace audit schedule covering separately the periods 1 July 1994 to 31 October 1994 and 1 July 1994 to 30 June 1995

* the audit report of 11 October 1996 concluded with the following statement "the WIC (WorkCover Industry Classification) code should be amended back to L9232A Hotels, Bars, etc (mainly drinking places) as that is the predominant activity being conducted by the employer"

* on 16 October 1996 the auditor advised the applicant that during the audit a view had been formed the "gambling services" classification was inappropriate and should be changed to "hotels" classification and that the WorkCover Authority had been notified and would advise the Authorised Insurer who in turn would issue a revised premium notice for 1994/95

* on 16 May 1997, seven months after the auditor had expressed the view to the applicant that the respondent as insurer would issue a revised premium notice, Ms Shelley Murphy, a technical officer with the respondent company wrote to the applicant advising that "an audit report was received by our office on 13th of May 1997", claiming that "this report advised of an "Industry Classification amendment"" and that "the effective date of the amendment will be 1 November 1994" (i.e. an amendment backdated by more than two years

* on 20 October 1997, five months after the advice of 16 May of an amended classification backdated some two years, the respondent issued a Final Notice seeking the premium which was to become the lion's share of the statutory demand but, according to the respondent's Policy Services Manager, (affidavit of 1 May 1998), the premium payable by the applicant was only calculated "in or about October 1997"

* on 27 October 1997 the applicant wrote to the respondent contesting the Final Notice, albeit in diffuse, lengthy and indirect terms

* on 4 March 1998, five months later, the statutory demand issued.

THE RESPONSE TO THE DEMAND

The applicant contested the Final Notice issued on 20 October 1997 by letter dated 27 October 1997 and by solicitors' letters of 1 December 1997 and 23 January 1998. The latter letters may not have been helpful or clear communications but those letters demonstrate that the reclassification, (the amendment from "gambling services" classification to "hotels" classification), was vigorously disputed. The applicant has continued to dispute the demand, hence the application that it be set aside.

Recent evidence of the continuing dispute is provided in an exchange of correspondence in the week preceding this hearing. The correspondence is annexed to the affidavit of 19 June 1998 from the applicant's solicitor, Mr Barnier. By letter dated both 31 May 1998 and stamped 12 June 1998 and received by Mr Barnier on the latter date the Victorian WorkCover Authority:

* acknowledges what is described as "a request for a review of the audit determined WIC change implemented ... as a result of the audit conducted by B.D.O. Nelson Parkhill on behalf of the Authority"

* states that the WIC determination has been reviewed by the Authority

* describes the review as being "of the circumstances relating to this particular employer" and "a detailed review of the issues generally"

* declares that the Authority is not satisfied that, in the circumstances of this case, there are grounds for altering the audit-determined WIC

* expresses the view that "this outcome accords with an appropriate application of Schedule 1 Part 3(1) of the Premiums Order"

* advises that any premium adjustments will stand

* informs Mr Barnier, in effect, that if he and his client do not agree they "may apply to have the matter determined by a court of competent jurisdiction".

Mr Barnier responded by letter dated 17 June asserting that his client had, in effect, applied for a review on 27 October 1997 and requesting detailed reasons for the Authority's determination on review.

A review decision communicated to the applicant's solicitors on 12 June (fourteen days ago) and a request for detailed reasons on 17 June (nine days ago) is eloquent testimony of a dispute on the very substance of the statutory demand, a dispute as to both the existence and amount of the debt. There is even a concession that in the absence of agreement the applicant may seek "determination" by a court of competent jurisdiction.

It is not for me to go into the merits of the dispute. It is not to the point that the structure and intent of a Premiums Order issued under s 17 of the Accident Compensation (WorkCover Insurance) Act 1993 (Vic) may provide for the Keilor Hotel to be classified under the "hotels" classification and may not provide for such a business to benefit from a "gambling services" classification. It is not to the point that s 26 provides for premiums calculated under Part 2 of the Act to be due and payable at the commencement of the policy period and for notification to an employer of adjustment in the amount of a premium at any time after the commencement of the policy period.

Division 3 of the Corporations Law endorses the longstanding judicial attitude that winding- up applications based on statutory demands should not become major inquiries into commercial disputes.

"Beyond a perception of genuineness (or the lack of it), the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.": Re Morris Catering (Australia) Pty Ltd (1993) 11 ACLC 919 at 922

CONCLUSION

I decline to speculate on the likelihood of success if the applicant takes action in pursuit of the present dispute with the respondent or on the likelihood of success if the respondent sues for recovery of the debt. All I will say is that I am satisfied that there is a genuine dispute between the applicant company and the respondent about the existence or amount of a debt to which the demand relates and will set aside the demand on that basis.

In a Statement of Contentions of 1 June 1998 the applicant's solicitors seem to make some imprecise assertions of an offsetting claim but no such claim was pursued in the hearing before me. In any event s 459H applies where, in an application under s 459G, the Court is satisfied of either a genuine dispute or an offsetting claim.

ORDERS

The Court orders that:

(1) The statutory demand for payment of debt dated 4 March 1998 and served upon the applicant on or about 6 March 1998 be set aside.

(2) The respondent pay the applicant's costs of the application.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of Judicial Registrar Ryan

Associate:

Dated: 26 June 1998

Counsel for the Applicant:	Mr G. Ahern
Solicitor for the Applicant:	Wantrup & Associates
Counsel for the Respondent:	Mr N. Frenkel
Solicitor for the Respondent:	Purves Clarke Richards
Date of Hearing:	22 June 1998
Date of Judgment:	26 June 1998