Meehan & v Glazier Holdings Pty Limited [2005] NSWCA 24 (17 February 2005)

CITATION: Meehan & Ors v Glazier Holdings Pty Limited [2005] NSWCA 24

FILE NUMBER(S):

40505/04

HEARING DATE(S): 4 February 2005

JUDGMENT DATE: 17/02/2005

PARTIES:

Graham MEEHAN, Anthony MURPHY and TREYKELL PTY LTD (Claimants/Appellants)

GLAZIER HOLDINGS PTY LIMITED (Opponent/Respondent)

JUDGMENT OF: Santow JA Tobias JA Young CJ in Eq

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): SC4069/03

LOWER COURT JUDICIAL OFFICER: Hamilton J

COUNSEL:

M L D EINFELD, QC/ K ANDRONOS (Claimants/Appellants)

C KERAMIANAKIS (Director of Opponent/Respondent)

SOLICITORS:

Paul Bard (Claimants/Appellants)

--- (Opponent/Respondent)

CATCHWORDS:

CORPORATIONS LAW - Creditor's statutory demand - basis for setting aside under s459J(1)(b) of the Corporations Act - no offsetting claim or genuine dispute but claim by third party associated with debtor against creditor issuing statutory demand - relevance that statutory demand to recover costs following cost order which represented discrete stage of ongoing litigation - basis for upsetting trial judge's discretionary determination to set aside statutory demand - relevance of statutory demand being now stale.

LEGISLATION CITED:

Corporations Act 2001 Pt 5.4; s459J

DECISION:

Leave to appeal granted and the appeal allowed.

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40505/04

SC 4069/03

SANTOW JA

TOBIAS JA

YOUNG CJ in Eq

17 FEBRUARY 2005

Graham MEEHAN & Ors v GLAZIER HOLDINGS PTY LIMITED

Judgment

1 SANTOW JA:

INTRODUCTION

Graham Meehan, Anthony Murphy and Treykell Pty Limited (“the claimants”), apply for leave to appeal from two judgments of Hamilton J. If that is granted, the claimants seek a concurrent hearing of the appeal. The first dated 19 March 2004 set aside a creditor’s statutory demand issued by the claimants on 9 July 2003 against Glazier Holdings Pty Ltd (“the opponent” or “Glazier”). The second is from the judgment of Hamilton J dated 26 March 2004 ordering the claimants to pay the opponents costs of the proceedings before him.

2 Essentially, this application seeks leave to challenge the exercise of discretion by the trial judge under s459J(1)(b) of the Corporations Act 2001 setting aside the statutory demand. The trial judge held that there was, in terms of the section, “some other reason” for setting aside the demand than a defect in it (compare s459J(1)(a)). This reason was essentially that, not to set aside the claimants’ statutory demand, gave rise to “substantial injustice” to Glazier. This was so though the trial judge found that:

(a) the statutory demand was based on an assessed cost order constituting an undisputed debt from Court of Appeal proceedings separate from those below,

(b) Glazier participated in that assessment,

(c) Glazier has not to date applied for any stay, and

(d) there was no offsetting claim between the parties.

3 Notwithstanding these matters, substantial injustice was still found, derived by the trial judge from the following:

(a) there were substantial ongoing claims against the claimants, albeit not asserted by Glazier but by a unit trust of which Glazier was merely an 18% unit holder,

(b) refusal to set aside the statutory demand may merely send Glazier back to the Court of Appeal to apply for a stay of the costs order with yet further litigation and conflict between the parties, and

(c) it would wreak a substantial injustice that the claimants should have the benefit of exacting payment of the costs for an intermediate stage of the overall proceedings by the mechanism of the statutory demand.

4 The claimants contend that the prospective debt from the claims in (a) above said by the trial judge to be “within the rubric of offsetting claim” was not of that character; moreover it was indirect at best, overstated in amount, and contingent upon the trust so determining against the claimants in the accounting. There is said to be no “sound or positive ground or good reason” for setting aside this statutory demand, consistent with the legislative intent of Pt 5.4 of the Act; Portrait Express (Sales) Pty Limited v Kodak (Australasia) Pty Limited (1996) 20 ACSR 746 at 757 per Bryson J. The reasons invoked by the trial judge in exercising his discretion are said to disclose legal error and recourse to irrelevant considerations; setting aside their statutory demand in the circumstances gave rise to substantial injustice to the claimants.

SALIENT FACTS

5 What follows as a summation of the facts is uncontroversial, save where indicated otherwise.

6 The Australian Men’s Health Unit Trust (‘the Trust’) conducted a business of providing medical services and pharmaceutical products to men in clinics throughout Australia. It had been formed following the merger of two similar business operated respectively by Mr Meehan and Drs Keramianakis and Smagarinsky.

The structure and beneficial ownership of the Trust is set out below:

7 Disputes between Drs Keramianakis and Smagarinsky and Messrs Meehan & Murphy resulted in proceedings brought in late 1997 by Glazier Holdings P/L (“Glazier”) against Australian Men’s Health Pty Ltd (“AMH”), Mr Meehan, Mr Murphy and Treykell Pty Ltd (‘Treykell’) and a former director of AMH. The claim alleged that the defendants had breached the terms of the trust instrument and the unit-holders’ deed and sought removal of AMH as trustee and appointment of a new trustee to the Trust, and that an account be taken with respect to the affairs of the trust.

8 On 18 March 1998, Young J (as he then was) made orders by consent removing AMH as trustee, appointing a new trustee and ordering the taking of accounts.

9 On 22 January and 1 March 2001, on the application of Glazier, Austin J made orders varying the consent orders so as to provide for the taking of accounts on a “wilful default” basis.

10 On appeal by Messrs Meehan, Murphy and Treykell (“the claimants”), the Court of Appeal set aside the orders of Austin J and ordered that Glazier pay the costs of the claimants: Meehan v Glazier Holdings Pty Ltd [2002] NSWCA 22; (2002) 54 NSWLR 146.

11 The claimants’ costs were then assessed in accordance with the Legal Practitioners Act 1987, at $115,384.17. Glazier participated in the assessment. It did not seek relief by applying to the Court of Appeal for a stay of the costs order against it.

12 On 9 July 2003, the claimants issued a creditors statutory demand pursuant to s459G of the Corporations Act 2001, demanding payment of their assessed costs.

13 On 30 July 2003, Glazier initiated the present proceedings seeking to set aside the statutory demand contending that:

(a) the proceedings in which the costs were ordered were not concluded proceedings, so enforcement of the costs order was precluded by SCR Pt 52A r9;

(b) Glazier had an offsetting claim within the meaning of s459H of the Corporations Act, arising from the amounts it would receive after the taking of accounts; and

(c) the statutory demand should be set aside in the exercise of the discretion under s459J(1)(b).

14 There is no Notice of Contention from Glazier with respect to (a) and (b) above.

15 On 19 March 2004, Hamilton J made orders setting aside the statutory demand in the exercise of the discretion under s459J(1)(b). He did so on the basis of “substantial injustice” even though he found bases (a) and (b) were not sustainable, and notwithstanding that Glazier (as he found) could have, but did not, apply to the Court of Appeal for a stay of the cost order and had participated in the assessment.

16 In a separate judgment delivered on 26 March 2004, Hamilton J confirmed his proposed costs orders that the claimants pay Glazier’s costs of the proceedings.

17 The claimants now seek leave to appeal from the decision of Hamilton J on the basis that:

(a) his discretion to set aside the statutory demand under s459J(1)(b) miscarried so as to warrant appellate intervention, and

(b) in ordering the claimants to pay Glazier’s costs.

The legislation

18 Section 459J of the Corporations Act is in the following terms:

“459J Setting aside demand on other grounds

(1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:

(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or

(b) there is some other reason why the demand should be set aside.

(2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.”

The first instance judgment

19 What follows is a summation of the findings and conclusions of the trial judge, with which I deal later under “Disposition”.

A. The proceedings are concluded:

20 The proceedings in the Court of Appeal are separate proceedings, which were concluded by the orders of the Court of Appeal disposing of the appeal. Thus it was appropriate that the Court of Appeal’s costs orders proceed to assessment and the debt created upon assessment of the costs is immediately due and payable: [5], [7]. This was on the basis that:

(a) The right of appeal is not created by s75A Supreme Court Act but by s101 which provides that “an appeal shall lie to the Court of Appeal from ... any judgment or order of the Court in a Division”: [6].

(b) Appellate proceedings are separately numbered as proceedings in the Court of Appeal: [6].

(c) Parties to an appeal are quite different by description, in order and (possibly) by identity: [6].

(d) There is no description of “proceedings” in the Supreme Court Act: [6].

21 Hence here the proceedings in which the costs order was made are proceedings which have been concluded: [7]. There is no challenge by way of notice of contention or otherwise to that conclusion.

B. There is no offsetting claim

22 Section 459H Corporations Act requires that a statutory demand be set aside if “the substantiated amount” of the demand after taking into account the offsetting claim or claims is greater than the demand. His Honour held that on its proper construction, s459H requires a court in assessing the “offsetting total” only to determine if there is an offsetting claim, and not to value it.

23 Glazier’s evidence outlines a number of claims which it says will be determined in its favour upon the taking of accounts, which will be payable into the trust fund held by the new trustee. There is no reason to treat these as other than “genuine” claims, which have an “objective” existence the genuineness of which is capable of being assessed. They are thus claims within the rubric of “offsetting claim” as used in s459H.

24 But s459H requires that the offsetting claim be “a claim that the company has against the respondent”. Here, Glazier’s claim is not against the claimants. Instead, they will be obliged to pay the sums claimed to the new trustee for the benefit of the trust fund, and in due course Glazier will be entitled to receive its share of that fund.

25 Thus, these claims cannot be brought into account as offsetting claims. Again there is no challenge by way of notice of contention or otherwise to that finding.

C. The Statutory Demand should be set aside anyway.

26 Substantial injustice has been confirmed by case law as a criterion for setting aside a statutory demand: Hoare Bros Pty Limited v Commissioner of Taxation (1996) 62 FCR 302; Spencer Constructions Pty/Limited v G & M Aldridge Pty Limited [1997] FCA 681; (1997) 76 FCR 452: [7].

27 Here there are claims against the claimants relating to the subject matter substantially in dispute between the parties; although the Court of Appeal proceedings are over, the dispute is not: [19].

28 Those claims are not available as offsetting claims, but if they are established Glazier will receive from the claimants, through the intermediacy of the trust fund, sums greater than that demanded: [19].

29 In these circumstances, it would wreak a substantial injustice that the claimants should have the benefit of exacting payment at this intermediate stage in the overall proceedings by the statutory demand mechanism: [19].

30 There is thus sufficient other reason to set aside the statutory demand. Moreover, this result conforms with the legislative intent of Pt 5.4 of the Act, insofar as that requires that the mechanism not be available where there are genuine outstanding disputes between the parties: [19].

31 The fact that Glazier could have but has not sought relief by application to the Court of Appeal for a stay of its costs order and Glazier’s participation in the process of assessment of costs would justify refusal of relief: [20]. But, to refuse relief would only prolong the conflict, sending Glazier back to the Court of Appeal for a stay.

32 Thus, “the best course designed to save the Court’s time and the parties’ financial resources and to further the ends of justice is for the Court to intervene at this stage and set the demand aside on the ground of substantial injustice”: [20].

Draft Notice of Appeal

33 The draft grounds of appeal are as follows:

Ground 1 The Judge erred in ordering that the Statutory Demand served by the Appellants on Glazier on 9 July 2003 be set aside;

Ground 2 The Judge’s exercise of the discretion afforded by s459J(1)(b) of the Corporations Act 2001 miscarried for the reasons set out in the grounds stated below:

Ground 3 The Judge erred in holding that a substantial injustice would be wreaked upon Glazier if the Appellants were to have the benefit of exacting payment of the costs ordered by the Court of Appeal in the absence of any evidence by Glazier as to its solvency or otherwise demonstrating actual or likely prejudice to Glazier.

Ground 4 The Judge erred in concluding that the notice of demand mechanism should not be available to the Appellants whilst there are outstanding issued between the parties arising out of the process of taking of accounts of the unit trust in which Treykell and Glazier are unit-holders.

Ground 5 The Judge erred in concluding that preventing the Appellants from exacting payment of their costs obtained in a separate and concluded proceeding was conformable with the legislative intent of Pt 5.4 of the Corporations Act 2001 whilst there are outstanding issues between the parties arising out of the process of taking of accounts of the unit trust in which Treykell and Glazier are unit-holders.

Ground 6 The Judge erred in concluding that there would come to Glazier from the Appellants, through the intermediacy of the trust fund, sums greater in total than that demanded in the notice, in particular in that the Judge failed to take into account the evidence that (a) there are other claims against the trust fund, and (b) that the unit entitlement of Glazier is limited to 18% of the net surplus in the fund.

Ground 7 The Judge’s conclusion that this was an intermediate stage of the proceedings was in conflict with the Judge’s earlier findings that the proceedings in the Court of Appeal were separate from the current proceedings in the Court below, and that the Court of Appeal proceedings in which the costs order was made were proceedings which had concluded.

Ground 8 The Judge should have refused to exercise his discretion to set aside the Statutory Demand, having found that Glazier had failed to seek relief by application to the Court of Appeal for a stay of the costs order, and had not raised any objection to, but had participated in, the process of immediate assessment of the Court of Appeal costs.

Ground 9 The Judge erred in ordering that the Appellants pay Glazier’s costs of the proceedings in the Court below, when that order was not appropriate in the circumstances.

DISPOSITION

34 It is undoubtedly the case that when the trial judge made his decision to set aside the claimants’ statutory demand pursuant to s459J(1)(b) of the Corporations Act, he was exercising a discretion conferred by that provision. It is well settled that where the question in issue involves the exercise of such judicial discretion it must be shown that there has been a wrongful exercise of it, by reason of the judge having:

(a) acted on an incorrect principle of law;

(b) failed to take into account relevant considerations or took into account irrelevant ones;

(c) made some relevant error of fact;

(d) reached a result that is plainly unreasonable or unjust, or

(e) the result in (d) was such as to bespeak error of the former kind, even if the error could not be precisely identified.

(see, inter alia, Gronow v Gronow [1979] HCA 63; (1979) 144 CLR 513; House v the King (1936) 55 CLR 467 at 504-5.)

35 There being no defect in the demand, reliance was placed upon whether there be “some other reason” as would satisfy s459J(1)(b). The claimants contend that such reason cannot be based simply on some need to bring to the relationship between the parties some broad form of perceived fairness or reasonableness. Rather there must be “sound or positive ground or good reason” to set aside the statutory demand for “some other reason”, which was consistent with the legislative intent of Pt 5.4 of the Act: Portrait Express (Sales) Pty Limited v Kodak (Australasia) Pty Limited (supra) at 757 per Bryson J; Kezarne Pty Limited v Sydney Asbestos Removal Services Pty Limited (1998) 29 ACSR 11 at 18 per Austin J. It is the claimants’ contention that the reasons given by the trial judge do not satisfy the latter requirements but are indeed based upon some broad form of perceived fairness or reasonableness.

36 The claimed justification of the order is described (Judgment, [19]) as the avoidance of a benefit to the claimants at “an intermediate stage of the overall proceedings”, so that such avoidance would be “conformable with the legislative intent of Pt 5.4” of the Act. That intent is said to be that the “demand mechanism should not be available where there are outstanding genuine disputes between the parties”.

37 It is necessary here to look more closely at the reasoning of the trial judge in the context of the conclusions he had earlier reached; in particular at what he described as “claims within the rubric of offsetting claim as used in s459H” (at [11]).

38 This reasoning proceeded on the basis that there was indeed an “offsetting claim” but not one which fell within the rubric of a claim “that the company has against the respondent” (at [13]). Rather, it was a claim which depended upon the following steps:

(i) first the new trustee of the unit trust had to complete an accounting in order for any claim by the trust against the claimants to be determined;

(ii) depending on the result of that accounting, the claimants had then to pay the sums so determined to the new trustee for the benefit of the trust fund (it is inaccurate to state that “the respondents will be obliged to pay the sums claimed to the new trustee for the benefit of the trust fund” (at [13]) unless the sums claimed turn out to be identical with the amount properly so determined by the new trustee);

(iii) the unsecured creditors, however, have prior claim to Glazier against any sums thus ascertained and recovered by the new trustee, such liabilities being estimated at $1.25 million (WF, 97-9);

(iv) the trustee likewise has prior claim for its administration costs and these have yet to be ascertained;

(v) the amount asserted by Glazier to be payable by the claimants to the trustee totals $1,378,689 (Exhibit F para 10 at WF, 177-8);

(vi) the net assets of the unit trust available for distribution to Glazier are therefore to be determined after first allowing for prior ranking liabilities of $1,254,311 and so far unascertained administration costs of the trustee; of the net assets so derived, only 18% are potentially available for distribution to Glazier as that is its unit entitlement.

39 The end result of these steps, and on the most favourable assumption to Glazier (namely that the amount asserted by Glazier to be payable to the trust by the claimants would be ascertained at $1,378,689 and recovered by the trustee) leaves Glazier with its 18% unit entitlement recovering only $22,388. That is a sum substantially less than the claimants’ costs already assessed at $115,384.17 which ground the claimants’ statutory demand. There is no basis for accepting Glaziers contention that “the evidence indicates that, if those claims be vindicated, the plaintiff’s share of them to come from the trust fund will be greater than the amount demanded in the Notice of Demand” (at [11[).

40 It follows that, as the claimants demonstrate in their reply, there was no factual foundation for the opponent’s asserted entitlement to amounts of $80,621, $203,346.41 and $184,341.36 (Exhibit F, para 9 at WF, 176-7). In thus lacking evidentiary foundation, the trial judge’s conclusion at [19] could not, with respect, be sustained. There he concludes “nonetheless, if the claims be established, there will come to the plaintiff from the defendants through the intermediacy of the trust fund sums greater in total than that demanded in the Notice”. What the above analysis demonstrates is that even if trust claims be established against the claimants totalling $1,378,689, and even if that amount were recovered by the unit trust, the opponent’s asserted entitlement, consistent with its 18% interest, is substantially less than the amount of the claimants’ costs as assessed.

41 There is a further difficulty which the earlier analysis brings out. Concededly the threshold for genuineness for an offsetting claim is relatively undemanding “...to identify the genuine level of an offsetting claim (not the likely result of it)” (Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 at 605). But here the claim is not an offsetting claim between the parties. Rather it is a claim which is prospective, contingent and at best indirect. It is asserted by the trustee of the unit trust in which Glazier has but an 18% interest. It is prospective in the sense that the trustee has yet to complete its accounting, and that accounting has yet to crystallise in a quantified amount. Moreover, the trustee has yet to ascertain its fees which rank ahead of Glazier. It is indirect since it is asserted not by Glazier but by the trust against the claimants. Because the trust is a distinct legal entity from the party taking out the statutory demand, that renders irrelevant the conventional assessment of offsetting claim by the undemanding standard of genuineness.

42 To reason that such claims are “within the rubric of offsetting claim” (as referred to in the judgment at [11] and [12]), is to elide an essential distinction. That distinction is between an offsetting claim against the party issuing the statutory demand, and a claim, as here, which cannot yet properly be described as an offsetting claim in any crystallised sense, let alone one between the parties. Rather it is a claim exerted through a third party against the proponent of the statutory demand, and which depends upon fulfilment of a number of contingencies. Those contingencies go first to the recoverability of the claim itself, for we do not yet know the result of the accounting. Then they go to the quantum of any ultimate recovery by Glazier, for we do not yet know with any certainty a number of essential matters such as the trustee’s administration fees.

43 That leads to the point of legal principle wherein the claimants identify legal error. That error is said to lie in the finding of “substantial injustice” sufficient to constitute “some other reason why the demand should be set aside” for purposes of s459J(1)(b). This is in circumstances where the so-called “offsetting claim” is prospective, indirect in the sense I have identified and likely to be only around 20% of the undisputed debt the subject of the statutory demand.

44 The trial judge sought to justify setting aside the statutory demand also on another basis. It was to avoid a benefit to the claimants at “an intermediate stage of the overall proceedings”, and “conformable with the legislative intent of Pt 5.4 of the Act. That intent was said to be that the “notice of demand mechanism should not be available where there are outstanding genuine disputes between the parties” (Judgment at [19]).

45 Taking each of these elements in turn, there is a clear conflict between two conclusions of the trial judge. First there is the trial judge’s earlier conclusion that the Court of Appeal proceedings generating the cost order were separate from the proceedings below (at [7]). Second is the proposition he adopts (at [19]) that the benefit (of recovery of a debt through the statutory demand) is to be avoided when one is at “an intermediate stage of the overall proceedings”. No authority is given for that proposition. At [7] the trial judge then said he easily concluded “that the defendants’ submission is correct and that the proceedings in the Court of Appeal on an appeal from a judgment in a Division are proceedings separate from the proceedings below. On this basis it is clear that the proceedings in which the costs order was made are proceedings which have been concluded”.

46 I would readily agree with the trial judge’s opening observation that the cost order represents an “episode” within the “long course of litigation between the parties” at [1]. But it nonetheless represented the outcome of a discrete and self-standing process for recovering costs on a successful appeal against the earlier decision by Austin J that the taking of accounts should be on the basis of wilful default. That is essentially what the trial judge concluded at [7]. The trial judge however goes on to say, (at [19]), that setting aside the statutory demand is justified, as “conformable with the legislative intent of Pt 5.4” of the Act whereby the “demand mechanism should not be available where there are outstanding genuine disputes between the parties”.

47 With respect this is to state the legislative intent of Pt 5.4 rather too broadly. The legislative intent of Pt 5.4 was explained succinctly in Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACLC 1062, 11 ACSR 362 at 366. Its essence is to be found in the proposition that a winding-up application is not to be used for the improper purpose of compelling a solvent company to pay a disputed debt. That proposition is certainly not to be construed as precluding statutory demands being used where there are ongoing disputes between the parties. That is especially so when those disputes do not relate to the debt the subject of the statutory demand nor to any offsetting claim between the parties but rather depend upon the interposition of a third party, as here, in asserting a claim for account. That suffices to discount that basis for setting aside the statutory demand. I do not need to consider issues such as that there was no evidence of solvency of Glazier. Nor whether, as the claimants allege, there has been excessive delay on Glazier’s part in pressing for an accounting. What is however clear is that when costs are not reserved, and no application has successfully been made for a stay, the possibility of delay in the overall proceedings can be good reason for not deferring their recovery until the overall proceedings are concluded.

48 Some analogy to the present case is to be found in Renato Evangelisti Nominees Pty Ltd v EEC (1990) Pty Ltd (1995) 13 ACLC 1,378. In that case the court declined to conclude that there was “some other reason” why the statutory demand should be set aside in circumstances where Mr Evangelisti was a director of the company. According to Mr Evangelisti, the company’s primary asset was a right of indemnity from the Renato Evangelisti Family Trust. The principal asset of that family trust was a loan by the family trust to Mr Evangelisti. Mr Evangelisti was a secured creditor of EEC (1990) Pty Ltd (in liq). EEC served an undated statutory demand on Renato Evangelisti Nominees Pty Ltd. That company applied to set aside the demand under s459G of the Law. Mr Evangelisti proposed to offset the debt owed to EEC to himself against the debt owed by the company to EEC. The company argued that this arrangement could constitute “some other reason” to set aside the demand under s459J(1)(b).

49 Master Ng dismissed that application. He concluded that it was impermissible under the Corporations Law for a director in Mr Evangelisti’s circumstances even if he were the alter ego of the company to offset a debt owed to himself against the debt owed by the company. It was not for the company to set up an arrangement with a third party like Mr Evangelisti in order to provide “some other reason” why the statutory demand should be set aside under s459J.

50 At [20] in the judgment, the trial judge appears first to point to a consideration which prima facie should have led him not to set aside the statutory demand. But he then concludes that it should be set aside. I quote:

“[20] The only consideration that makes me hesitate in setting aside the notice of demand is the fact that the plaintiff could have, but has not, sought relief in the situation by application to the Court of Appeal for a stay of its costs order: see what was said by Emmett J in Eumina Investments above. This consideration is strengthened rather than detracted from by the plaintiff’s conduct in not raising any objection to, and participation in, the process of the immediate assessment of the Court of Appeal costs. These matters would justify my refusing relief. But to do so may well only prolong conflict, since the refusal may merely send the plaintiff back to the Court of Appeal to apply for a stay, and then to engage in further litigation as to what flows from the stay if obtained. In all the circumstances, it seems to me that the course best designed to save the court’s time and the parties’ financial resources and to further the ends of justice is for the court to intervene at this stage and set the demand aside on the ground of the substantial injustice which I perceive.”

51 In the first part of the quoted passage the trial judge correctly refers to a factor pointing strongly against setting aside the statutory demand. The trial judge then, however, refers to a consequence of refusing to set aside the demand, namely that “the refusal may merely send the plaintiff back to the Court of Appeal to apply for a stay, and then to engage in further litigation as to what flows from the stay if obtained”. That latter consideration appears to my mind an irrelevant one. Glazier has to date held back from seeking any stay of the costs order. It instead participated in the costs assessment. Even if it might now belatedly engage in yet further litigation by seeking to persuade the Court of Appeal to grant a stay, that consideration carries little weight. There is of course no certainty that the Court of Appeal would grant any such stay. The position is analogous to the case where a judgment (the basis of the demand) was being appealed. That fact was held not to constitute “some other reason” within s459J(1)(b) whereby the statutory demand should be set aside, unless the Court of Appeal were actually to stay enforcement of the judgment; Barclays (Aust) Finance Ltd v Mike Gaffikin Marine Pty Ltd (1996) 14 ACLC 1,367, 21 ACSR 235; Sajepe Pty Ltd v Lawler (2000) 18 ACLC 457.

52 I would agree with the claimants’ submission that if the opponent were minded to engage in such further litigation, there being no such evidence that it is so minded, that consideration provides no proper basis to remove the claimants from their entitlement under the Act to rely on the demand. Certainly there is no substantial injustice in allowing the claimants to maintain the statutory demand in the present circumstances whereas there is considerable injustice in denying them that entitlement. Indeed, it is an error of principle to invoke as a test “substantial injustice to the party seeking to set aside the statutory demand” for the purpose of subparagraph (b) of s459J(1) when this is solely based on the position of the party subject to the statutory demand. Rather one must look at the relative position of both parties against the objectives of Pt 5.4. That is why the more general formulation of Bryson J in Portrait Express is to be preferred as an approach; that is, setting aside a statutory demand under s459J(1)(b) where there is proper reason viewed in the circumstances of the parties taking into account the purposes of Pt 5.4. The claimants have an undisputed order for costs arising out of what the Court of Appeal characterised as futile proceedings brought by Glazier.

Conclusion

53 There is no proper reason here disclosed by the circumstances to prevent the claimants from proceeding with their statutory demand, based as it is upon an undisputed debt with no offsetting claim. To set it aside would itself be to wreak a substantial injustice, looking at the position of both parties and in the context of Pt 5.4.

54 Finally, as to the separate leave to appeal on costs I consider that the cost orders made by the trial judge on 26 March 2004 cannot stand, namely that the claimants pay the opponent’s costs.

ORDERS

55 I would propose the following orders:

(1) leave to appeal be granted and the appeal be allowed.

(2) that paragraphs 1, 2 and 3 of the orders of Hamilton J made on 19 and 26 March 2004 be set aside.

(3) that the originating process filed 30 July 2003 in the court below be dismissed.

(4) that the respondent pay the appellants’ costs in this Court and in the court below but to have with respect to the former a certificate under the Suitors Fund Act 1951 if otherwise qualified.

56 TOBIAS JA: I agree with Santow JA.

57 YOUNG CJ in EQ: I agree with Santow JA and with his reasons. I merely wish to add one or two observations.

58 Although the wording of s 459J(1)(b) of the Corporations Act appears wide, its context and history requires reading it down to encompass in general terms only cases where the Court is satisfied that injustice will be caused unless the demand is set aside because of a defect relating to, but not in, the demand, see Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11 at 17.

59 In Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746, 757, Bryson J truly said that the discretionary power under s 459J(1)(b) should not be activated "unless the decision to do so is supported by some sound or positive ground or good reason which is relevant to the purposes for which the power exists."

60 It is not possible to set out fully the cases that might fall within s 459J(1)(b) nor if it were possible would it be wise to do so. The sort of case that will be covered will include gross defects in supporting affidavits and documentation and where the alleged creditor has made statements or representations relating to the statutory demand which have reasonably induced a change of the alleged debtor's position.

61 A judge is not at liberty to set aside a demand under s 459J(1)(b) merely because he or she subjectively considers it fair to do so.

62 Secondly, I was troubled for a while by the problem caused by s 459C of the Corporations Act 2001 which has the effect of making non compliance with statutory demands far less effective if more than three months has expired after the non-compliance.

63 Under s 459F in the events which have happened, the time for compliance with the statutory demand was seven days after the challenge to it was finally determined.

64 The consistent ruling of courts has been that "final determination" under s 459F occurs when the Master or Judge at first instance gives his or her decision: Buckland Products Pty Ltd v Deputy Commissioner of Taxation [2003] VSCA 85.

65 If the statutory demand is now stale then is there any commercial sense in granting leave to appeal?

66 I consider there is, first because unless the decision below is set aside it is pointless for the creditor to issue a new demand in the same terms, secondly because the demand with other evidence might establish insolvency, thirdly because even now the time for compliance might possibly be extended, Vista Commercial Construction Pty Ltd v Deputy Commissioner of Taxation (1999) 149 ALR 149 at 155 (though see Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 25 ACSR 675, 701), and fourthly this problem is really a matter for the claimant to resolve.

67 Accordingly, I agree with the orders proposed by Santow JA.

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LAST UPDATED: 17/02/2005