Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (Administrator Appointed)

1. [1]

   MACFARLAN JA: I agree with Gleeson JA.

2. [2]

   GLEESON JA: The applicant, Drama Unit Pty Ltd (Drama Unit), seeks leave to appeal against the dismissal by Rees J on 6 September 2019 of its application under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand dated 7 June 2019 served on it by the respondent, Fearndale Holdings Pty Ltd (Administrator Appointed) (Fearndale): In the matter of Drama Unit Pty Limited [2019] NSWSC 1169.

3. [3]

   The primary judge dismissed the proceedings on the basis that no valid application under s 459G had been made. That conclusion was based on her Honour’s finding that there was no sufficient supporting affidavit filed and served within the 21-day period after service of the statutory demand. Drama Unit seeks to challenge that decision.

4. [4]

   Leave to appeal is required by s 101(2)(p) of the Supreme Court Act 1970 (NSW). Whilst Fearndale consented to the grant of leave, the Court is not bound by the parties’ agreement. At the commencement of the concurrent hearing of the application for leave together with argument on the appeal, the Court raised with the parties the question of whether the time for compliance with the statutory demand had passed: Corporations Act, s 459F(2).

5. [5]

   As the parties were not in a position to address this issue, directions were made at the conclusion of oral argument for the exchange of written submissions on the effect of s 459F. Those submissions have now been received and are addressed below.

6. [6]

   For the reasons that follow, leave to appeal should be refused.

Background

1. [7]

   The two debts to which the statutory demand relates are judgment debts totalling $376,047.82 which were obtained by Fearndale on 4 June 2019.

2. [8]

   Fearndale is the owner of land at Luddenham in western Sydney on which, prior to 2017, Epic Mining Pty Ltd operated a mine. In March 2017, Fearndale entered into a lease of that land with Drama Unit. The lease was terminated by Fearndale in March 2019.

3. [9]

   Following termination of the lease, Fearndale commenced proceedings against Drama Unit seeking a declaration as to the validity of the termination and claiming damages in respect of unpaid rent and outgoings.

4. [10]

   On 4 June 2019, Black J gave judgments in favour of Fearndale in respect of unpaid rent ($341,890.72) and outgoings ($34,257.10): In the matter of Fearndale Holdings Pty Ltd [2019] NSWSC 645; (2019) 19 BPR 39,393. Drama Unit lodged a notice of appeal on 21 June 2019, but did not make any application for a stay of the judgments.

5. [11]

   After the hearing in this matter had concluded and judgment was reserved, the appeal from the judgment of Black J was allowed in part by the Court on 17 December 2019 and the Court set aside the judgment against Drama Unit in respect of unpaid rent in the amount of $341,890.72: Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (Administrator Appointed) [2019] NSWCA 312. Neither party sought to take any point that the outcome of that appeal affected the question of the grant of leave in this matter.

6. [12]

   On 21 June 2019, Drama Unit filed and served an originating process seeking orders setting aside the statutory demand. That application was supported by two affidavits. One was sworn by a director of Drama Unit, Mr Michael Gerace, on 21 June 2019 and asserted that there was a genuine dispute about the existence of the judgment debts and in support of that claim, relied on the appeal which had been filed that day. This affidavit may be put aside as Drama Unit did not place any reliance on a genuine dispute at the hearing of the s 459G application.

7. [13]

   The other affidavit was sworn by Drama Unit’s solicitor, Mr Damian Phair, on 27 June 2019 and asserted an offsetting claim that exceeded the amount claimed in the statutory demand. Mr Phair deposed:

8. [14]

   The draft statement of claim annexed to that affidavit was unsigned, undated and unverified. In summary, the draft pleading asserted that:

9. [15]

   The relief sought in the draft pleading included:

10. [16]

    Drama Unit sought to rely upon two further affidavits which were filed and served outside the 21-day period after the demand was served. One was an affidavit of Mr Gerace sworn 9 August 2019 which verified the statement of claim ultimately filed in the Equity Division on 9 August 2019. This affidavit was read below and admitted provisionally, “subject to [Fearndale’s] objection on the basis of the Graywinter principle”.

11. [17]

    The other was a further affidavit of Mr Gerace sworn 22 August 2019 in which he quantified the damages sought against Fearndale as exceeding $3,864,487. This affidavit was also read provisionally subject to Fearndale’s objection by reference to the Graywinter principle. The most substantial item of the damages claim was an amount of $2,800,000-$3,500,000 calculated as loss of profits of between $200,000 and $250,000 per month in respect of the lost opportunity to carry out mining operations on the Luddenham land from 29 May 2018 by reason of the mining lease being invalid.

The primary judge’s reasons

1. [18]

   The primary judge identified two issues for determination; first, whether the affidavits filed within 21 days after the demand was served fulfil the requirements of s 459G(3)(a) of the Corporations Act such that the Court has jurisdiction; and second, if so, whether these and subsequent affidavits establish an offsetting claim to the requisite standard.

2. [19]

   The primary judge referred to the well-known authorities on what constitutes “an affidavit supporting the application” for the purposes of s 459G(3)(a), commencing with the statement in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 concerning the minimum requirements for an affidavit to qualify as a supporting affidavit. Reference was also made to later authorities modifying the so-called Graywinter principle, including Financial Solutions Australasia Pty Ltd v Predella Pty Ltd (2002) 26 WAR 306; [2002] WASCA 51; Infratel Networks Pty Ltd v Gundry’s Telco and Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27; Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd [2007] NSWSC 103; (2007) 61 ACSR 321; Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 214 FLR 393; and Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60.

3. [20]

   Her Honour proceeded on the basis that the affidavit filed within 21 days must raise the grounds on which the applicant seeks to have the demand set aside and those grounds may be raised expressly, or by inference, from the affidavit or documents annexed to it: Judgment at [27].

4. [21]

   Her Honour noted that the draft statement of claim was unsigned, undated and unverified and otherwise did not contain any evidence that Drama Unit was entitled to the amounts claimed in the statement of claim, or the basis upon which those amounts could be claimed, or the facts contained in the statement of claim were correct or were within Mr Phair’s knowledge: Judgment at [37].

5. [22]

   Her Honour continued at Judgment [37]:

6. [23]

   Her Honour concluded that the draft statement of claim was merely “a series of draft assertions rather than anything concrete” and that the Phair affidavit did not raise the grounds nor state the material facts supporting the alleged offsetting claim: Judgment [38], [39].

Proposed grounds of appeal

1. [24]

   In its draft notice of appeal, Drama Unit relies on four grounds. Ground 1 contends that the primary judge erred in holding that Drama Unit had not satisfied the jurisdictional criterion in s 459G by not having “raised” an offsetting claim within 21 days after service of the statutory demand. Grounds 2 and 3 challenge the primary judge’s approach to the affidavit evidence of Mr Phair. Ground 4 asserts that the primary judge’s decision was erroneous, but does not identify any error beyond that stated in the earlier grounds.

Disposition of application

1. [25]

   The principles governing the grant of leave to appeal are well established. As stated in Secretary, Department of Family and Community Services v Smith (2017) 95 NSWLR 597; [2017] NSWCA 206 at [28]:

2. [26]

   In the present case, there is no issue of principle or question of general public importance. Counsel for Drama Unit acknowledged that there was no challenge to her Honour’s statement of legal principles; rather the challenge was to the application of those principles in the present case.

3. [27]

   Importantly, there is no challenge to her Honour’s acceptance (at Judgment [23]) of the remarks of Parker J in Financial Solutions Australasia Pty Ltd v Predella Pty Ltd at [34] (Anderson and Scott JJ agreeing), that there is no:

4. [28]

   This statement by Parker J was cited by this Court with approval in Infratel Networks Pty Ltd v Gundry’s and Telco Rigging Pty Ltd at [29] (Young AJA, Hoeben JA and Ward J agreeing).

5. [29]

   As to whether there is an injustice which is reasonably clear in the sense of more than merely arguable, Drama Unit submitted that the proposed appeal raised a “not … unimportant issue” of “the evidentiary threshold requirement in the circumstances of this particular affidavit”. The submission went so far as to suggest that the minimum requirements of a supporting affidavit can be stated in prescriptive terms. That is not so. As the remarks of Parker J in Financial Solutions at [34] serve to emphasise, the precise nature of the application may well influence what is required for a supporting affidavit.

6. [30]

   The word “affidavit” in s 459G(3)(a) connotes evidence and the affidavit must be one that supports the s 459G application. The requirements of a supporting affidavit will depend on the precise nature of the application, that is, whether the plaintiff asserts a genuine dispute or an offsetting claim (s 459H(1)), or a defect in the demand or some other reason why the demand should be set aside (s 459J).

7. [31]

   Here Drama Unit relied upon an offsetting claim. The expression “offsetting claim” is defined to mean a genuine claim that the company has against the respondent by way of counter-claim, setoff or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates): s 459H(5). The reference in that definition to the “respondent” means the person who served the demand on the company: s 459H(5).

8. [32]

   There was no issue before the primary judge that the draft pleading identified the grounds of the offsetting claim relied upon by Drama Unit. For this reason, the authorities on whether the grounds of the application to set aside the demand must be raised by the supporting affidavit to permit further affidavit evidence after the 21-day period referred to in s 459G(1) were not directly engaged: see, for example, Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd at [26]-[27].

9. [33]

   The question before her Honour was whether the Phair affidavit was an affidavit supporting the s 459G application on the ground that Drama Unit has an offsetting claim: s 459H(1)(b). The proposed appeal seeks to challenge her Honour’s factual finding that the affidavit did not answer that description. That finding involved an evaluative judgment as to whether the Phair affidavit provided evidentiary support for the asserted offsetting claim.

10. [34]

    The Phair affidavit did not verify any of the material facts asserted in the draft pleading. The affidavit said no more than that Drama Unit would be filing a statement of claim and the amount claimed would “offset and exceed” the judgment debts. But the mere foreshadowing of an intention to make a claim did not give those allegations in the draft pleading any evidentiary value.

11. [35]

    In my view, Drama Unit has not demonstrated an injustice which is reasonably clear in the sense of going beyond what is merely arguable. Accordingly, leave to appeal should be refused.

12. [36]

    There is an additional reason for refusing leave. Section 459F provides:

13. [37]

    Where the company fails to comply with a statutory demand, s 459C(2) relevantly provides:

14. [38]

    As Brereton J explained in Leveraged Capital Pty Ltd v Modena Imports Pty Ltd [2009] NSWSC 509 at [5], the automatic extension provided by s 459F(2)(a)(ii) applies only where “the company applies in accordance with s 459G for an order setting aside the demand”. Those words reflect the meaning of s 459G(3)(a) which provides:

15. [39]

    Brereton J continued in Leveraged Capital Pty Ltd v Modena Imports Pty Ltd at [8]:

16. [40]

    It is well established that 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 Corporations Superannuation Fund; 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 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).

17. [41]

    If the period for compliance with a statutory demand has expired, s 459F(2) does not permit the making of an order extending the period for compliance: Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corp Ltd (2008) 232 CLR 314; [2008] HCA 9 at [27] (Gleeson CJ, Hayne, Crennan and Kiefel JJ).

18. [42]

    In the present case, the statutory demand was served on Drama Unit on 7 June 2019. It is common ground that the demand has not been satisfied. Absent any extension of the period for compliance, Drama Unit is taken to have failed to comply with that demand on 28 June 2019 by reason of the operation of s 459F(2)(b), that is, 21 days after service.

19. [43]

    As Fearndale correctly submitted, given that no order extending the time for compliance was made under s 459F(2)(a)(i), either:

    1. (1)

       the application by Drama Unit was not made “in accordance with s 459G”, as the primary judge found, so that s 459F(2)(b) applies and the period for compliance expired 21 days after service of the demand, that is, on 28 June 2019; or

    2. (2)

       the application filed by Drama unit was brought in accordance with s 459G, as contended for by Drama Unit, and was “finally determined” on 6 September 2019: Buckland Products Pty Ltd v Deputy Commissioner of Taxation [2003] VSCA 85 at [9] (Phillips JA, Chernov and Eames JJA agreeing); Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229 at [63]-[64] (Young CJ in Eq). On this hypothesis, the period for compliance with the statutory demand would have expired on 13 September 2019, by operation of s 459F(2)(a)(ii).

20. [44]

    On either view, when the summons seeking leave to appeal was filed on 3 October 2019, the period for compliance with the statutory demand had expired. That occurred either on 28 June 2019 or on 13 September 2019 and no order can now be made extending the time for compliance. There is no point in Drama Unit attempting to have the statutory demand set aside because the appeal can have no purpose in either situation: Ketrim Pty Ltd v Jaeger Corporation Pty Ltd [2002] NSWSC 871; (2003) 21 ACLC 8 at [23] (Campbell J); Tony Long & Co Pty Ltd v Jadeja [2011] VSC 582 at [5] (Ferguson J).

21. [45]

    Surprisingly, given that it opposed the relief sought on appeal, Fearndale submitted that there is “some” utility in the appeal. This submission was directed to the circumstance that Fearndale filed an application under s 459P for the winding up of Drama Unit on 10 December 2019, and the availability of the presumption under s 459C(2)(a) in respect of those winding up proceedings depends on whether the date for compliance with the statutory demand is 28 June 2019 or 13 September 2019.

22. [46]

    Fearndale accepted that if the decision of the primary judge stands, the consequence is that the statutory demand is stale and the presumption under s 459C(2)(a) will not apply in respect of those winding up proceedings.

23. [47]

    Against this, Fearndale pointed to the possibility that if, as Drama Unit contends, the application was validly made under s 459G, then the presumption under s 459C(2)(a) will apply in respect of those winding up proceedings. But that is contrary to the argument on which Fearndale succeeded below and maintains on any appeal.

24. [48]

    Fearndale did not submit that it would be prejudiced if leave to appeal was refused because it could not rely upon the presumption under s 459C(2)(a) in the winding up proceedings. Fearndale could not properly advance that submission whilst at the same time opposing the relief sought on appeal.

25. [49]

    As indicated, there is no point in Drama Unit attempting to have the statutory demand set aside, an outcome which Fearndale opposes. That is a further reason warranting refusal of a grant of leave to appeal.

Costs

1. [50]

   Drama Unit accepted in its summary of argument that there is no reason why it ought not be ordered to pay Fearndale’s costs if leave to appeal is not granted.

Conclusion and Orders

1. [51]

   Drama Unit has failed to demonstrate that the primary judge’s decision is attended with sufficient doubt to warrant its reconsideration on appeal. Accordingly, I propose the following orders:

   1. (1)

      Summons seeking leave to appeal is dismissed.

   2. (2)

      The applicant to pay the respondent’s costs in this Court.

2. [52]

   PAYNE JA: I agree with Gleeson JA.