FEDERAL COURT OF AUSTRALIA Corporations - application to set aside a statutory demand for the winding up of a company in insolvency - whether applicant may rely on supporting affidavits filed and served out of time where they raise new grounds. Corporations Law - s 459 Federal Court Rules of Court - O 71 r 36B David Grant and Co Pty Limited v Westpac Banking Corporation (1995) 184 CLR 265- cons. Eden Bay Pty Limited v Bennett and Co (1997) 15 ACLC 1,634 - cons. D & S Group of Companies Pty Limited v O'Connor Investments Pty Limited (1997) 15 ACLC 1,794 - cons. Brentwood Terrace Pty Limited, Lee J, 28 November 1997, unreported. - cons. Sandena Pty Limited v Sydney Autolac Centre Pty Limited, Hill J, 5 December 1997, unreported - cons. BLUECREST HOLDINGS PTY LIMITED V STEVE BLYTH ELECTRICAL ENGINEERING & CONTRACTING PTY LIMITED NG 3202 of 1997 JUDGE: BEAUMONT J. PLACE: SYDNEY DATE: 23 FEBRUARY 1998 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 3202 of 1997 BETWEEN: BLUECREST HOLDINGS PTY LIMITED Applicant AND: STEVE BLYTH ELECTRICAL ENGINEERING & CONTRACTING PTY LIMITED Respondent JUDGE: BEAUMONT J. DATE OF ORDER: 23 FEBRUARY 1998 WHERE MADE: SYDNEY ORDERS: 1. Stand the application for review over to 13 March 1998 or such other date as may be fixed for submissions on the orders that now ought to be made in the light of these reasons and on any directions that are required. 2. Direct that the parties file and serve by 10 March 1998 written submissions on the question mentioned in order 1. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 3202 of 1997 BETWEEN: BLUECREST HOLDINGS PTY LIMITED Applicant AND: STEVE BLYTH ELECTRICAL ENGINEERING & CONTRACTING PTY LIMITED Respondent JUDGE: BEAUMONT J. DATE: 23 FEBRUARY 1998 PLACE: SYDNEY REASONS FOR JUDGMENT BEAUMONT J: INTRODUCTION In the context of winding up for insolvency, Division 3 of Part 5.4 of the Corporations Law ("the Law") makes provision as follows for an application to set aside a statutory demand. A company may apply to the Court for an order setting a demand aside (s 459G(1) of the Law). An application may only be made within twenty one days after service of the demand (s 459G(2)). An application is made in accordance with s 459G only if within those twenty one days: (a) an affidavit supporting the application is filed with the Court; and (b) a copy of the application and a copy of the supporting affidavit are served (s 459G(3)). Provision is made by s 459H, subject to the operation of s 459J (see s 459H(6)), for the determination of an application under Division 3 where there is a dispute or offsetting claim. Section 459H(1) applies where, on an application under s 459G, the Court is satisfied of either or both of the following: (a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt; and/or (b) that the company has an "offsetting claim", i.e. a genuine claim that the company has against the respondent by way of counter-claim, set-off or cross-demand, even if it does not arise out of the same transaction or circumstances as the debt to which the demand relates (s 459H(5)). Provision is made by s 459H for the mandatory calculation by the Court of the "substantiated amount" of the demand in accordance with a specified formula (s 459H(2)). If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand (s 459H(3)), but if the substantiated amount is at least as great as the statutory minimum, the Court may make an order varying the demand (s 459H(4)). Provision is made by s 459J for setting aside the demand on other grounds. On an application under s 459J the Court may, by order, set aside the demand if satisfied that: (a) because of a defect in the demand, substantial injustice would be caused unless the demand is set aside; or (b) there is some other reason why the demand should be set aside (s 459J(1)). Unless the Court makes an order under s 459H or s 459J, the Court is to dismiss the application (s 459L). Reference should also be made to the relevant provisions of s 467A, including in Part 5.4B, that an application under Part 5.4 must not be dismissed merely because of a defect or irregularity in connection with the application unless the Court is satisfied that substantial injustice has been caused that cannot otherwise be remedied (e.g. by an adjournment or an order for costs). The operation of the temporal requirements of Part 5.4 was explained by the High Court in David Grant and Co Pty Limited v Westpac Banking Corporation (1995) 184 CLR 265. That case involved applications to set aside demands which were made out of time, where the applicants sought to invoke the Court's general statutory power to cure irregularities and to extend time (s 1322). Gummow J, with the agreement of Brennan CJ, Dawson, Gaudron and McHugh JJ, noted (at 270) that the provisions of Part 5.4 "constitute a legislative scheme for quick resolution of the issue of solvency and the determination of whether the company should be wound up without the interposition of disputes about debts, unless they are raised properly". Gummow J went on to observe (at 275-276) that - "as a general precept, it is inappropriate to read provisions which confer jurisdiction or grant powers to a court by the making of implications or imposition of limitations not found in the express words of the legislative provision." His Honour noted (at 276) that by a later and more specific provision, provision is made with respect to a particular class of application "and there is attached a specific limitation as to the time within which an application may be made. The imposition of such a restriction is consistent with the scheme of the 1992 Act". Gummow J then referred (at 276) to the circumstance that "the temporal requirements in subss (2) and (3) of s 459G operate to define the jurisdiction of the court in respect of an application to set aside a statutory demand." His Honour went on (at 278-279) to hold that these temporal requirements should not be treated as supplemented or qualified by the operation of either s 1322(4) or s 467A. Finally, observing (at 279) that in some circumstances Part 5.4 may appear to operate harshly, Gummow J noted that it may also transpire that a winding up application in respect of a solvent company is threatened or made for an improper purpose, thus amounting to an abuse of process, and that, in an appropriate case, equitable injunctive relief may then be available. HISTORY OF THE LITIGATION By a creditor's statutory demand ("the Demand") served on Bluecrest Holdings Pty Limited ("Bluecrest") on 8 August 1987, pursuant to s 459E(2)(e) of the Law, Steve Blyth Electrical Engineering and Contracting Pty Limited ("Steve Blyth") required Bluecrest within twenty one days after service to pay the sum of $38,256, being an amount claimed to be owing for the supply and installation of certain telephone and other systems. By an application filed on 28 August 1997 pursuant to s 459G(1) of the Law, Bluecrest claimed an order setting aside the Demand. The application was stated to be "on the grounds appearing" in the accompanying affidavit of Tony Maiolo, sworn 27 August 1997. As has been noted, s 459G(3) requires that within time there be filed and served "an affidavit supporting the application". However, the Law makes no further provision in respect of the form or substance of the affidavit required. However, such provision is made by 0 71 r 36B of the Federal Court Rules of Court. That Rule provides that the application "must be made" in accordance with Form 5, which in turn provides for a statement of the "grounds" of the application. Order 71 r 36B further provides that the application "must be accompanied by" an affidavit: (a) "stating any material facts relied upon"; and (b) "identifying the grounds" of the application. In his affidavit sworn 27 August 1987, Mr Maiolo then said (apart from formal matters not of present concern): "6. Pursuant to the agreement entered into between the Applicant and Respondent, the Applicant was only required to pay the Respondent for the amount claimed, when the Applicant received payment from Natarn Holdings Pty Limited. The Respondent had agreed to this condition and has been made aware that to date the Applicant has not received payment for the work undertaken by it. 7. The Applicant upon receiving payment from Natarn Holdings Pty Limited for the work undertaken by the Respondent, will forward the payment to the said Respondent." In September 1997, that is, after the expiration of the twenty one day period specified in s 459G2, Bluecrest purported to file several further affidavits, in which it was claimed that Steve Blyth had breached its contract to supply and install the equipment by supplying and installing defective equipment. Steve Blyth objected to reception of this affidavit evidence and to any attempt to amend the application or its grounds. The basis of Steve Blyth's objection was that the documents were out of time, that is, beyond the twenty one day limit. However, Registrar Quinn held that the August affidavit satisfied the requirements of the Law and the Rules of Court, so that there was a valid application under s 459G(1) before the Court. This conclusion is not challenged before me. It must follow, and it is accepted (correctly, I think) that the Court has jurisdiction to entertain the application to set aside the Demand. However, the learned Registrar went on to hold that "leave not be granted" to Bluecrest to "amend the application to include an offsetting claim under s 459H(1)(b) of the Corporations Law". Bluecrest now seeks, pursuant to s 35A(5) of the Federal Court of Australia Act 1976, to review this part of the Registrar's decision. THE DECIDED CASES ON THE QUESTION WHETHER NEW GROUND TO SET ASIDE THE DEMAND MAY BE RELIED ON OUT OF TIME. In Eden Bay Pty Limited v Bennett and Co (1997) 15 ACLC 1,634, acting Master Chapman held, in the Supreme Court of New South Wales, that a supplementary affidavit could be filed beyond the twenty one day period, if it was merely supportive of the original grounds of the application, but that an affidavit could not be filed out of time if it raised a new ground (at 1,638). A similar opinion was expressed by Perry J in D & S Group of Companies Pty Limited v O'Connor Investments Pty Limited (1997) 15 ACLC 1,794. Lee J also came to the same conclusion sitting in the Supreme Court of Queensland in the matter of Brentwood Terrace Pty Limited, 28 November 1997, unreported. However, in Sandena Pty Limited v Sydney Autolac Centre Pty Limited, 5 December 1997, unreported, Hill J appears (at 3-4) to express a contrary view. None of these cases referred to the other decisions, no doubt because they were recent. CONCLUSIONS ON THE APPLICATION FOR REVIEW If it were necessary in this matter to decide the point, I would first hear the parties on whether I should refer a question of law to a Full Court or state a case, as it appears that the present question did not arise for consideration squarely, at least in David Grant, or in any decision binding on me. But I am not, at this stage at least, persuaded that it is necessary to decide it. For one thing, Bluecrest may succeed on its original grounds. For another, Bluecrest may be able to invoke the equitable jurisdiction mentioned in David Grant (see also Equuscorp Pty Limited v Perpetual Trustees WA Limited, Full Federal Court, 5 December 1997, unreported at 28-29). As a matter of case management, there appears to be much to be said for the approach that defers consideration of the present question unless and until it becomes necessary to rule on it. I will hear the parties on this question and on what orders should now be made. ORDERS I make the following orders: 1. Stand the application for review over to 13 March 1998 or such other date as may be fixed for submissions on the orders that now ought to be made in the light of these reasons and on any directions that are required. 2. Direct that the parties file and serve by 10 March 1998 written submissions on the question mentioned in order 1. I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont Associate: Dated: 23 February 1997 Counsel for the Applicant: R Alkadamani Solicitor for the Applicant: John Ajaka Solicitor for the Respondent: Lane & Lane Date of Hearing: 19 February 1998 Date of Judgment: 23 February 1998