Barney's Timber Pty Ltd v Duncan [1999] NSWSC 1039

New South Wales Supreme Court CITATION : Barney's Timber Pty Ltd v Duncan [1999] NSWSC 1039 CURRENT JURISDICTION : Equity Division FILE NUMBER(S) : 3550/99 HEARING DATE(S) : 20/09/99 JUDGMENT DATE : 20 September 1999

PARTIES : Barney's Timber Pty Ltd v Bette Cecile Masters Duncan JUDGMENT OF : Master Macready at 1

COUNSEL : Mr R. Alkadamani for the defendant SOLICITORS : Mr M. Birch of Birch Partners for the plaintiff CATCHWORDS : Corporations Law. Application to set aside demand under s459J(1)(b) for some other reason. The reason was the failure of the giver of the demand to reasonably secure the amount due as offered by the recipient. Demand set aside. Spencer Constructions P/L v G.M. Aldridge P/L, CASES CITED : Chippendale Printing Co v Deputy Commissioner of Taxation 150 CLR 682, 696-697, Hoare P/L v Deputy Commissioner of Taxation Full Federal Court 9.10.95. DECISION : Paras 31 and 32

-1- THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

MASTER MACREADY

MONDAY 20 SEPTEMBER 1999

3550/99 - BARNEY'S TIMBER PTY LTD v BETTE CECILE MASTERS DUNCAN

JUDGMENT

1 HIS HONOUR: This is an application to set aside a statutory demand. 2 The statutory demand in the matter is one that seeks repayment of a judgment debt. The amount sought to be recovered is the sum of $18,120 and the demand is dated 23 July 1999. There is no doubt that the amount is owed as the sum was subject of a judgment debt, and that judgment debt was stayed only for a period up to 19 July 1999. There was no suggestion that there is any genuine dispute, nor could there be given the judgment and the lack of a stay. 3 The application is made, however, under s.459J (1) (b) which provides that on an application under s.459G "The Court may by order set aside the demand if it is satisfied that ... (b) there is some other reason why the demand should be set aside". 4 The interrelationship of subsection (a) and (b) of 459J (1) have been considered and finally resolved by the Full Court Federal Court of Australia in Spencer Constructions Pty Ltd v G M Aldridge Pty Ltd. 5 The basis upon which the plaintiff suggests there is some other reason is that the Defendant, the creditor, has refused to secure the debt following offers put to it by the Plaintiff. 6 By way of background, the Plaintiff and its principal and sole director, Mr Killoran, own properties, which are in the possess of being sold in response to the demand. Offers were made to secure the amount of the demand pending the completion of the contract. 7 The first question is whether or not there might be an appropriate power on this basis to set aside the demand. 8 Important in the consideration of this is the terms of s.459E (2). That section provides for the contents of the statutory demand and under subsection (c) it is provided that the demand, "Must require the company to pay the amount of the debt or the total of the amount of the debts or to secure or compound for an amount or total to the creditor's reasonable satisfaction within 21 days after the demand is served on the company". 9 The requirement to either pay, secure or compound the debt would seem to be a reason for the power that is referred to in s.459J (1) (b). 10 This matter has been referred to in a number of cases. The first is Chippendale Printing Co v Deputy Commissioner of Taxation 150 CLR 682, page 696 and 697. The Court traced the history, and in particular referred to paragraph 115 of the Australian Law Reform Commission's draft proposal which discusses the power in these terms:- "This lack of general power would enable the Court to take into account matters such as improper or invalid service, mistakes or mistakes in notice of common and unreasonable refusal of the creditor to accept an offer of the company to meet the debt". 11 The matter was taken up again by the Full Court in Hoare Pty Ltd v Deputy Commissioner of Taxation in Full Federal Court 9 October 1995. There the Court was concerned with a taxation debt and the question of whether or not an underlying dispute as to the taxation assessment could be used, notwithstanding the strict provisions of s.175 to 177 of the Income Tax Assessment Act. 12 In particular at paragraph 62 and 63 the Court referred to, with approval, the fact that if there is some appropriate reason a discretion can be exercised to set aside the demand even without showing substantial injustice would be caused. 13 The Court referred to Chippendale's case and the explanatory memorandums reference to a creditor unreasonably refusing the company's offer to meet the debt. 14 Clearly, given the terms of s.459 E (2), if there has been no secure or compound there may be a sufficient reason for the Court to set aside the demand. 15 In the present case there has been an offer which has been rejected, and it seems to me that in those circumstances if the creditor rejected the offer to secure the debt on an unreasonable basis then that would be a ground for the Court to set aside the demand. 16 The correspondence and the communications clearly show the course of the present proposal for the sale of property which will produce funds to enable the debt to be paid. 17 The property is under a contract for sale made on 19 July 1999 which requires settlement by 56 days, about 12 or 13 September. The contract also, apparently, requires a plan of consolidation to be prepared and registered so that the certificate of title can be available. That process has now reached the point of the plans having been approved by council, and several days ago plans were forwarded by the solicitors for the vendors to the Bank's solicitors for their consent and subsequent lodgement. 18 In the ordinary course, the evidence before me shows that the plans will be registered and titles issued in three to four weeks after lodgement of registration. No doubt that will be done a lot quicker if the need arose. 19 At this stage there has been no notice to complete issued under the contract and, accordingly, any notice to complete would obviously require, under the terms of the contract, 14 days notice before there could be a rescission. 20 The offers to secure the debt were made in correspondence between the parties' solicitors. For instance, on 10 August 1999 reference was made to the terms of contract that had been exchanged and which was not conditional. In a letter of 12 August 1999 the solicitors for the Plaintiff offered to provide security for the debt by giving a registered mortgage over the property. The contract provides that the land has been sold for $1.1 million. 21 In any event there are mortgages apparently with the Bank of Tasmania and the National Bank for $860,000. This leaves some security there available for the creditor. 22 The offer certainly would have elevated the judgment creditor into the position of a secured creditor. That proposal was rejected on 12 August. 23 Particular reference was made to the fact that the creditor did not know who the other creditors might be. 24 That was not an appropriate consideration because if the creditor was to be secured the creditor would be in a better position vis-a-vis the other creditors because, apparently, it does not have notice of any such other debts. 25 Obviously implicit in the proposals and correspondence dealing with the sale was a proposal that the debt would be paid out of the proceeds of the sale. 26 Questions of difficulty in respect of mortgage were mentioned in submissions. 27 One could well see that if a mortgage were given it would contain most of the normal terms, and those terms would provide for the payment of costs and expenses. It would also obviously give the creditor some flexibility if by any chance of the sale of the land was not completed. Being a mortgagee, it could instigate a sale. Or if the property was sold by the first mortgagee it would receive its payment out in priority to unsecured creditors. 28 There is another reason why it is also perhaps appropriate to use the power in this circumstance. That is, that the contract provides in special condition 1 (b) that if the vendor has a petition for winding up presented then it shall be deemed to be in default thereunder, and the other party is in position to exercise any or all of its right under the contract. Although, it is not clear this may include a right to rescind under the contract. 29 Accordingly, one has a situation, if the demand is not set aside the contract may be able to be avoided by the purchaser because of the presentation of a petition. 30 In the circumstances of this matter it seems to me that the refusal of the creditor to secure the debt in the circumstances I have mentioned is a sufficient reason to set aside the demand. 31 Accordingly, I order that the demand for payment served by the Defendant on the Plaintiff which is dated 23 July 1999 be set aside. 32 I order the Defendant to pay the plaintiff's costs of the proceedings. 33 Exhibits to be returned.