Supreme Court New South Wales Medium Neutral Citation: Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd; Oaklands Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 Hearing dates: 18 May 2011 Decision date: 20 May 2011 Jurisdiction: Care and protection Before: Barrett J Decision: Statutory demand set aside conditionally Catchwords: CORPORATIONS - winding up - statutory demand - application for order setting aside - judgment debt under default judgment against two companies - unsuccessful application to have judgment set aside - appeal pending - held no genuine dispute - held no "other reason" unless judgment debt paid into court Legislation Cited: Corporations Act 2001 (Cth), Part 5.4, ss 459C(1)(a), 459G, 459H(1)(a), 459J(1)(a), 459J(1)(b), 459M Uniform Civil Procedure Rules 2005, rules 14.13(2), 16.6 Cases Cited: Asia Pacific Glass Pty Ltd v Sindea Trading Co Pty Ltd (No 2) [2003] NSWSC 845; (2003) 47 ACSR 737 Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235 Cranney Farm Pty Ltd v Corowa Fertilizers Pty Ltd [2011] NSWSC 9 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473 Eumina Investments Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454 Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229 Midas Management Pty Ltd v Equator Communications Pty Ltd [2007] NSWSC 759; (2007) 25 ACLC 1038 On Time Nurses Agency Pty Ltd v Deputy Commissioner of Taxation [2010] VSC 573 Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 214 FLR 393 Category: Interlocutory applications Parties: (1) Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd (2) Oaklands Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd Representation: Counsel: Mr J E Thomson - Plaintiffs Mr B Gower - Defendant Solicitors: William & Co Lawyers - Plaintiffs Dejure Commercial Lawyers - Defendant File Number(s): (1) 2010/00422592 (2) 2010/00422596 Judgment 1In each of these separate proceedings (which were heard together), the plaintiff makes application under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand served on it by the defendant. 2It will be convenient to refer to the respective plaintiffs as "Timberland" and "Oaklands" and to the single defendant as "Schindler". 3The debt upon which each statutory demand is based is a judgment debt. The judgment of the District Court on 27 October 2010 was in these terms: "Default judgment given for the Plaintiff against the Defendants in the sum of $271,618.09." 4In the District Court, the present defendant, Schindler, was the plaintiff, Timberland was the first defendant and Oaklands was the second defendant. The reference in the judgment to "the Defendants" is thus a reference to both Timberland and Oaklands. 5Each statutory demand - by which I mean the statutory demand served by Schindler on Timberland and the statutory demand served by Schindler on Oaklands - demands payment of the $271,618.09 judgment sum. 6In seeking to have the statutory demand affecting it set aside, each of Timberland and Oaklands relies on the s 459H(1)(a) ground and the s 459J(1)(b) ground. 7As to s 459H(1)(a), the proposition advanced by each plaintiff is that, even though the debt is a judgment debt, there is a "genuine dispute" as to its existence. 8Each plaintiff relies on the fact that the judgment was ordered by default, that is, because of failure by the defendant parties in the District Court to take a procedural step and without any hearing on the merits. Those parties (Timberland and Oaklands) later applied for an order setting aside the default judgment. After a hearing in the District Court, that application was dismissed. Timberland and Oaklands later filed in the Court of Appeal a summons seeking leave to appeal from the whole of the decision of the District Court on the application in which it was sought to have the default judgment set aside. The application in the Court of Appeal is pending. 9Counsel for Timberland and Oaklands submitted that, because a default judgment does not create a res judicata or issue estoppel, that there can be a genuine dispute as to the existence of the judgment debt. 10I do not accept that submission. A default judgment, unless and until set aside, confers the same rights as a judgment entered after a trial. The fact that it may be liable to be set aside if the party who suffered it satisfactorily explains the default and shows an arguable case on the merits means only that it shares the characteristic of susceptibility to be set aside with a judgment rendered after a hearing on the merits which may be liable to be set aside as a result of a successful appeal. 11It is well established, in the s 459H(1)(a) context, that such susceptibility on the part of a judgment rendered after a hearing on the merits does not mean that is a "genuine dispute" as to the existence of the judgment debt: see for example Eumina Investments Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454; Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235; Midas Management Pty Ltd v Equator Communications Pty Ltd [2007] NSWSC 759 ; (2007) 25 ACLC 1038. The like susceptibility, but for a different reason, of a default judgment attracts the same conclusion for the same reason. Unless and until the judgment is set aside, it is the source of a payment obligation that cannot be called into question. 12The case based on s 459H(1)(a) therefore fails. 13I next turn to the proposition that, in terms of s 459J(1)(b), "some other reason" why statutory demand should be set aside - that is, some reason other than those contemplated by s 459H and s 459J(1)(a). 14Assessment of this proposition is not assisted by the fact that the reasons for the District Court's refusal to set aside the default judgment are not before me. Mr Thomson of counsel, who appeared for Timberland and Oaklands, did, however, take me in some detail to the documentary and other evidence relevant to Schindler's District Court claim. I need not refer to that evidence in any detail. It is sufficient to note the following allegations, bearing in mind that the claim is a contract-based claim related to the installation (or proposed installation) of lifts in a building: 1. The documents relied on by Schindler evidenced only offers or invitations to treat, as distinct from a contract. 2. Schindler, as plaintiff in the District Court, "was unsure as to the identity of the entity with which it has contracted" and therefore "sues both defendants as parties, express or implied, to the contract" (these words appear in Schindler's District Court statement of claim). 3. The alleged contract was for "the supply and installation of 2 passenger lifts in the first defendant's building" (this is also a quote from the statement of claim) but it is not alleged that any lifts were installed by Schindler. 4. Schindler was only ever entitled, at best, to unliquidated damages for breach of contract and was never in any position to obtain (as it in fact did) default judgment under rule 16.6 of the Uniform Civil Procedure Rules 2005 which applies where "the plaintiff's claim against a defendant in default is for a debt or liquidated claim or for a claim for unliquidated damages of the kind referred to in rule 14.13(2)" (which relate to certain presently irrelevant claims concerning motor vehicles). 15It is not the function of the court in these present proceedings to seek to come to any conclusion on the merits of these propositions. It is sufficient for me to say that, having reviewed the evidence, I am satisfied that they are arguable. 16The scope and purpose of s 459J(1)(b) have been considered in a number of cases. A recent summation appears in the judgment of Ferguson J in On Time Nurses Agency Pty Ltd v Deputy Commissioner of Taxation [2010] VSC 573 at [7] - [8]: "The discretion under s 459J(1)(b) is broad and the circumstances which will give rise to 'some other reason' to set aside the demand have not been prescribed either by statute or the case law [ Hoare Bros v DCT (1996) 62 FCR 302; A rcade Badge Embroidery Co Pty Ltd v DCT A [2005] ACTA 3]. Nor should the court attempt to set out all the circumstances in which a demand might be set aside for some other reason [ Hoare Bros v DCT (1996) 62 FCR 302; Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229 per Young CJ in Eq at p 240]. This does not mean though that the discretion is at large such that a judge may set a demand aside simply because, subjectively, that judge is of the view that it is fair to do so [ Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229 per Young CJ in Eq at p 240]. Some of the authorities have given examples of the types of situation where the discretion is likely to be exercised in favour of setting aside a demand for some other reason. They include situations where there are gross defects in the affidavit supporting the statutory demand; where the creditor, following service of the demand, has made representations which have induced the debtor to change its position; and where the creditor's conduct is unconscionable, an abuse of process or gives rise to substantial injustice [ Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229 per Young CJ in Eq at p 240; Hoare Bros v DCT (1996) 62 FCR 302; Arcade Badge Embroidery Co Pty Ltd v DCT [2005] ACTCA 3 ]. Where, as here, the statutory demand relates to a tax debt, one of the matters to be taken into account when exercising the discretion is the legislative policy relating to the recovery of tax debts as disclosed in the Taxation Administration Act 1953 (Cth). Under that Act, the fact that there is a review or appeal pending in relation to a taxation decision does not affect implementation of the taxation decision [ Sections 14ZZM and 14ZZR Taxation Administration Act 1953 (Cth); Deputy Cmr of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473]." 17In Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473, the last case to which her Honour referred in the passage quoted, the High Court held that "some other reason", in terms of s 459J(1)(b), did not exist where the debt was a tax debt in respect of which the statutory objection and review processes had been invoked but which was nevertheless given a conclusive character by the taxation legislation. There was no scope for the taxpayer to show "genuine dispute" within s 459H(1)(a) and the High Court held that the policy and effect of the taxation legislation also precluded a conclusion of "some other reason" within s 459J(1)(b). The full force of the tax law (and its policy of conclusiveness dispute objection or appeal) had to be recognised "when determining the existence of the necessary satisfaction for para (b) of s 459J(1)". 18In the present case, two companies are liable under a judgment in such a way that they are jointly and severally liable for the sum of $271,618.09. The judgment does not reflect any finding of liability by a court. It is, furthermore, a judgment entered by means of procedures applicable to debt claims when the tenor of the claim, as articulated in the District Court statement of claim, is unliquidated. It is true that neither the judgment nor execution of it is stayed. It is also true that the District Court has declined to set the judgment aside. 19The circumstances just described entail one element that may tend towards a finding that to allow the statutory demands to stand would be to countenance what I called in Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 214 FLR 393 "some attempted perversion" of the statutory scheme of Part 5.4 of the Corporations Act . 20Schindler sued both companies in the District Court and, as I have already noted, said in the statement of claim that it was "unsure as to the identity of the entity with which it has contracted" and that it therefore sued both "as parties, express or implied, to the contract". Let it be assumed that a liability for $271,618.09 arose in favour of Schindler. On its own case, Schindler was, on that assumption, entitled to recover $271,618.09. And the judgment it obtained created a judgment debt in that sum, being a debt of Oaklands and Timberland jointly and severally. 21Schindler thereafter did two things. It served on Timberland a statutory demand in the sum of $271,618.09; and it served on Oaklands a statutory demand in the sum of $271,618.09. It may be the case that, if both the statutory demands stand, Timberland will be subjected to a presumption of insolvency under s 459C(1)(a) if it does not pay $271,618.09 to Schindler but Oaklands does; and Oaklands will be subjected to a presumption of insolvency under s 459C(1) if it does not pay $271,618.09 to Schindler but Timberland does. That possibility may point to a need, in the interests of justice, to set aside both demands. 22On the whole, however, I do not think that the position I have described will arise. If one of the companies pays the demanded debt in full and the other pays nothing, the judgment debt will be satisfied and neither company will be indebted to Schindler. It will follow, I think, that the paying company (having actually made payment) will be taken to have complied with the demand served on it; and that the non-paying company's demand will also have to be regarded as having been complied with because the payment operates to discharge its liability as well. The perceived subversion of the statutory scheme is therefore illusory. 23Beyond that, the matters to which Timberland and Oaklands refer in support of the application of s 459J(1)(b) do not seem to me to go beyond the point that the default judgment may, in the fullness of time, be set aside despite the fact that the District Court has already decided that it should not be set aside. The simple facts are that there is a judgment; that it has been reviewed by the District Court and not set aside; and that there is in force no stay of either the judgment or execution of it. 24Observations of Santow JA in Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229 at [51] suggest that, in such circumstances, there is no sufficient basis to make an order under s 459J(1)(b). His Honour said: "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 s 459J(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) 21 ACSR 235; 14 ACLC 1,367; Sajepe Pty Ltd v Lawler (2000) 18 ACLC 457; [2000] NSWSC 262 ." 25In Midas Management Pty Ltd v Equator Communications Pty Ltd above , Hammershlag J noted Santow JA's obiter statement but proceeded to deal with the competing merits of the debtor's plausible grounds of appeal and the creditor's rights under the judgment. His Honour's solution was a practical one. He ordered that the statutory demand be set aside on condition that the amount of the judgment debt be paid into court. Ward J took the same approach in Cranney Farm Pty Ltd v Corowa Fertilizers Pty Ltd [2011] NSWSC 9, explaining that the existence of arguable grounds of appeal did not, in the absence of a stay, represent "some other reason" within s 459J(1)(b) but that such reason would exist if the amount of the judgment were paid into court. Section 459M allows an order setting aside a statutory demand to be made subject to a condition. If the condition is not satisfied, the setting aside of the demand will not be effective: Asia Pacific Glass Pty Ltd v Sindea Trading Co Pty Ltd (No 2) [2003] NSWSC 845; (2003) 47 ACSR 737. 26The same approach is appropriate here. As things stand, "some other reason" within s 459J(1)(b) does not exist, but if the amount of the judgment debt is deposited so as to be available to meet the judgment if the Court of Appeal proceedings extinguish the possibility of the judgment's being set aside, then "some other reason" will exist. The reason will be, in effect, that Schindler, as judgment creditor, is assured of the availability of funds to meet the (and, accordingly, payment of the debt the subject of the statutory demand) and therefore does not stand in need of the presumption of insolvency that would enable it to proceed with a winding up application if the statutory demand stood but was not complied with. In saying this, I do not intend to imply that Schindler would enjoy any form of security over the funds in court. 27The substantive order in each of the proceedings before me will accordingly be as follows: "Order, subject to the condition that the applicants for leave to appeal under summons seeking leave to appeal dated 11 May 2011 filed in proceedings 2009/338493 do, not later than Tuesday 14 June 2011, pay into court in those proceedings the sum of $271,618.09 to abide the outcome of the application for leave to appeal in those proceedings and, if leave to appeal is granted, to abide the outcome of the appeal brought by such leave, the statutory demand dated 29 November 2010 served on the plaintiff by the defendant be set aside." 28The plaintiff, in each case, is not bound to perform the condition attached to the order. The conditional order represents, in effect, an indulgence to the plaintiff which would otherwise have suffered simple setting aside of the demand - which will still be the result if the condition is not satisfied. 29Because the plaintiff in each proceeding did not succeed in establishing a case for the setting aside of the statutory demand and any setting aside will result only from the performance of the condition, the plaintiff will be ordered to pay the defendant's costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 May 2011