Supreme Court New South Wales Medium Neutral Citation: In the matter of Eastmark Holdings Pty Limited [2011] NSWSC 1084 Hearing dates: 6 Sept 2011; 13,14 Sept 2011 (written submissions) Decision date: 15 September 2011 Jurisdiction: Equity Division - Corporations List Before: Barrett J Decision: Amount of statutory demand reduced Catchwords: CORPORATIONS - winding up - statutory demand - application for order setting aside - strata scheme owners corporation serves statutory demand in respect of various levy amounts said to be due by single proprietor of several lots - payment of part of total indebtedness made shortly before service of demand - proprietor says that that payment was effectively appropriated by it to identified debts in the levy notices - where payment was made at a post office held out by the owners corporation as a place at which payments could be made - where owners corporation allocated money otherwise than according to the appropriation the proprietor claims was made - whether plausible contention requiring further investigation regarding effective appropriation and authority of post office to receive communication thereof - held yes - whether in the overall context it was unconscionable for owners corporation to serve the statutory demand - held no - whether a "defect" in the demand - held no - amount of demand to be reduced Legislation Cited: Corporations Act 2001 (Cth), s 459G, s 459H, s 459J Cases Cited: Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3; (2003) 157 ACTR 22 Cory Bros & Co Ltd v The SS Mecca [1897] AC 286 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473 Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 Global Paving Pty Ltd v TJM Operations Pty Ltd [2011] VSC 190 Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 Hall Brothers Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302 KW & KM Quinn Investments Pty Ltd and Deputy Commissioner of Taxation [2004] QCA 91 Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229 NA Investments Holdings Pty Ltd v Perpetual Nominees Ltd [2010] NSWCA 210; (2010) 79 ACSR 544 Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 132 FLR 300 Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89; (2001) 19 ACLC 1270 Texts Cited: The Laws of Australia, paragraph 7.5.290 Category: Principal judgment Parties: Eastmark Holdings Pty Limited - Plaintiff The Owners - Strata Plan No 74602 - Defendant Representation: J M White - Plaintiff A P Lo Surdo - Defendant Blake Dawson - Plaintiff Mills Oakley - Defendant File Number(s): 2011/00023618 Publication restriction: Nil Judgment 1The plaintiff applies under s 459G of the Corporations Act 2011 (Cth) for an order setting aside a statutory demand dated 24 December 2010 served on it by the defendant. 2The plaintiff is and was the registered proprietor of a number of lots in a strata plan related to a strata scheme of which the defendant is the owners corporation. The debt or alleged debt to which the statutory demand relates is in fact a series of separate debts each of which is for a levy raised by the defendant under the strata titles legislation in respect of a particular lot or interest on levy overdue. The statutory demand refers to 45 lots and specifies in relation to each an amount for "general levies - admin", an amount for "general levies - sinking", an amount for "accrued interest - admin" and an amount for "accrued interest - sinking". Various subtotals and an overall total are also given for each lot. The aggregate sum for all lots is $165,555.22. Each general levy amount consists of two components - one for the period 23 March 2010 to 1 July 2010 and the other for the period 2 July 2010 to 1 October 2010. 3The plaintiff says that there is a genuine dispute as to the existence or amount of the debt. In seeking to have the statutory demand set aside, it thus relies on the ground in s 459H(1)(a) of the Corporations Act . 4The plaintiff contends that, on 17 December 2010 - that is, seven days before the creation of the statutory demand - it paid $100,221.28 to the defendant and thereby satisfied its liability for "general levies" for the period ended 1 July 2010 for 43 of the lots. It follows, the plaintiff says, that it thereafter did not owe anything for general levies for those lots for that period and that, to the extent that the statutory demand includes indebtedness for those general levies, it relates (and related at the time of its creation) to indebtedness that was in truth non-existent. 5The events of 17 December 2010 must be explained. They are dealt with in the affidavit of Ms Choe, the plaintiff's administration manager. On the day in question, Ms Choe went to Australia Post's post office at Haberfield and took with her 43 tax invoices issued by the defendant and addressed to the plaintiff, each headed "Notice of Levies Due in July 2010". Each document related to a particular lot in the strata plan and notified a liability for "Quarterly levy due" in respect of that lot. Matters may conveniently be explained by reference to the notice issued for Lot 8 (Unit 908) (the position in relation to the other lots is the same except for the figures). 6The notice for Lot 8 (Unit 908) refers to "Quarterly levy due" of $1,630.40 being "Admin Fund" of $1,605.85 plus "Sinking Fund" of $205.70 less "Discount" of $181.15. There is a footnote stating that the "Discount" applies only if payment is made by the "due date", which is expressed to be 1 July 2010. "Total levies due in month" are also expressed to be $1,630.40. 7There follows what is, in effect, a summary of all the amounts the defendant regards as outstanding in respect of the particular lot. The first line of the summary refers to the element just noticed. It reads: "Total of this levy notice $1,630.40 (including $148.22 GST or $164.69 GST on gross of $1,811.55)." 8The second line of the summary refers to levies in arrears of $1,324.32. The third line shows interest of $98.89 on levies in arrears. The fourth shows "outstanding owner invoices" of $51.31. There is then a subtotal of $3,104.92 (the aggregate of the first four lines) followed by "Prepaid $0.00" and "Total amount due $3,104.92". 9A footnote to the first of the lines just mentioned says, "Discount applies only if paid by the due date". 10Ms Choe deposes that, before going to the Haberfield post office on 17 December 2010, she marked each of the 43 notices with a yellow highlighter pen. She highlighted in each notice a single figure, being the figure appearing at the end of the first line of the summary ($1,811.55 in the example under discussion: see paragraph [7] above). On arriving at the post office, Ms Choe approached the counter, presented the 43 notices to a post office employee, pointed out the highlighting on the first of them and said to the officer, "I want to pay these invoices; I have highlighted the amount that I want to pay for each notice". Ms Choe deposes that the officer then said, "Okay". The officer, according to Ms Choe, confirmed that the total to be paid was $100,221.28 and she handed the officer a cheque for that amount. The officer then handed her a single receipt on which the amounts paid in respect of the several levy notices were separately recorded. The receipt was produced in such a way that a reference number on a particular levy notice appeared against the amount paid for that notice - so that, in the case of the notice for Lot 8 (Unit 908), the distinctive reference number on that notice was recorded against an amount of $1,811.55 in the receipt. There were 43 separate entries of this kind on the receipt. 11Upon returning to her office, Ms Choe cut the post office receipt into pieces, with each piece containing the entry concerning a particular levy notice. She then stuck to each levy notice the piece of the receipt relating to it. 12Why, one might wonder, would the proprietor of a strata lot make payment to the owners corporation at a post office? The reason appears on the face of the levy notices issued by the defendant. Each carries a reference to DEFT Payment Systems and BPay indicating that those facilities may be used to make payment. Several payment options are then indicated - by telephone, by internet, by mail to a specified GPO box and, relevantly: "Pay at any post office by cash, cheque or Eftpos." 13The Australia Post logo appears against this last message. 14The plaintiff says that the defendant represented to the plaintiff that Australia Post had authority to act as the agent of the defendant in and about the matter of receipt of moneys to be paid in response to levy notices on which there appeared the reference to payment at any post office and the Australia Post logo. 15Furthermore, the plaintiff argues, the events at the post office to which Ms Choe deposes caused the plaintiff, through Ms Choe, to appropriate payment of the amount highlighted in yellow on each levy notice to the particular debt represented by the highlighted figure - the debt of $1,811.55 for levy due on 1 July 2010 (including $148.22 GST) in the case of the notice for Lot 8 (Unit 908). The plaintiff points to the principle stated as follows at paragraph 7.5.290 of The Laws of Australia: "Where a debtor owes several distinct debts to a creditor, it is open to the debtor to appropriate any payment made to the creditor in satisfaction of the whole or part of a particular debt or debts." 16There is reference at that paragraph of The Laws of Australia to the following statement by Lord Macnaghten in Cory Bros & Co Ltd v The SS Mecca [1897] AC 286: "When a debtor is making a payment to his creditor he may appropriate the money as he pleases, and the creditor must apply it accordingly. If the debtor does not make any appropriation at the time when he makes the payment the right of appropriation devolves on the creditor." 17The contention of the plaintiff is that the events at the post office on 17 December 2010 entailed communication by the plaintiff, through Ms Choe, to the defendant, through the employee of its agent Australia Post, of a statement that the payment made in respect of a particular levy notice was appropriated to the debt highlighted in yellow on that notice. The plaintiff further says that, because that appropriation was communicated in that way before the payment was made and accepted, the defendant was bound by it and not at liberty to apply the particular sum in or towards the satisfaction of some other debt. 18The defendant accepts that the plaintiff paid the sum of $100,221.28 on or about 17 December 2010. The defendant also accepts that it applied each element of that total sum otherwise than exclusively in respect of the yellow highlighted debt but maintains that it was entitled to do so. 19The effects of the parties' differing positions may be understood by considering, by way of illustration, the part of the schedule to the statutory demand dealing with Lot 8 (Unit 908). Had the $1,811.55 paid by Ms Choe on 17 December 2010 in relation to that lot been applied against the debt for levy due on 1 July 2010, that debt would have been satisfied in full. Yet the statutory demand is on the footing that $801.47 remained owing, due and payable in respect of that debt at 24 December 2010. It follows, according to the plaintiff, that the defendant purported to apply $1,018.08 of the $1,811.55 otherwise than in accordance with the plaintiff's appropriation, which course was not open to the defendant because that appropriation was binding on the defendant with the result that the $801.47 was in truth not owing, due and payable on 24 December 2010. The defendant says, however, that it was entitled to apply the $1,811.55 in the way it did, thereby leaving the balance of $801.47 outstanding for the 1 July 2010 levy. 20The parties are agreed that, if the plaintiff's contention is correct (and if, in addition, certain payments accepted as having been made since service of the statutory demand are taken into account), the indebtedness for all lots to which the statutory demand relates is overstated by $122,327.66 and that the demand can, at best, stand only for the balance of $43,227.52. 21My task upon the present application is not to come to a concluded view as to the correctness of the plaintiff's contentions. Rather, I am called upon to decide whether, in the words of McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, there is, in relation to the contention that each debt is in truth not owing, due and payable in the demanded amount, "a plausible contention requiring further investigation". 22The defendant takes issue with the proposition that Australia Post and the individual Australia Post employee may be taken to have had the defendant's authority to receive communication of an appropriation by the plaintiff. I need not decide that question. All I need do is to record a finding that, given the way the payment options were recorded on each levy notice, the plaintiff has advanced, in relation to that issue, a contention that is plausible and requires further investigation - that is, a contention that there was a holding out by the defendant of Australia Post as the defendant's agent in relation to the receipt and collection of moneys to which the levy notices related and that the plaintiff communicated to the defendant through that agent a binding appropriation to the several yellow highlighted debts. The scope of any such agency might well be such as to enable Australia Post to receive communication of appropriations of the kind the plaintiff says were communicated through Ms Choe. 23The defendant also points to the fact that, in the extensive correspondence between the parties before 17 December 2010 (as well as in later correspondence), there was absolutely no reference by the plaintiff to any appropriation of the kind on which it now seeks to rely. The plaintiff foreshadowed in correspondence its intention to make a part payment of the order of $100,000 but said nothing about how any such payment was to be applied. Nor, after the event, did the plaintiff say in correspondence that the payment in fact made on 17 December 2010 had satisfied particular debts rather than others because of appropriations made by the plaintiff. 24The absence of roughly contemporary reference by the plaintiff to the alleged appropriation is said by the defendant to call into question the genuineness of the dispute the plaintiff now seeks to put forward. The suggestion is, in essence, that the plaintiff's contention as to appropriation may be in the nature of a recent invention and that the dispute on which the plaintiff relies is not genuine. 25One particular element of the evidence satisfies me that this is not so. The affidavit sworn in support of the s 459G application, being that of Jin Hong Park of 24 January 2011, has exhibited to it an email of 22 December 2010 from Ms Choe to the defendant's solicitor, Ms Rayfield. This email refers to, among other things, the payment of $100,221.28 and has attached to it copies of the relevant levy notices with the cut-out pieces of the post office receipt stuck to them. There is therefore some basis for an eventual conclusion that the events of 17 December 2010 were as Ms Choe deposed. The cutting up of the receipt and sticking of pieces on to the levy notices appears to have been completed before 22 December 2010. 26Having mentioned Mr Park's affidavit, I should deal with the defendant's argument that that affidavit did not sufficiently flag the dispute now alleged to satisfy the s 459G(3)(a) requirement and the principle in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452. Given, in particular, the aspect of the exhibit to the affidavit to which I have just referred, I am satisfied that the payment and allied processes on which the plaintiff relies did form part of the case delineated by the affidavit: see NA Investments Holdings Pty Ltd v Perpetual Nominees Ltd [2010] NSWCA 210; (2010) 79 ACSR 544 at [73] and following. The fact that the piece of the receipt stuck on to each levy notice showed an amount corresponding with that shown at the end of the first line of the notice (see paragraph [7] above) was, to my mind, sufficient to indicate a suggestion that the amount at the end of the first line had been paid, even though there was no specific articulation of the appropriation argument ventilated upon the hearing of these proceedings. 27The conclusions on the plaintiff's s 459H(1)(a) claim are, first, that that claim is available in accordance with the Graywinter principle and, second, that a genuine dispute has been shown in relation to each sum for balance of general levy due on 1 July 2010 covered by the statutory demand. 28The parties are agreed that, in that eventuality, the s 459H(1)(a) claim should result in an order under s 459H(4) varying the demand by reducing its amount to $43,227.56 and declaring that it has had effect, as so varied, from when it was served on the plaintiff. 29That order will not be appropriate, however, if the plaintiff is successful in the other part of its case to which I now turn. The plaintiff contends that there is, in terms of s 459J(1)(b), "some other reason why the demand should be set aside". 30The argument here is that it was unconscionable for the defendant to serve the statutory demand dated 24 December 2010. The parties were, at that time, engaged in the correspondence to which I have referred. The context was one in which the plaintiff queried the striking of certain special levies and was seeking access to the defendant's books in order to investigate matters it considered relevant to its concerns. The concerns went largely to an apprehension on the part of the plaintiff that a number of expenses recorded in the defendant's books that the defendant said should be recouped by the imposition of special levies were not supported by invoices. 31There was some unwillingness on the defendant's part to give access unless certain confidentiality undertakings were given. An application was made to the Consumer Trader and Tenancy Tribunal but not pressed after an agreed basis for inspection was reached. The plaintiff took the position that it wanted to inspect the books before making any payment. The defendant's attitude was that there was a large and undisputed amount owing to which the inspection was irrelevant and that there was no reason why that amount should not be paid promptly. The defendant threatened to serve a statutory demand if payment was not made by a particular day in December 2010. The plaintiff said that, because of the Christmas holiday period, it could not inspect the books until mid-January 2011 and, in effect, that everything should be left in abeyance until then. The defendant issued the statutory demand on 24 December 2010. 32The scope and effect of s 459J(1)(b) were described by Gummow ACJ, Heydon, Brennan and Kiefel JJ in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473 at [24]: "This provision, set out earlier, authorises the Court to set aside a statutory demand if it "should be set aside" for "some other reason" than that provided in par (a) of s 459J(1), namely apprehended substantial injustice because of a defect in the demand." 33The Court of Appeal of the Australian Capital Territory described the provision in Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3; (2003) 157 ACTR 22 as follows (at [27]): "What is contemplated by s 459J(1)(b) is a discretion of broad compass which extends to conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice: Hoare Bros Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302 at 317 to 318." 34In that case, the creditor had agreed to withdraw the statutory demand but later reneged on its agreement. Those circumstances were seen as coming within the relevant concept of unconscionability. 35Section 459J(1)(b) will operate where the person serving a statutory demand has "engaged in conduct that was unconscionable or an abuse of process or had given rise to substantial injustice", these being words of Black CJ, Einfeld, Sackville JJ in Hall Brothers Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302 at 317 to 318 which were also applied by the Queensland Court of Appeal in KW & KM Quinn Investments Pty Ltd and Deputy Commissioner of Taxation [2004] QCA 91. 36Reference must also be made to Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229. The Court of Appeal there observed that substantial injustice has been confirmed by case law as a criterion for setting aside a statutory demand. It was emphasised, however, that injustice must be judged by reference to the purpose that Part 5.4 is intended to serve. Thus, Santow JA observed (at [35]): "There being no defect in the demand, reliance was placed upon whether there be ' some other reason ' as would satisfy s 459J(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." 37Also pertinent are the observations of Young CJ in Eq (at [57] to [61]): "[57] 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." 38It is relevant to refer also to another observation of Santow JA in the Meehan case. His Honour made it clear that the relevant concept of injustice for the purposes of s 459J(1)(b) is not concerned with the personal position or the personal circumstances of the party served with the statutory demand. His Honour said (at [52]): "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." 39As was made clear by both Santow JA (with whom Tobias JA agreed) and Young CJ in Eq, the touchstone is that identified by Bryson J in Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 132 FLR 300. Bryson J said that the court should not act under s 459J(1)(b) in the absence of "some sound or positive ground or good reason which is relevant to the purposes for which the power exists". The power exists to maintain the integrity of the Part 5.4 process. It should be used as necessary and appropriate to counter attempted subversion of the statutory scheme. And as Young CJ in Eq said, subjective notions of what is fair play no part. 40When these principles are applied to the present case, no finding of attempted subversion of the statutory scheme is warranted. The defendant did not resort to the statutory demand process in relation to the special levies about which it knew the plaintiff was concerned. The apprehended mismatch between entries in the defendant's books and invoices received by the defendant and the plaintiff's concern about that matter went exclusively to the striking of special levies. But the defendant, in formulating the statutory demand, confined itself to general levies (both current and arrears), as distinct from special levies, no doubt taking the view that the matters of controversy were unrelated to those general levies. That was, in my view, an unexceptionable view and there was no element of unconscionability in the plaintiff's issuing a statutory demand for what it regarded as the outstanding balance of uncontentious general levies. 41The plaintiff's s 459J(1)(b) claim fails. 42It remains to deal with a submission of the plaintiff based on s 459J(1)(a) and the proposition that there is a "defect" in the statutory demand. The alleged defect is an over-statement of the aggregate indebtedness and of the components for 1 July 2010 levy in respect of the several lots. The submission has precisely the same basis as that underlying the s 459H(1)(a) claim, that is, that the plaintiff is not indebted for so much of the several yellow highlighted sums as was claimed in the statutory demand. 43I do not accept this submission. If, as here, a plaintiff proceeds on the basis that the debt demanded by the defendant is, in whole or in part, not in truth owing, due and payable, the situation is one of dispute as to existence or amount within s 459H(1)(a). For the court to conclude, in such a case, that there is an over-statement of amount (and therefore a "defect" within the s 9 definition) would entail its actually determining the dispute. That is not an appropriate course upon a s 459G application since for the court to reach and express a conclusion would, in the words of Gardiner AsJ in Global Paving Pty Ltd v TJM Operations Pty Ltd [2011] VSC 190 at [31], "embarrass any other court subsequently considering the matter": see also Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89; (2001) 19 ACLC 1270 . 44In the result, there will be an order as stated at paragraph [28] above. The question of costs is, at this point, reserved for future argument. 45In conclusion, I express my thanks to both counsel - Mr Jarrod White and Mr Anthony Lo Surdo - for the balanced, constructive and helpful way in which they placed the evidence, issues and contentions before the court. ********** 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: 15 September 2011