Supreme Court New South Wales Medium Neutral Citation: In the matter of Rejuvacare International Pty Ltd [2015] NSWSC 1046 Hearing dates: 20 April 2015 Decision date: 20 April 2015 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Application to set aside creditor's statutory demand be dismissed with costs. Catchwords: CORPORATIONS – Winding up – Statutory demand – Application to set aside a creditor's statutory demand under Corporations Act 2001 (Cth) s 459J(1) – Where applicant did not appear – Whether defect in statutory demand established – Whether sufficient evidence to set aside demand for some other reason under Corporations Act 2001 (Cth) s 459J(1)(b). Legislation Cited: - Corporations Act 2001 (Cth) pt 5.4, ss 459G, 459G(3), 459H, 459H(1), 459J, 459J(1) Cases Cited: - Graywinter Properties Pty Ltd v Gas and Fuel Corp Superannuation Fund (1996) 21 ACSR 581 - Infratel Networks Pty Limited v Gundry's Telco and Rigging Pty Limited [2012] NSWCA 365; (2012) 92 ACSR 27 - Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd (No 3) [2014] WASCA 132; (2014) 46 WAR 483 Category: Procedural and other rulings Parties: Australian Superfoods & Protein Pty Ltd (Plaintiff) Rejuvacare International Pty Ltd (Defendant) Representation: Counsel: P Cutler (Defendant) Solicitors: Watson Mangioni (Defendant) File Number(s): 2015/29442 Judgment – ex tempore 1. By Originating Process filed on 30 January 2015 the Plaintiff, Australian Superfoods & Protein Pty Ltd (formerly known as Passion Projects (Allyouneedislove) Pty Ltd) ("ASP") applies to set aside a creditor's statutory demand issued by the defendant, Rejuvacare International Pty Ltd ("Rejuvacare") dated 30 January 2015. The Originating Process identifies the application as made under s 459J of the Corporations Act 2001 (Cth). The Originating Process also seeks an order to set aside a Settlement Deed dated 25 November 2014. Rejuvacare points out in submissions, and I accept, that such an order is not appropriately sought in an application to set aside a creditor's statutory demand, which is an interlocutory application directed to a particular matter, and not an occasion for determination of a substantive dispute between the parties as to underlying transactions. In those circumstances, and absent any suggestion that the Settlement Deed has been set aside in substantive proceedings, I proceed on the basis that it continues to bind the parties. 2. There was no appearance for ASP when the matter was called before me. Mr Cutler, who appears for Rejuvacare, has nonetheless approached the proceedings on their merits, and I have been asked to determine them following a substantive hearing on the merits, albeit one that has occurred in ASP's absence when it has not appeared on the occasion the matter was listed. I proceed on the basis that ASP has notice of that listing, since it was represented by Counsel in the Corporations Directions List on 16 February 2015, when the matter was set down for hearing today. 3. Mr Cutler tenders the affidavit of Ricardo de la Vega dated 30 January 2015 (Ex D1) which was led in support of ASP's application to set aside the creditor's statutory demand and has the same date as that application. That affidavit refers to the receipt of the creditor's statutory demand by email, on 9 January 2015, by an employee of ASP. A point appears to be taken that the original was not received at ASP's address, by express post, but it seems to me that nothing turns on that point where the case law establishes that informal service of a creditor's statutory demand may be sufficient, at least where it has come to a party's attention, and ASP has appeared in the proceedings and has not appeared today to take any point as to service. 4. Mr de la Vega's affidavit contains a passage, which appears under the heading "Offsetting Claim" which contends that ASP has an offsetting claim against Rejuvacare. That passage refers to a deed of agreement dated 25 September 2014 to settle a suggested dispute between ASP and Rejuvacare, but then states that: "Since the agreement to settle new unsatisfactory and detrimental issues have arisen that were previously unknown to myself and the company. [ASP] claims that Rejuvacare has caused [ASP] to suffer damages. [ASP] claims that the court should set aside the Settlement Deed." 1. Rejuvacare in turn reads the affidavit of Mr Paul Hely sworn 9 February 2015, which sets out the history of the service of an earlier statutory demand on ASP and refers to a settlement reached between the parties in respect of that earlier creditor's statutory demand. Mr Hely refers to clause 5 of the Settlement Deed which contains a release by ASP of Rejuvacare from all claims that ASP may have against Rejuvacare relating to any of the subject matters of that earlier creditor's statutory demand or the debt on which it was based: "including any Claims arising from [ASP's] purchase for use of the products and any other ingredient supplied by Rejuvacare prior to the date of this Deed." That clause was subject to a term which provided for the release to be discharged upon ASP making specified payments. It appears from the evidence that those payments were not made. 1. Rejuvacare also relies on an affidavit of Mr Michael Lim, a solicitor employed by the solicitors which appear for it, which responds to Mr de la Vega's affidavit sworn 30 January 2015. That affidavit refers to conversations and correspondence leading to the entry of the Settlement Deed. It is not necessary to address that correspondence further, where the Settlement Deed has not been set aside in other proceedings, and ASP did not appear to press any application to set it aside in this application, quite apart from the difficulty noted above that such an application could not properly be heard in the context of an interlocutory application to set aside a creditor's statutory demand. 2. Rejuvacare also reads an affidavit of Mr Hely sworn 23 March 2015 which responded to Mr de la Vega's first affidavit (Ex D1) and also responds to a further affidavit of Mr Alejandro de la Vega sworn 9 March 2015, which was neither read nor tendered in this application. Mr Hely responded to allegations of defects regarding ingredients supplied by Rejuvacare. It is not necessary to address that evidence, at a factual level, since ASP did not appear to seek to establish any such defects, or to contend that it was open to it to do so, in the application before me. 3. Mr Cutler advanced a primary and an alternative argument as to why the application to set aside the creditor's statutory demand should be dismissed. His primary submission was that no evidence was led which was capable of supporting a claim to set aside the demand under s 459J of the Corporations Act, which was the basis on which the application to set aside the demand was brought. That section provides that, on an application under s 459G of the Corporations Act, the Court may by order set aside a demand if it is satisfied that, because of a "defect" (as defined) in the demand, substantial injustice will be caused unless the demand is set aside, or there is some other reason why the demand should be set aside. 4. In the present case, no evidence led, including anything which appears in Ex D1, establishes the existence of any defect in the creditor's statutory demand and ASP, which has not appeared, has not articulated any such defect. I infer, consistent with Mr Cutler's submission, that any application under s 459J of the Corporations Act would be brought on the basis that there is some other reason why the demand should be set aside. A statutory demand may be set aside for some other reason under s 459J(1)(b) of the Corporations Act where it involves some subversion of the statutory scheme, such that the statutory demand is not used to further the purposes or legislative intent of Part 5.4 of the Corporations Act including, for example, by reason of conduct that is unconscionable, an abuse of process or that it would give rise to substantial injustice or where the demand was served for an improper purpose. Putting aside the fact that ASP did not appear, and that Mr de la Vega's affidavit was not read in its case, there is nothing in that affidavit which identifies, with any specificity, any basis to set aside the demand for some other reason. The furthest the affidavit goes is to refer to "new unsatisfactory and detrimental issues" of an unidentified nature previously unknown to Mr de la Vega or, he says, to ASP, and an unidentified and unquantified claim for damages, arising on a basis that is also not identified. That does not seem to me to establish any basis to set aside the demand for some other reason. 5. I infer that additional evidence was intended to be led by ASP to support and expand that claim, since an affidavit to Mr Alejandro de la Vega is referred to in Mr Hely's evidence in reply. However, ASP did not seek to read that affidavit before me. If it had done so, it would have faced a formidable hurdle to which Mr Cutler refers in submissions, namely that what is often referred to as the principle in Graywinter Properties Pty Ltd v Gas and Fuel Corp Superannuation Fund (1996) 21 ACSR 581 at 587 has the effect that it is not sufficient for an affidavit filed within the 21 day period provided under s 459G(3) of the Corporations Act in support of an application to set aside a creditor's statutory demand merely assert the existence of a dispute or offsetting claim, or, by extension, some other reason to set aside the demand, although it is not necessary to lead all the evidence supporting that claim in admissible form. That approach results from the terms of s 459G of the Corporations Act which requires any application to set aside a statutory demand to be brought within 21 days, and to be supported by an affidavit "supporting the application". The Graywinter principle reflects the view that an affidavit cannot support an application unless it identifies the basis on which that application is made. 6. There have been, over the years, some issues as to the strictness with which the Graywinter principle is applied, and the weight of authority favours the view that it is sufficient if an affidavit in fact supports the application, by identifying the ground of challenge of the statutory demand sufficiently, whether directly or by reasonably available inference. There is a further question, recently considered by the Court of Appeal of the Supreme Court of Western Australia in Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd (No 3) [2014] WASCA 132 (2014) 46 WAR 483 as to the extent to which such an affidavit must contain evidence sufficient to permit the Court to estimate the amount of any offsetting claim. It is not necessary to deal with that question in this case, because it seems to me that, on any view, Mr de la Vega's affidavit dated 30 January 2015 simply does not identify the basis of the application to seek to set aside the statutory demand, other than by the wholly unilluminating reference to "new, unsatisfactory and detrimental issues" or the reason why, it is suggested, the Court should set aside the settlement deed. 7. It is therefore possible to deal with the application under s 459J of the Corporations Act on a narrow basis. So far as Mr de la Vega's affidavit dated 30 January 2015 is concerned, it does not establish any basis for such an application. So far as any further evidence might be led in support of such a basis, ASP did not appear to seek to lead it on this application and, had it done so, it is unlikely to have been permitted to do so, by reason of the Graywinter principle to which I have referred. 8. Mr Cutler's alternative submission was made against the contingency that, notwithstanding the terms of the Originating Process, the application would in fact be sought to be brought, not under s 459J of the Corporations Act, but on the basis of an offsetting claim under s 459H(1)(b) of the Corporations Act. Mr Cutler made clear that he made submissions as to that issue only on the basis of a contingency, and it seems to me that he was correct in taking that view. The short answer to any application under s 459H(1)(b) of the Corporations Act is simply that ASP has not appeared to seek to amend its Originating Process, and no question of permitting an amendment arises, when no application for such an amendment is made. 9. I should add, however, for completeness, and in circumstances that Mr Cutler had addressed the issue in written submissions, against the contingency that such an application might be brought, that it seems that Mr de la Vega's affidavit dated 30 January 2015 also does not identify the basis of an offsetting claim with sufficient specificity to support an application to set aside the demand on the basis of such a claim. The mere assertion of unidentified "new and unsatisfactory and detrimental issues" or of "unidentified damages" is not sufficient to identify the basis of an offsetting claim. The ability to expand that assertion, by further evidence, might well also have been confined by the Graywinter principle, raising issues of the kind considered by the Court of Appeal in Infratel Networks Pty Limited v Gundry's Telco and Rigging Pty Limited [2012] NSWCA 365; (2012) 92 ACSR 27 and Pravenkav above. 10. Had an application to amend the Originating Process been pursued, and had that amendment been permitted, notwithstanding the Graywinter principle, which seems to me to be unlikely in all the circumstances, then the application would have faced a further difficulty in establishing that there was a serious question as to an offsetting claim. Mr Cutler drew attention to clause 5 of the Deed of Settlement, to which I have referred above. As he points out in submissions, that clause is specifically addressed to claims arising from the purchase or use of the products prior to the date of the Deed, namely, 25 November 2014. So far as it is possible to infer the nature of any offsetting claim which might be put, at least from Mr Hely's affidavit in response to it, it appears to have arisen from the supply of products, or the purchase or use of products, prior to that date, so as to be extinguished by the release contained in the Deed of Settlement. It is, however, ultimately not necessary for Rejuvacare to establish that matter for the purposes of this application since, as I have noted above, the question of an offsetting claim does not arise in respect of this application, where ASP did not appear to amend its application. 11. For all these reasons, I am satisfied that the application brought by Australian Superfoods and Protein Pty Limited, dated 30 January 2015, to set aside the statutory demand issued by Rejuvacare International Pty Limited dated 9 January 2015 should be dismissed, with costs. [FURTHER SUBMISSIONS MADE AS TO COSTS] 1. I have indicated above that the application to set aside a creditor's statutory demand served by Rejuvacare Pty Limited should be dismissed. I made that order in the absence of ASP, which did not appear to press that application. Mr Cutler, for Rejuvacare, seeks an order that its costs be payable on an indemnity basis. 2. It seems to me that there were significant difficulties with ASP's application to set aside the creditor's statutory demand, including that the affidavit which supported it did not identify any basis under s 459J of the Corporations Act, and those difficulties were exacerbated by the fact that ASP then did not appear to press, in the alternative, an order under s 459H of the Act. Mr Cutler, fairly, accepts that no correspondence was sent to ASP drawing its attention to the difficulty which it faced on the basis of the terms of its application, the nature of the supporting affidavit, and the Graywinter principle. He points out, also fairly, that those difficulties were nonetheless significant. On balance, it seems to me that I should not order indemnity costs, in respect of matters prior to the hearing today, in circumstances that ASP was not squarely put on notice of the matters on which Rejuvacare would rely. However, I do note that the matter is close to one where such an order might have been made, since those matters were on one view apparent from the application to set aside the creditor's statutory demand was filed. 3. Having said that, I am comfortably satisfied Rejuvacare has unreasonably been put to the costs of the hearing before me today, in circumstances where ASP did not appear, did not press any amendment to the Originating Process to seek to support the order setting aside the demand on the basis referred to in the affidavit in support of the application, and, as I have noted, such an amendment was likely to have been refused in any event by reason of the Graywinter principle and the deficiencies in the affidavit sought in setting aside the creditors' statutory demand. The unreasonableness of ASP's approach can be illustrated simply. Had ASP frankly conceded, prior to today, that its application could not succeed, rather than merely not appearing to press it, then Rejuvacare should not have been put to the costs of having counsel prepare written submissions or counsel and solicitor attend for the hearing this morning. For these reasons, I am comfortably satisfied that Rejuvacare should have its costs of and incidental to the appearance today, including the costs of the preparation of a court book and the costs of preparation of submissions, on an indemnity basis. 4. Accordingly I make the following orders: 1. The Plaintiff's application dated 30 January 2015 to set aside a Creditor's Statutory Demand issued by the Defendant dated 9 January 2015 be dismissed. 2. The Plaintiff pay the Defendant's costs of the application, with costs of and incidental to the hearing before Black J on 20 April 2015, including costs of preparation of a court book and of submissions in respect of that hearing, to be paid on an indemnity basis. ********** 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: 03 August 2015