In the matter of Spartan Sporting Goods Pty Ltd [2017] NSWSC 1146

Supreme Court New South Wales

Medium Neutral Citation: In the matter of Spartan Sporting Goods Pty Ltd [2017] NSWSC 1146 Hearing dates: 11 August 2017 Decision date: 11 August 2017 Jurisdiction: Equity - Corporations List Before: Black J Decision: Admit the paragraphs subject to other objections. Catchwords: CORPORATIONS — Winding up — Statutory demand — Application to set aside – whether Graywinter principle precludes Plaintiff from relying on matters that could not have been known to deponent of supporting affidavit when it was due to be filed Legislation Cited: - Corporations Act 2001 (Cth), s 459G Cases Cited: - Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; (2002) 26 WAR 306 - Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452 - Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; (2011) 87 ACSR 1 - Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27 Category: Principal judgment Parties: Spartan Sporting Goods Pty Ltd (Plaintiff) MCG Training Pty Ltd (Defendant) Representation: Counsel: M J Smith (Plaintiff) A L Connolly (Defendant)

Solicitors: Acorn Lawyers (Plaintiff) Bluebells Lawyers (Defendant) File Number(s): 2017/166468

Judgment – ex tempore 1. Objection is taken to paragraphs 8–22 of the affidavit of Mr Galbraith sworn 1 August 2017, as one of several objections to that affidavit, on the basis that those paragraphs infringe what is often referred to as the "Graywinter" principle. I will refer to the content of that principle in one moment. 2. I should first refer to the chronology of events, which highlights a question which may be novel, and as to which Counsel and I have not located authority, in respect of the application of the principle in this case. On 10 May 2017 the Defendant, MCG Training Pty Ltd ("MCG") served a creditor's statutory demand ("Demand") claiming the amount of $103,434.50 on the Plaintiff, Spartan Sporting Goods Pty Ltd ("Spartan"). Under s 459G of the Corporations Act 2001 (Cth), any application by Spartan to set aside the Demand could only be made within 21 days after the Demand was served, and was required to be supported by an affidavit filed with the Court, and the application to set aside the Demand and a copy of the supporting affidavit were required to be served on the person who served the Demand, relevantly, MCG. No point has been raised in this case as to any question of service of the application to set aside the Demand. 3. By Originating Process filed on 2 June 2017, supported by an affidavit of Mr Galbraith, the chief operating officer of Spartan, of the same date, Spartan applied to set aside the Demand under s 759G of the Corporations Act. That affidavit indicated, although parts of it were admitted as submission only, that Spartan was one of three guarantors of the obligations of another entity, Planet Sports Pty Ltd ("Planet Sports"), under an Asset Sale Agreement between Planet Sports and MCG. The affidavit referred to a claim that Planet Sports had not received all that was promised, implicitly under the Asset Sale Agreement, and did not owe MCG what it claimed. The affidavit indicated that, from the information received from, implicitly, Planet Sports, Spartan disputed the debt as claimed in the Demand on the basis that there was, relevantly, a genuine dispute as to its existence. 4. Two days after the date of the Demand, on 12 May 2017, MCG commenced proceedings against Planet Sports and others in the Local Court of New South Wales claiming specified amounts. The substantive claim and the amount of interest claimed in the Statement of Claim correspond to the amounts claimed in the Demand. The Statement of Claim was signed by the solicitor on the record on the same date as the Demand. It appears that the Statement of Claim was served on the Defendants some time prior to 9 June 2017, although the date of service is not clear, because they had filed Defences by 9 June 2017. 5. Mr Galbraith seeks to lead evidence, to which objection is taken, that the managing director of the Plaintiff was served with the Statement of Claim on 20 June 2017, having corrected an earlier reference to 20 May 2017. MCG fairly accepts that that is the case. Mr Galbraith also seeks to lead evidence that, prior to 20 June 2017, Spartan was not aware of the Local Court proceedings, although that evidence is not in wholly satisfactory form, at least so far as it does not indicate whether Mr Galbraith is seeking to distinguish his or the managing director's knowledge, at some previous point, from the Company's knowledge. 6. In any event, as matters stand, it appears that the affidavit in support of the application to set aside the Demand did not refer to the existence of the Local Court proceedings, which had been commenced prior to that date but, on the evidence that Spartan seeks to lead, had not come to Spartan's attention until 20 June 2017, well after the application to set aside the Demand was served. That raises a question, which may be novel, whether the Graywinter principle will shut out reliance on evidence which could not be relied on in the application to set aside the Demand, because it related to an earlier event that was not known, and could not have been known, to the deponent of the affidavit on the date that the affidavit was served. 7. This question needs to be addressed in the context that the Graywinter principle is not merely a principle developed by the case law, but is derived from s 459G of the Corporations Act, which requires that an application be made within the 21 day period after the demand is served and that the affidavit be such as to support that application. In Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452 at 459, Sundberg J noted that the requirement in s 459G(3) of the Corporations Act that there be an affidavit supporting the application to set aside the demand required the affidavit to disclose "material facts" showing that there was a genuine dispute between the parties, and that principle has in turn been applied to prevent reliance on matters which were not disclosed, within the 21 day period, as constituting part of the material facts relied on to establish a genuine dispute. It is common ground between Counsel that the balance of authority establishes that the Graywinter principle raises a fact specific enquiry whether an affidavit in support of an application to set aside a creditor's statutory demand in fact supports that application, and it will do so sufficiently to raise a relevant ground of dispute if that dispute is raised by a necessary or reasonably available inference: Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; (2011) 87 ACSR 1. 8. Mr Smith, who appears for Spartan, in turn draws attention to the decision of the Court of Appeal, Supreme Court of Western Australia, in Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; (2002) 26 WAR 306 at 316, which was approved by Young AJA (with whom Hoeben JA and Ward J agreed) in Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27 at [29]. The Court there accepted that what was required to disclose a dispute may depend upon the extent of a party's knowledge. Mr Connolly, who appears for MCG, responded, with some force, that that decision should be read as indicating that lesser disclosure may satisfy s 459G of the Corporations Act, so far as the operation of that section is reflected in the Graywinter principle, but does not establish that no disclosure can satisfy that requirement. 9. The question whether a dispute is raised within the 21 day period is a matter that goes to the Court's jurisdiction, so far as that arises from s 459G(3) of the Corporations Act and is not a discretionary matter. Here, the first affidavit of Mr Galbraith discloses that the basis of the dispute is that there is a genuine dispute as to the existence of the debt claimed in the Demand, and that genuine dispute is founded on the proposition that Planet Sports did not receive what was to be received under the Asset Sale Agreement. The affidavit does not go further to say that there were proceedings, which were the working out of that dispute, as to whether Planet Sports had received what it claimed to be entitled to receive under the Asset Sale Agreement, and as to MCG's claim for debt against it. The affidavit could not, if Mr Galbraith's evidence is read at its widest, disclose that matter because it was not known to Spartan prior to 20 June 2017, after the affidavit was required to be filed in order to comply with the time limit under s 459G of the Corporations Act. 10. It seems to me that what is required to disclose the dispute must be determined, in its factual context, and that s 459G of the Corporations Act is sufficiently satisfied where what was disclosed is that there was a dispute as to whether MCG was entitled to payment, by reason of what had been delivered to Planet Sports. In this case, the fact that that dispute had at that point generated proceedings, which later came to the attention of MCG, is a particular of the dispute rather than a discrete and unconnected matter. In these circumstances, it seems to me that this matter can be raised consistently with the requirements of s 459G of the Act, as applied by the Graywinter principle. 11. I should add that I more readily reach this view where it avoids a result that seems to me highly inconvenient, for all parties and for the administration of justice. If I had reached the contrary result, and Spartan was not entitled to raise the existence of the proceedings which existed but which were not known to it, in an application to set aside the Demand, then the Court would have had to determine that application on a wholly artificial basis. If that was what s 459G of the Corporations Act required, then the Court would, of course, proceed in that way. Had the Court been required to proceed in that way, then its consequence would have been that the Court should have more readily declined to wind up Spartan, in any subsequent winding up application founded on the Demand, where all relevant matters had not been able to be raised in the application to set aside the Demand. The Graywinter principle would not have prevented that matter being raised, as a matter relevant to the exercise of the Court's discretion, in any subsequent winding up application. It would not have been in the interests of the parties, or the administration of justice, or consistent with the policies underlying the relevant provisions of the Corporations Act, that a dispute of that character, which the Act seeks to have determined in an application to set aside the Demand, should be deferred to the hearing of a winding up application. 12. For that reason, I will admit paragraphs 8–22 of the affidavit of Mr Galbraith, subject to the other objections that are taken to Mr Galbraith's affidavit, to which I must now turn.