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  4. QTM Enterprises (Qld) Pty Ltd v Palmgrove Holdings Pty Ltd - [2023] QSC 85

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QTM Enterprises (Qld) Pty Ltd v Palmgrove Holdings Pty Ltd[2023] QSC 85

QTM Enterprises (Qld) Pty Ltd v Palmgrove Holdings Pty Ltd[2023] QSC 85

SUPREME COURT OF QUEENSLAND

CITATION:

QTM Enterprises (Qld) Pty Ltd v Palmgrove Holdings Pty Ltd trading as Carruthers Contracting [2023] QSC 85

PARTIES:

QTM ENTERPRISES (QLD) PTY LTD ACN 114 040 774

(Applicant)

v

PALMGROVE HOLDINGS PTY LTD TRADING AS CARRUTHERS CONTRACTING ACN 010 575 578

(Respondent)

FILE NO/S:

BS 3215 of 2023

DIVISION:

Trial Division

PROCEEDING:

Application

DELIVERED ON:

2 May 2023

DELIVERED AT:

Brisbane

HEARING DATE:

28 April 2023

JUDGE:

Bowskill CJ

ORDERS:

  1. The statutory demand dated 9 February 2023 is set aside.
  2. The respondent pay the applicant’s costs of the application.  I will hear the parties as to the basis on which the costs are to be assessed.

CATCHWORDS:

CORPORATIONS – WINDING UP – WINDING UP IN INSOLVENCY – STATUTORY DEMAND – APPLICATION TO SET ASIDE DEMAND – where the respondent purported to serve a statutory demand on the applicant, demanding payment of a judgment entered by default – where the company did not become aware of the statutory demand, or the court proceedings leading to the default judgment, until the respondent’s solicitor contacted the son of the director of the applicant by phone and email – whether service of the statutory demand by post addressed to the address of the registered office of the applicant was proved on the evidence – whether the application to set aside was made within the statutory period – where the default judgment has since been set aside – whether the demand should be set aside, on the basis of a genuine dispute about the debt – whether the failure to comply with the prescribed form, by omitting the warning statement, rendered the statutory demand a nullity, or was a defect not affecting the validity of the demand

Corporations Act 2001 (Cth), s 467A, s 459C, s 459E, s 459G, s 459H, s 459J, s 459S

Corporations Amendment Regulation 2007 (No 13) (Cth)

Inter Mining Pty Ltd v Lake Johnston Pty Ltd (2013) 216 FCR 22; [2013] FCA 915

In the matter of AAP Investments (Aust) Pty Ltd [2015] NSWSC 1049

McElligott v Boyce & Ors [2011] QCA 117

Randall Pty Ltd v Chepan Pty Ltd (2009) 73 ACSR 267; [2009] NSWSC 783

Townview Holdings Pty Ltd v Sunstate Design & Construct Pty Ltd [2012] FCA 1296

COUNSEL:

C Coulsen, for the applicant

M White, for the respondent

SOLICITORS:

Romans & Romans Lawyers, for the applicant

Butler McDermott Lawyers, for the respondent

  1. [1]
    In about February 2021, the applicant (QTM Enterprises), a building contractor, entered into a contract with the respondent (Carruthers Contracting) for the carrying out of civil works associated with a proposed industrial development at Caboolture.  The applicant contends the contract was terminated in December 2021.  Carruthers Contracting claims that QTM Enterprises failed to pay two payment claims under the contract, amounting to $88,492.49.  It issued proceedings in the Magistrates Court at Maroochydore in November 2022, seeking to recover that amount, together with interest under the contract. 
  2. [2]
    The claim and statement of claim were served on QTM Enterprises at its registered office, as it appeared in the records held by ASIC at the time (181 Bay Street, Brighton, Victoria).[1]  There was no response received from QTM Enterprises, and no defence filed.  In fact, QTM never received notice of the Magistrates Court proceedings.[2] 
  3. [3]
    Carruthers Contracting obtained default judgment on 24 January 2023, for the amount of its claim, together with interest and costs, totalling $92,252.75.
  4. [4]
    It then purported to issue a statutory demand to QTM Enterprises, relying upon the default judgment.
  5. [5]
    Although the respondent’s solicitor says he caused the statutory demand to be sent, by post, to the registered office of QTM Enterprises on 9 February 2023 (a matter to be discussed further below) the statutory demand did not in fact come to the attention of QTM Enterprises until 7 March 2023, when the respondent’s solicitor sent an email to QTM Enterprises.
  6. [6]
    The email was sent on 7 March 2023 by Mr King, of Butler McDermott (solicitor for the respondent) to the applicant – at the email address [email protected] – to the attention of David Langton[3] (the son of the director of the applicant).  The email attached what was described as a copy of the firm’s letter dated 9 February 2023, and an “office copy of the statutory demand which was enclosed with that letter”.  In the email, Mr King said “I confirm that my instructions are to proceed with an application for the winding up of QTM unless the total amount owing is paid immediately”.  This was the first time QTM Enterprises became aware of the Magistrates Court claim and the statutory demand.[4]
  7. [7]
    On 14 March 2023, the applicant filed the present application in this Court under ss 459G, 459H and 459J of the Corporations Act 2001 (Cth), claiming:
  1.  A declaration that the purported creditor’s statutory demand was not served on the applicant;
  1.  A declaration that the purported creditor’s statutory demand is not a demand within the terms prescribed by s 459E of the Corporations Act;
  1.  Alternatively, an order that the creditor’s statutory demand be set aside pursuant to s 459H(1)(a) of the Act or s 459J of the Act; and
  1.  An order that the respondent pay the applicants costs of the application on the indemnity basis.
  1. [8]
    Also on 14 March 2023, the applicant filed an application in the Magistrates Court, seeking to set aside the default judgment.  The default judgment was set aside on 24 April 2023.
  2. [9]
    On 16 March 2023, the respondent filed an application in the Federal Court, for winding up of the applicant on the grounds of presumed insolvency (relying upon the failure to comply with the statutory demand).  The applicant has filed a notice of appearance in those proceedings, objecting to the winding up on the basis that the company is solvent and that the presumption of insolvency has not arisen (because of the challenge to validity of the purported statutory demand, and service of it).  The hearing of the application in the Federal Court has been adjourned to 5 May 2023. 
  3. [10]
    When the application came on for hearing in this Court on 28 April 2023, the applicant sought and was given leave to file an application to transfer this proceeding to the Federal Court, on the basis of the commonality of issues to be determined in this Court and the Federal Court.  The respondent opposed the transfer of the proceedings, on the basis the application is “doomed to fail” because it was not filed within the strict 21 day time period and there is therefore no utility in the transfer.  In circumstances where I was in a position to give judgment on the application in a timely way, and before the next return date of the application in the Federal Court, and given the nature of the issues to be determined, I considered it appropriate to proceed to hear and determine the application, rather than transfer the proceeding to the Federal Court.

When was the statutory demand served?

  1. [11]
    It is appropriate first to address the issue of when the statutory demand was served – given the point(s) taken by the respondent, both about the timing of the present application and, in any event, that the applicant is prevented from challenging the validity of the statutory demand on an application filed outside the 21 day time period.
  2. [12]
    Section 459G(1) provides that a “company may apply to the Court for an order setting aside a statutory demand[5] served on the company”.  Section 459G(2) provides that such “an application may only be made within the statutory period after the demand is so served”.  The statutory period is 21 days.
  3. [13]
    On the respondent’s argument, the statutory demand was served on 13 February 2023 (the date the envelope posted by someone in the respondent’s solicitor’s office is said to have been delivered to 181 Bay Street, Brighton, Victoria).  If that is right, the present application was not filed within the statutory period.  But on the applicant’s argument, the respondent has not proved that the statutory demand was served then, and as the document only came to its attention on 7 March 2023, the present application is well within time.
  4. [14]
    The evidence in relation to service of the statutory demand is contained in the affidavit of Mr King (filed by leave 28 April 2023).
  5. [15]
    Mr King says that “on 9 February 2023 I caused a letter to be sent to the Applicant’s registered office at 181 Bay Street, Brighton in the State of Victoria”.  He says that the letter enclosed (had with it) a statutory demand of that date and a certified copy of the default judgment. 
  6. [16]
    Mr King says the letter and the enclosures were “sent at around 4.15 pm within a prepaid registered post envelope”.  Mr King does not explain where his knowledge of that time comes from (apart from a generic statement at the start of the affidavit that he is able to depose to the matters stated “from my knowledge of the conduct of this matter, including by reference to the records and information contained within my firm’s file”).  I infer that the time comes from the Australia Post tracking document annexed to his affidavit,[6] which shows an item with the tracking number was (perhaps received by, or lodged with Australia Post – it is not clear) at Nambour at 4.25 pm on 9 February 2023.
  7. [17]
    Mr King says that, prior to the letter (and enclosures) being placed into the envelope, an “office copy of it was taken for my firm’s records”.  He annexes what he says is that office copy (exhibit BK-2).  Exhibit BK-2 includes the letter of 9 February 2023, the statutory demand (signed) and the default judgment.[7]  Interestingly, when Mr King sent the email to QTM Enterprises on 7 March 2023, he also attached what he described as an “office copy of the statutory demand” – but the document provided with that email was not signed,[8] a matter which was drawn to Mr King’s attention by the applicant’s solicitor by letter of 9 March 2023.  There was no explanation in the material for why there would be different “office copies” of what was purportedly sent by mail on 9 February 2023.
  8. [18]
    Mr King also says that, at or around the time of the letter (and enclosures) being placed into the envelope, another “office copy” of the first page of the letter was taken, and the Australia Post tracking label was affixed to that office copy (exhibit BK-3).
  9. [19]
    The respondent relies upon the “tracking” information provided by Australia Post to prove delivery of the envelope to the registered office of the applicant.  That information indicates an item, bearing the registered post number shown on exhibit BK-3, was delivered to “BRIGHTON VIC” on 13 February 2023, at 2.20 pm – but no (receiver) company name, address, or name of the recipient is recorded.  As “delivery proof” there is a printed signatory name “P Officer” and an unrecognisable scribble purporting to be a “signature”.[9]  It is reasonable to infer “P Officer” is a reference to “Proper Officer”, to which the letter of 9 February 2023 was addressed (that is, it is not the name of a person).  There is no evidence about whose signature appears on the Australia Post record. 
  10. [20]
    There is also doubt about where the letter may have been delivered.  The letter itself was addressed to:

Proper Officer

QTM Enterprises (Qld) Pty Ltd

181 Bay Street

Brighton VIC  3186

  1. [21]
    That was, at least as at 9 February 2023, the address provided for the registered office of the applicant in the ASIC Records.[10]  It seems the address was inaccurately recorded, when the applicant’s former accountant lodged a change of address form with ASIC.  The address was supposed to be the address of the applicant’s new accountant, which was “First Floor, 181 Bay Street, Brighton Victoria 3186”.[11]  The ASIC record, to which the respondent’s solicitor had regard as at 17 January 2022, actually shows (under “registered office”) the notation “ASIC MAIL RETURNED 29/07/2020 181 **BAY STREET BRIGHTON VIC 3186”.[12]
  2. [22]
    In any event, all that the Australia Post record proves is that something was delivered to “Brighton VIC”.[13]  There is no evidence of what address was shown on the envelope which was delivered (nor of the actual address, or person or entity, to which the item was delivered).
  3. [23]
    Nor, importantly, is there evidence of what was put in the envelope which was sent in the post.  All that Mr King says is that he “caused” a letter, with enclosures, to be sent in the post.  He did not do it himself.  And there is no evidence from any person who did.   The solicitors knew this was important.  This is abundantly clear from a handwritten note on the copy of the front page of the letter of 9 February 2023 (to which the registered post sticker was affixed), which said:

“Please take a very detailed file note about:

  • –Who is posting the statutory demand;
  • –What time it was sent;
  • –What was sent; and
  • –How it was sent.

Very important!

If unsure, please speak to Zayne”.

  1. [24]
    Failure to comply with a statutory demand, or apply to set it aside within the statutory period, carries serious consequences – the presumption of insolvency,[14] which is relied upon by the respondent here, to support its application in the Federal Court to wind up the applicant company; and the restriction on the company opposing the winding up application on grounds that could have been relied on for the purpose of an application to set aside the statutory demand, without leave of the court.[15]
  2. [25]
    As is well established, the statutory period referred to in s 459G(2) for an application to set aside a statutory demand is construed strictly.[16]  In light of that, it is appropriate to adopt a strict approach to proof of service of a statutory demand. 
  3. [26]
    As helpfully summarised by Sifris J in Chen v Kornucopia Pty Ltd [2019] 59 VR 305 at [43], a serving party who seeks to rely on the presumption of delivery provided for by s 29(1) of the Acts Interpretation Act 1901 (Cth), in conjunction with s 109X(1)(a) of the Corporations Act, must establish the following facts, by either direct evidence, or inference from the evidence:
    1. (a)
      proof that the envelope bore the correct name and address;
    2. (b)
      proof that the envelope contained the relevant document to be served;
    3. (c)
      proof that the envelope bore the correct cost of postage; and
    4. (d)
      proof that the envelope was placed in the post.
  4. [27]
    Here, counsel for the respondent emphasises the evidence (from the Australia Post documentation) that the item posted was delivered – so that, he submits, the respondent is not relying on the presumption of delivery under s 29 of the Acts Interpretation Act.  But that does not address the absence of proof of the matters in (a) and (b) – that the envelope bore the correct name and address and that the item posted contained the relevant document(s) to be served.  In the absence of proof of those facts, there is no evidence of what was delivered.[17]  Nor for that matter is there evidence of where the item was delivered (other than Brighton).
  5. [28]
    The respondent has not proved service of the statutory demand by mail sent on 9 February 2023.
  6. [29]
    It is uncontroversial, however, that the statutory demand was informally sent to the applicant by email on 7 March 2023.  Adopting that as the date of service, the application to set it aside is within the statutory period and is a competent application.

The statutory demand should be set aside

  1. [30]
    Having regard to the evidence of the applicant’s director, Mr Langdon, and the fact that the default judgment has now been set aside, I am satisfied the statutory demand should be set aside, under s 459H(1)(a) (that there is a genuine dispute between the applicant and the respondent about the existence of the debt to which the demand relates).
  2. [31]
    Whilst the respondent argued strenuously that the Court should not entertain the application at all – because of the contention that it was made outside the statutory period (a contention I have rejected, for the reasons above) – it did not contend there was no genuine dispute about the alleged debt.  That is plainly correct, in circumstances where the default judgment, the basis on which the statutory demand was issued, has since been set aside.[18] 
  3. [32]
    For completeness, I record that in the course of the hearing of the application on 28 April 2023, I questioned the parties as to the practicality of both parties incurring legal costs in proceedings in this Court and in the Federal Court, in circumstances where the only basis for the presumption of insolvency said to support the winding up application is the failure to comply with the statutory demand; the default judgment underpinning the statutory demand has since been set aside; and there are now proceedings on foot in the Magistrates Court in relation to the disputed claim by Carruthers Contracting against QTM Enterprises.  I asked whether consideration had been given to QTM Enterprises paying the disputed amount into court (presumably, the Magistrates Court), the parties agreeing to abandon the insolvency proceedings, and just deal with the substantive dispute between them on its merits.  The parties had apparently not considered that previously. 
  4. [33]
    In any event, in light of the conclusions I have reached on a substantive consideration of the application before me, there is no justification for the imposition of any condition upon the order setting aside the statutory demand[19] (such as payment of the disputed amount into court) where the default judgment previously relied upon has been set aside.  In this regard, I agree with the observations of Black J in In the matter of AAP Investments (Aust) Pty Ltd [2015] NSWSC 1049 at [16] that:

“It seems to me to be wholly inconsistent with the purpose of the creditor’s statutory demand regime that a party could rely on that regime, to seek to obtain payment of a debt arising from a judgment of a court, after that judgment no longer has effect.  I would add that no reason for payment into court to secure a judgment debt can arise, where the judgment debt no longer exists.”

  1. [34]
    It is therefore appropriate to order that the statutory demand be set aside. 

Other points raised by the applicant

  1. [35]
    My conclusions above obviate the need to address a number of other arguments raised by the applicant.  I will however address two of them.

Statutory demand a nullity because it failed to comply with the prescribed form

  1. [36]
    If the statutory demand had been proved to be served at the time the respondent contended, the present application would be out of time.  The structure of the relief sought by the applicant in the present application was intended to address this possibility.  That is, the applicant contended that, even if the application was outside the statutory period, it was open to it to claim declaratory relief on the basis of invalidity of the statutory demand.
  2. [37]
    The applicant submitted the purported statutory demand was invalid for failure to comply (or substantially comply) with the prescribed form; and as such was not a statutory demand at all. 
  3. [38]
    The statutory demand relied upon in this case is in the form of Form 509H as it was prior to the amendment of the Form by the Corporations Amendment Regulations 2007 (No. 13) (Cth).  That amendment included in Form 509H a clear warning, in bold text, as follows:

“A failure to respond to a statutory demand can have very serious consequences for a company.  In particular, it may result in the company being placed in liquidation and control of the company passing to the liquidator of the company.”

  1. [39]
    The explanatory statement to the amendment regulation, by which this change was introduced, included the following:

“Failure to comply with a statutory demand can have serious consequences for a company, including potentially being wound up in insolvency.  Each year applications to a court for termination of windings up are made in circumstances where the company is solvent, but the statutory demand was either not brought to the attention of the relevant officers or its significance was not recognised.

Form 509H will be amended so that there is a clear warning on its face stating that a failure to respond to a statutory demand can have very serious consequences for a company.”

  1. [40]
    Transitional provisions made at the time permitted the previous version of the form to continue to be used for 12 months after commencement of the amendment regulations.[20]  However, from 1 January 2009 (some 14 years ago), it was only the new Form that was to be used.
  2. [41]
    Section 459E(2)(e) of the Corporations Act requires that a demand under that provision “must be in the prescribed form”.  By operation of s 25C of the Acts Interpretation Act 1901 (Cth), strict compliance with the form is not required and substantial compliance is sufficient.
  3. [42]
    The applicant argued that the failure to use the correct form, so many years after it was introduced, omitting an important warning statement that was deliberately introduced to draw attention to the potentially serious consequences of failing to deal with a demand (either by paying, or applying to set it aside, within time), is not a “defect” in the statutory demand (within the meaning of s 9), but in fact affects the validity of the demand, with the result that such a document is not a “statutory demand” within the meaning of the Act.  Accordingly, the applicant argued, it was not prevented from challenging the statutory demand on this basis, outside the statutory period.
  4. [43]
    There are conflicting authorities in relation to, first, whether the omission of the warning statement is a “defect” (such that s 459J and s 467A apply) or more fundamentally affects the validity of the demand; and, in either case, whether it provides a basis for setting aside a (purported) demand, under s 459J(1)(a) or (b), or dismissal of an application for winding up under s 467A.
  5. [44]
    In McElligott v Boyce & Ors [2011] QCA 117, the Court of Appeal (Muir JA, Chesterman and White JJA agreeing) refused an application for an extension of time in which to file a notice of appeal from a decision to wind up a company, Westwood, which had relied upon failure to comply with a statutory demand.  The application for an extension of time to appeal was on the basis, inter alia, of “late discovery of a serious defect in the statutory demand”.  The defect was the same as in this case – that the demand was not in the correct form, omitting the warning statement.
  6. [45]
    As recorded in [7] of the reasons of Muir JA:

“When the application [for winding up] came on for hearing Butler McDermott was represented by counsel.  The applicant was given leave to appear on behalf of Westwood.  The applicant filed no affidavits and did not tender any documents.  It was clear from the evidence that the statutory demand had been served on Westwood by registered post no later than 14 July 2009.  There being no material before him to cast doubt on the existence of the debt alleged in the statutory demand, no evidence of Westwood’s solvency and no contention that the statutory demand was defective, the primary judge made the orders referred to earlier [for the company to be wound up in insolvency].”

  1. [46]
    In relation to the omission of the warning statement, Muir JA said, at [12]:

“A defect in the form of a statutory demand is not necessarily fatal to the validity of a statutory demand in the absence of proof of substantial injustice.[21]  The absence of the warning statement has been held not to require the setting aside of a statutory demand.[22]  There is no basis for concluding that the absence of the warning statement led to any injustice to Westwood, substantial or otherwise.  There is clear evidence that the debt supporting the statutory demand was due and owing. Moreover, the applicant admitted that Westwood had no assets…”

  1. [47]
    In any event, the fact that the point had not been raised at first instance and, if it had, in the circumstances of that case the creditor company could have amended the grounds for the winding up application (there being clear evidence of insolvency in any event) was a powerful discretionary factor against granting an extension of time to appeal on this basis (at [14]-[18]).
  2. [48]
    The statutory demand considered in Randall Pty Ltd v Chepan Pty Ltd (2009) 73 ACSR 267 (relied upon in McElligott) was similarly deficient in that it omitted to include the bold warning statement.  The statutory demand was issued on the basis of a judgment debt, and it was accepted by counsel for the plaintiff (applicant) that there was no genuine dispute that the judgment debt was due and payable (see at [9]).  There was an application to set aside the statutory demand, inter alia, on the basis that it was not in the prescribed form.  In that regard, White J said:

“13 … there was no question but that the omission of the required warning was a defect in the demand.  But the demand is not liable to be set aside on that account unless failure to do so would cause substantial injustice.[23]  There was no evidence that the omission of the required warning had any impact on the plaintiff.  That is to say, there is no evidence that the plaintiff omitted to do anything it would have done, or that it did anything it would not have done had the required warning been included.” [emphasis added]

  1. [49]
    Whilst White J did not regard the omission of the warning statement from the statutory demand as something that would justify setting aside the demand – upon an application made within time – his Honour expressed the view that it would be something to be taken into account, on an application for leave under s 459S, where a company which genuinely disputes the alleged debt which underpins the demand did not manage to make the application within time.  In this regard, White J said:

“16 … If a company which receives a statutory demand genuinely disputes the claimed debt, and if the claimed debt is material to proving the company’s solvency, then the company may seek leave of the court to oppose a winding-up application on a ground on which the company could have relied to set aside the demand had the application been made within time: s 459S.

17 It is true, as counsel for the plaintiff submitted, that it will be difficult for the company to show that the absence of the required warning was itself a sufficient ground on which it could have relied on an application to set aside the statutory demand had the application been made within time, because of the difficulty of proving in a case brought within time that the defect through the omission of the warning would occasion substantial injustice if the demand were not set aside.  But where the company would have been entitled, had the application been made in time, to have the statutory demand set aside on the ground there was genuine dispute as to the debt, the absence of the prescribed warning might well be significant in persuading the court to exercise its discretion under s 459S to grant leave.  One of the issues required to be taken into account in exercising the discretion to grant leave under s 459S(1) is the reason the issue of indebtedness was not raised in an application to set aside the demand.” [emphasis added]

  1. [50]
    White J went on to say:

“18 It is also possible to envisage other instances where a recipient company which applies within time to set aside a statutory demand that omits the required warning, could establish substantial injustice within s 459J(1)(a) if the demand were not set aside.  Thus, if the omission of the warning caused the officers or directors of the company to delay in obtaining legal advice such that a rushed application to set aside the statutory demand within time had to be made, and the supporting affidavit omitted grounds of genuine dispute such that the company was thereafter precluded from raising those grounds on the principle in Graywinter Properties Pty Ltd  v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452; 21 ACSR 581, then it might well be found that the omission of the required warning was a basis for setting aside the demand pursuant to s 459J(1)(a).

19 Thus, I do not accept that there would be no effective sanction against non-compliance with the 2007 Regulation if an applicant relying upon such a defect were required to prove that the defect had some effect, adverse to it, on the way it acted or omitted to act…

20  Here, no injustice was occasioned by the defect, substantial or otherwise, and I do not see that any injustice will be caused to the plaintiff if the demand is not set aside.”

  1. [51]
    White J clearly regarded the omission of the warning statement as a “defect”, and therefore that it was only s 459J(1)(a) that applied (not s 459J(1)(b)).  But his Honour said that even if s 459J(1)(b) were available, “the omission of the warning would not provide ‘some other reason’ why the demand should be set aside (at [21]).
  2. [52]
    Following White J’s decision, dismissing the application to set aside the statutory demand, the debtor company made an application under s 459F for an extension of the period for compliance with the statutory demand.  That was considered by Barrett J, in Randall Pty Ltd v Chepan Pty Ltd [2009] NSWSC 848.  One of the matters Barrett J was required to consider was the prospects of a successful appeal against White J’s decision and whether an arguable case had been shown.  His Honour found that the proposed ground of appeal (that a defect comprising the omission of the warning statement ought to render a purported statutory demand liable to being set aside, regardless of whether substantial injustice to the particular company concerned was shown) was “unarguable”.
  3. [53]
    An approach consistent with Randall v Chepan was also adopted by Jacobson J in Sugarmill SL v Nomis Sports Innovations Pty Ltd [2011] FCA 1285 at [5] and by Brereton J in Re Pro Carwash Pty Ltd [2012] NSWSC 1289 at [11]-[14].[24]
  4. [54]
    A different approach was taken in Townview Holdings Pty Ltd v Sunstate Design & Construct Pty Ltd [2012] FCA 1296, a decision of Greenwood J given the same day as the hearing.  This case involved an application to wind up a company, founded upon a contended failure on the part of the defendant company to comply with a statutory demand.  The form of the statutory demand did not comply with the prescribed form, again because it omitted the warning statement.  It appears Greenwood J’s attention was not drawn to any of the earlier authorities that had considered the effect of such a non-compliance, including White J’s decision in Randall v Chepan and the Court of Appeal’s decision in McElligott v Boyce.[25]  In fact, his Honour was expressly informed by counsel that there were no previous cases that had considered the point.  His Honour proceeded to deal with the question of the effect of non-compliance with the prescribed form by construing the relevant provisions, commencing with s 459E(2).  His Honour said:

“14 Use of the prescribed form is a mandatory requirement because the language of s 459E(2) provides that the demand must be in the prescribed form (if any), and there is a prescribed form which gives particular emphasis to the matters addressed by the warning notice.  In this context, it would be odd to dismiss the omission of the warning notice as an inconsequential, immaterial irregularity in circumstances where the form was amended expressly for the purpose of fixing the attention of the debtor on the important consequences flowing from a failure to deal with the notice.  Section 25C of the Acts Interpretation Act 1901 (Cth) provides that where an Act prescribes a form, then, unless the contrary intention appears, strict compliance with the form is not required and ‘substantial compliance’ is sufficient.  It would, in my view, be impossible  to conclude that there has been substantial compliance with the prescribed form in circumstances where the form used by the creditor omits the important warning notice to the debtor, in light of the amendment to the regulations in 2007 which as I have already mentioned commenced in full force (after the transitional period) on 1 January 2009.” [emphasis added]

  1. [55]
    In Townview Holdings, the company had not applied to set aside the statutory demand; but on the application for winding up under s 459P, sought dismissal of the application on the ground the omission of the warning notice went beyond a mere “defect” in the demand or a mere “irregularity” in the application as contemplated by s 467A(a) or (b).  Justice Greenwood said:

“17 It may be that the failure to incorporate the warning notice was central to the failure of the company to make an application under s 459J in relation to the statutory demand itself.  Such a consequence seems to have been one of the motivating factors in the amendment to the regulations so as to ensure that the significance of the consequences of non-compliance were brought to the attention of officers of the company.

18 A defect is defined by s 9 to include, in relation to a statutory demand, ‘an irregularity; and a misstatement of an amount or total; and a misdescription of a debt or other matter; and a misdescription of a person or entity’.  However, I am not satisfied that the omission of the important warning notice can simply be characterised as an irregularity.  The omission does not amount to a mere defect in the notice.  It seems to me that the failure to incorporate the warning notice is fatal to the validity of the notice as the warning notice is central to the operation and efficacy of the notice.  In circumstances where the statutory demand fails as a valid demand (that is, the demand cannot operate as a valid demand from the outset) because the demand does not warn the recipient in the mandatory manner which is central to its efficacy, s 459S(1)(b) has no prohibitory operation as the omission goes beyond a mere defect in the demand.

19 It follows that service of an invalid notice cannot give rise to a presumption of insolvency upon non-compliance with the demand and thus the ground of winding up falls away.  It therefore necessarily follows that the winding up application cannot succeed and must be dismissed.”

  1. [56]
    The approach taken in Townview Holdings has not been followed in subsequent decisions.  In Inter Mining Pty Ltd v Lake Johnston Pty Ltd (2013) 216 FCR 22, McKerracher J declined to do so and, following a careful analysis of the authorities and legislation, held that the omission of the warning statement is a defect in the statutory demand; but the demand is not a nullity (at [28]); and a defect in a statutory demand only amounts to a ground to set it aside where it causes substantial injustice (at [40]). 
  2. [57]
    In addressing Townview Holdings, McKerracher J said:

“32 It would appear that the Court in Townview was not referred to a number of prior authorities, including one decision of an intermediate appellate court, in which courts had held that the omission to provide a boxed warning was a defect only.  Thus the statutory demand was not invalidated unless there was substantial injustice.  The Court in Townview expressly relied on the assurance from counsel that there were no relevant authorities.  If the assurance to the Court was confined to the issue of whether the demand was a nullity, not merely defective, then it may have been correct.  It may be accepted entirely that there is a slight difference between the ‘defect’ approach and the ‘nullity’ approach and that reasonable minds might differ on which approach is to be preferred.  None the less, the earlier authorities (including those that conclude that the magnitude of the defect is no longer the issue), appear not to have been cited to the court (and are not mentioned in the reasons which were given on the day of the hearing).  That may be because counsel submitted that ‘this application may well be the first to confront the question’ on which his researches had revealed no precedent…  In my respectful assessment it is likely that had the court been taken to those authorities, it would have referred to and considered them.  It is difficult to conclude that they were not at least in the broader sense ‘dealing with this question’ of whether the omission of the warning rendered the demand invalid.  On proper analysis of the authorities, in my view, McElligott is binding on me.  It is not apparent that the court was referred to McElligott in Townview.  I consider I must follow McElligott.”

  1. [58]
    Justice McKerracher also considered the definition of “statutory demand” in s 9 – as a document that is, or purports to be, a demand served under s 459E (at [33]); the broader policy of the legislative regime surrounding statutory demands, including the intention for disputes to be resolved on the basis of the commercial justice of the matter rather than on the basis of technical deficiencies (at [35]); and that whilst s 459E(2)(e) provides that a statutory demand “must” be in the prescribed form, strict compliance is not required and substantial compliance is sufficient (at [36]).  His Honour also referred to the observation of Lockhart J in an earlier case (Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226), that the concept of “defect” is not confined to minor defects or irregularities, and includes major defects (at [37]-[38]), leading his Honour to conclude that:

“40 … Where a statutory demand lacks something essential for completeness that circumstance, even if major, is a mere defect.  As noted in Topfelt, a demand will be a ‘statutory demand’ as long as it meets the s 9 definition even if it contains one or more defects.  A defect in a statutory demand only amounts to a ground to set it aside where it causes substantial injustice:  s 459J(1)(a).”

  1. [59]
    As McKerracher J observed at [42]:

“All of this is not to say that a demand could never be a nullity.  Although the issue is not presently relevant, it is to be noted that courts have alluded to the possibility that a demand may be so fundamentally defective that it would not be treated as a statutory demand and, therefore, it will be a nullity: see, for example, Topfelt (at FCR 238); Kalamunda (FCR 452); 2020 Construction Systems Pty Ltd v Dryka & Associates Pty Ltd [2010] WASC 22 (at [39], [40]–[43]). However, that can only occur in the ‘very rare’ case where the demand falls outside anything that could be a purported demand for the purpose of the s 9 definition of statutory demand: Dromore Fresh Produce Pty Ltd v W Paton (Fertilizers) Pty Ltd (1997) 137 FLR 307 (at 311) per Young J. The deficiencies would have to be of a ‘gross and exceptional character’: Crema Pty Ltd v Land Mark Property Developments Pty Ltd (2006) 58 ACSR 631 (at [110]) per Dodds-Streeton J. Since Kalamunda it has been accepted that if a demand professes or claims to be a demand served under s 459E, then it is a statutory demand notwithstanding any defects.”

  1. [60]
    In Poolrite Australia Pty Ltd (in liq) v Structural Pools Aust Pty Ltd (2013) 217 FCR 50, Rangiah J agreed with McKerracher J’s analysis in Inter Mining, and also considered he was bound to follow McElligott.  Rangiah J said at [13] that the decision of the Court of Appeal in McElligott “that the omission of the warning box was a defect in the statutory demand does not leave room for the view that the omission is fatal to the validity of the demand” and observed that if the earlier authorities had been drawn to Greenwood J’s attention, his decision may well have been different.
  2. [61]
    Because of my conclusions (a) that the application is within time; and (b) that the statutory demand should be set aside under s 459H(1)(a), this question of the effect of failing to comply with the prescribed form becomes academic.  Nevertheless, the matter having been argued before me, and having considered the authorities, with all due respect, if I was required to decide the point, I would not follow Townview Holdings, having regard to the persuasive and, in the case of McElligott, binding, weight of the authorities which have arrived at a different conclusion – namely, that the omission of the warning statement is a “defect”, even if a major one, within the meaning of s 9 of the Corporations Act, such that a statutory demand with such a defect is not a nullity.
  3. [62]
    All of that being said, so many years after a new prescribed form was introduced, it really defies belief that a firm of solicitors (and one which was involved in McElligott v Boyce) would still be using the incorrect form, omitting the warning statement.
  4. [63]
    And it is not to say the omission is irrelevant.  In the context of an application made within the statutory period, if the omission can be shown to have caused substantial injustice – because, for example, the demand was served at a place recorded as the registered office of the company, where the person receiving it would not otherwise be aware of the imperative of making sure it was passed onto the company in a timely way [which may have been the case here, had it been shown that the document was actually served] – it may justify setting aside the demand under s 459J(1)(a).  And, where an application has not been made within time, the omission may support the grant of leave under s 459S, at least where, as here, the company can show there is a genuine dispute about the underlying debt, as explained by White J in Randall v Chepan at [17].

Doctrine of fair notice

  1. [64]
    In the event its application was found to be out of time, the applicant also sought to call in aid what it described as the “fair notice” doctrine, said to be based upon the comments of Palmer J made in Woodgate v Garard Pty Ltd (2010) 239 FLR 339 at [44].  In that paragraph, Palmer J summarised the principles in relation to aspects of service of documents on a company.  The summary included the following:

“where a creditor serves a statutory demand in a prescribed mode and:

  • –knows, at the time of service or before the s 459G(3) period expires, that the demand has not actually come to the attention of the company;
  • –knows that the company would dispute the demand if made aware of it;
  • –refrains from bringing the demand to the actual notice of a responsible officer of the company within the s 459G(3) period; and
  • –relies on good service of the demand and the presumption of insolvency arising under s 459C(2)(a),

the court may, in its discretion and in the interests of justice, set aside the statutory demand under s 459J(1)(b), not for want of good service but for want of fair notice…”

  1. [65]
    As I read Woodgate it is not authority for the proposition that the Court could do that, in an application (to set aside the statutory demand) made at any time.  On the facts in that case, the statutory demand was sent on 31 July 2009 by registered post to an address which had, a month before, ceased to be the company’s registered office (so that service by post to that address was not effective service).  One of the company’s two directors collected the letter from Australia Post later, and wrote to the creditor acknowledging receipt of the demand on 13 August 2009.  The company’s other director did not become aware of the demand until late September 2009.  No application to set aside the demand was ever made; and the company instead sought to oppose the winding up application, not on the basis of evidence of its solvency, but on the basis that it was not duly served with the demand.  It was in that context that the question of service, and “fair notice” came to be addressed.  Palmer J held that the statutory demand actually came to the attention of the company, through the first director, on 13 August 2009, and the time for either paying the demand, or applying to set it aside, was to be calculated from that date.  As neither of those things had been done, within the requisite time period, the creditor was entitled to rely upon the presumption of insolvency arising under s 459C(2)(a) (at [46]). 
  2. [66]
    An important distinction between Woodgate and the present case, however, is that the initial attempt at service by post was ineffectual – because the document was sent, by post, to an address which was no longer the registered office.  Here, the address was the registered office, according to the ASIC records.  Even if that was incorrect (because it left out “first floor”), the responsibility for that falls on the applicant.[26]  Others are entitled to act on the basis of an assumption that the records held by ASIC are correct.[27]  Accordingly, had I reached a different conclusion about service of the statutory demand – that is, had I concluded that service, by post, of the statutory demand to the address of the registered office of the applicant (as recorded in the ASIC records) had been proved, with delivery effected on 13 February 2023, the application would be out of time, and the observations of Palmer J in Woodgate would not assist the applicant, on the present application.[28]
  3. [67]
    The observations may, however, have been able to be relied upon, as supporting the grant of leave under s 459S, to oppose an application for winding up in reliance upon the failure to comply with the statutory demand (for similar reasons to those discussed by White J in Randall v Chepan). 
  4. [68]
    That conclusion is supported by the facts that, in the present case, the respondent:
    1. (a)
      was on notice that there was a possibility documents sent to the registered office would not come to the attention of the company, because:
      1. of the notation, in the ASIC records, that ASIC mail had been returned; and
      2. there had been no response at all to service of the Magistrates Court proceedings;
    2. (b)
      would, I infer, have been aware that there was likely to be a dispute about the claim, given that the claim relates to variations under a contract, for work undertaken between September 2021 and April 2022, and from May 2022 to September 2022, in circumstances where it appears the contract was terminated in December 2021;[29]
    3. (c)
      had the means of contacting the applicant company in a manner which would have ensured the legal proceedings, and the statutory demand, came to its attention – on the basis of its previous commercial dealings with the applicant and as evidenced by the fact that the respondent’s solicitor contacted the applicant and spoke to the director’s son by phone and email on 7 March 2023;
    4. (d)
      by the time it filed its application to wind up the company, on 16 March 2023, was aware that the applicant had not previously been aware of the Magistrates Court proceedings or the statutory demand, and had already filed an application to set aside the default judgment and the statutory demand;
    5. (e)
      does not dispute that there is a genuine dispute about the claimed debt – particularly now in circumstances where the default judgment has been set aside; and
    6. (f)
      does not rely on anything other than the presumption of insolvency, arising from failure to pay the statutory demand, to support the winding up application.
  5. [69]
    In any event, on the basis of the conclusions I have otherwise reached, about service of the statutory demand, such that the application is competent and that there is a genuine dispute about the claimed debt, I will order that the statutory demand dated 9 February 2023 be set aside. 
  6. [70]
    It is appropriate that the respondent pay the applicant’s costs of the application, but I will give the parties the opportunity to be heard in relation to the basis on which those costs are assessed.

Footnotes

[1]  Affidavit of Festa (CFI 2) at pp 14-15 of the exhibits (copy affidavit of service of Buckley).

[2]  Affidavit of Langdon (CFI 3) at [5].

[3]  Sic, Langdon.

[4]  Affidavit of Langdon (CFI 3) at [5].

[5]  Under s 9, “statutory demand” is defined to mean “a document that is, or purports to be, a demand served under section 459E”.

[6]  Affidavit of King, p 14 of the exhibits.

[7]  Affidavit of King, pp 9-11 of the exhibits.

[8]  Affidavit of Festa (CFI 2) at p 4 of the exhibits.

[9]  Affidavit of King, at p 19 of the exhibits.

[10]  Affidavit of Festa (CFI 2), at p 19 of the exhibits.

[11]  Affidavit of Langdon (sworn 27 April 2023), annexed to the affidavit of Festa (filed by leave on 28 April 2023) at [3].

[12]  Affidavit of Festa (CFI 2), at p 19 of the exhibits – which is the ASIC extract annexed to the affidavit of service of Buckley (in relation to service of the Magistrates Court proceedings).

[13]  Affidavit of King, at p 13 of the exhibits.

[14]  Section 459C(2)(a) of the Corporations Act.

[15]  Section 459S of the Corporations Act.

[16] David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265; Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd (2008) 232 CLR 314 at 324 [17].

[17]  Cf Deputy Commissioner of Taxation v Josway Hospitality Pty Ltd [2018] FCA 466 at [3] (the evidence in that case included an affidavit containing evidence from the person who placed the statutory demand into the envelope).

[18]  See In the matter of AAP Investments (Aust) Pty Ltd [2015] NSWSC 1049 at [14] and [16] per Black J.

[19]  Section 459M of the Corporations Act.

[20]  Regulation 4(2) of the Corporations Amendment Regulations 2007 (No 13) (Cth).

[21]  Referring to s 459J(2) of the Corporations Act (relevantly, s 459J(1)(a) empowers the court to set aside a demand if it is satisfied that, because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; and s 459J(2) provides that, except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect).

[22]  Referring to Randall Pty Ltd v Chepan Pty Ltd (2009) 73 ACSR 267.

[23]  See s 459J(1)(a) of the Corporations Act.

[24]  Referred to in Inter Mining Pty Ltd v Lake Johnston Pty Ltd (2013) 216 FCR 22 at [11].

[25]  See Townview Holdings Pty Ltd v Sunstate Design & Construct Pty Ltd [2012] FCA 1296 at [11].

[26]  See section 142 of the Corporations Act.

[27] In the matter of AFX Group Pty Ltd [2019] VSC 671 at [61]; see also F P Leonard Advertising Pty Ltd v K D Travel Service Pty Ltd (1993) 12 ACSR 136 at 138.

[28]  See also the discussion in Lifestyle Residences Hobsons Bay Pty Ltd v Guardian Early Learning Centres Pty Ltd [2023] VSC 179 at [48]-[53].

[29]  See affidavit of Langdon (CFI 3) at [10(b)] and exhibit AJL-5; and further affidavit of Landon, annexed to the affidavit of Festa (CFI 4).

Close

Editorial Notes

  • Published Case Name:

    QTM Enterprises (Qld) Pty Ltd v Palmgrove Holdings Pty Ltd trading as Carruthers Contracting

  • Shortened Case Name:

    QTM Enterprises (Qld) Pty Ltd v Palmgrove Holdings Pty Ltd

  • MNC:

    [2023] QSC 85

  • Court:

    QSC

  • Judge(s):

    Bowskill CJ

  • Date:

    02 May 2023

  • White Star Case:

    Yes

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

Cases Cited

Case NameFull CitationFrequency
Aussie Vic Plant Hire Proprietary Limited v Esanda Finance Corporation Limited (2008) 232 CLR 314
1 citation
Jump To
Cite 1 - (2008) 232 CLR 314
Cf Deputy Commissioner of Taxation v Josway Hospitality Pty Ltd [2018] FCA 466
1 citation
Jump To
Cite 1 - [2018] FCA 466
Chen v Kornucopia Pty Ltd [2019] 59 VR 305
1 citation
Jump To
Cite 1 - [2019] 59 VR 305
Construction Systems Pty Ltd v Dryka and Associates Pty Ltd [2010] WASC 22
1 citation
Jump To
Cite 1 - [2010] WASC 22
Crema Pty Ltd v Land Mark Property Developments Pty Ltd (2006) 58 ACSR 631
1 citation
Jump To
Cite 1 - (2006) 58 ACSR 631
David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265
1 citation
Jump To
Cite 1 - (1995) 184 CLR 265
Dromore Fresh Produce Pty Ltd v W Paton (Fertilizers) Pty Ltd (1997) 137 FLR 307
1 citation
Jump To
Cite 1 - (1997) 137 FLR 307
F P Leonard Advertising Pty Ltd v KD Travel Service Pty Ltd (1993) 12 ACSR 136
1 citation
Jump To
Cite 1 - (1993) 12 ACSR 136
Graywinter Properties Pty Ltd v Gas and Fuel Corporation Superannuation Fund (1996) 70 FCR 452
1 citation
Jump To
Cite 1 - (1996) 70 FCR 452
Graywinter Properties Pty Ltd v Gas and Fuel Corporation Superannuation Fund (1996) 21 ACSR 581
1 citation
Jump To
Cite 1 - (1996) 21 ACSR 581
In the matter of AAP Investments (Aust) Pty Ltd [2015] NSWSC 1049
3 citations
Jump To
Cite 1 - [2015] NSWSC 1049
Cite 2 - [2015] NSWSC 1049
Cite 3 - [2015] NSWSC 1049
In the matter of AFX Group Pty Ltd [2019] VSC 671
1 citation
Jump To
Cite 1 - [2019] VSC 671
Inter Mining Pty Ltd v Lake Johnston Pty Ltd (2013) 216 FCR 22
3 citations
Jump To
Cite 1 - (2013) 216 FCR 22
Cite 2 - (2013) 216 FCR 22
Cite 3 - (2013) 216 FCR 22
Inter Mining Pty Ltd v Lake Johnston Pty Ltd [2013] FCA 915
1 citation
Jump To
Cite 1 - [2013] FCA 915
Lifestyle Residences Hobsons Bay Pty Ltd v Guardian Early Learning Centres Pty Ltd [2023] VSC 179
1 citation
Jump To
Cite 1 - [2023] VSC 179
McElligott v Boyce [2011] QCA 117
2 citations
Jump To
Cite 1 - [2011] QCA 117
Cite 2 - [2011] QCA 117
Poolrite Australia Pty Ltd (in liq) v Structural Pools Aust Pty Ltd (2013) 217 FCR 50
1 citation
Jump To
Cite 1 - (2013) 217 FCR 50
Randall Pty Ltd v Chepan Pty Ltd (2009) 73 ACSR 267
3 citations
Jump To
Cite 1 - (2009) 73 ACSR 267
Cite 2 - (2009) 73 ACSR 267
Cite 3 - (2009) 73 ACSR 267
Randall Pty Ltd v Chepan Pty Ltd [2009] NSWSC 783
1 citation
Jump To
Cite 1 - [2009] NSWSC 783
Randall Pty Ltd v Chepan Pty Ltd [2009] NSWSC 848
1 citation
Jump To
Cite 1 - [2009] NSWSC 848
Re Pro Carwash Pty Ltd [2012] NSWSC 1289
1 citation
Jump To
Cite 1 - [2012] NSWSC 1289
Sugarmill SL v Nomis Sports Innovations Pty Ltd [2011] FCA 1285
1 citation
Jump To
Cite 1 - [2011] FCA 1285
Topfelt Pty Ltd v State Bank of NSW Ltd (1993) 47 FCR 226
2 citations
Jump To
Cite 1 - (1993) 47 FCR 226
Cite 2 - (1993) 47 FCR 226
Townview Holdings Pty Ltd v Sunstate Design & Construct Pty Ltd [2012] FCA 1296
3 citations
Jump To
Cite 1 - [2012] FCA 1296
Cite 2 - [2012] FCA 1296
Cite 3 - [2012] FCA 1296
Woodgate v Garard Pty Ltd (2010) 239 FLR 339
1 citation
Jump To
Cite 1 - (2010) 239 FLR 339

Cases Citing

Case NameFull CitationFrequency
QTM Enterprises (Qld) Pty Ltd v Palmgrove Holdings Pty Ltd [No 2] [2023] QSC 1102 citations
1

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