THE COURT ORDERS THAT:

1.         The statutory demand be varied by substituting an amount of $57,192.33 for the amount of $136,268.

2.         The respondent on the motion pay the applicant’s cost of the motion.

Note:                Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

Before me is a Notice of Motion brought by Gorokan Display Village Pty Limited (“Gorokan”) for an order pursuant to s 459(H) of the Corporations Law (“the Law”) that the statutory demand served on BHA Industries Pty Limited (“BHA”) on 27 May 1998 be varied by substituting the amount of $57,192.33 for the amount of $136,268.86 specified therein.

The background to this matter is that consent orders were made by the Local Court at Parramatta on 31 July 1997.  The relevant orders were that there be judgment for Gorokan in the sum of $35,034 together with interest and costs.  The consent orders also provided that:

“5. The judgment together with interest and costs be stayed until the conclusion of District (sic) proceedings No 113 of 1997, provided that the defendant, BHA Industries Pty Limited t/as Forrester Homes, shall promptly abide by all directions of the District Court as to the prosecution of those proceedings.”

The statutory demand, the subject of the amended application, claimed a total amount of $136,268.86 comprised of judgments of the Parramatta Local Court totalling $57,192.33 and a District Court judgment on a cross-claim in favour of Gorokan in the sum of $79,076.53.  An appeal has been lodged by BHA against the District Court judgment and it is common ground that the District Court judgment has been stayed pending determination of the appeal in the District Court.  Gorokan concedes that it cannot presently press its claim for the amount of $79,076.53 and therefore seeks to reduce its claim to the amount of the District Court judgments totalling $57,192.32.

Conclusion of proceedings

The first question which arises in the present case is as to the meaning of Order 5 made by the District Court, which is set out above.

At the outset, it is important to bear in mind that the terms of the Order were the basis of an agreement between the parties.

For BHA, it is submitted that because the Court of Appeal may vary, set aside or reverse the District Court judgment, it cannot be said that the proceedings in that Court have been concluded.  Therefore, it is contended that the stay remain in force until all avenues of appeal from the decision of the District Court have been exhausted.  As a result, BHA submit it cannot be said that there is any money currently owing by BHA to Gorokan.  It is said that this is a question of construction of the language used in the Order.

Counsel for BHA directed my attention to the House of Lords judgment in Shiloh Spinners Ltd v Harding (No 2) [1973] 1 WLR 518.   That case concerned a section in the Legal Aid Act 1964 (UK), which referred to legal aid granted in connection with any proceedings up to the time when those proceedings are finally decided.  That decision is said to be authority for the proposition that prima facie the expression “proceedings”, as used in the section, includes all proceedings in the same piece of litigation in which a party has received legal aid before the proceedings in an appellate court are decided.  However, in that case the statutory reference to “finally decided” was of central importance.  That expression is not used in the present case.

Reference is made also to the principle that final judgments of a court are to be treated as conclusive, subject to any appeal that might be permitted: see McBride v Sandland [No 2] (1918) 25 CLR 369.  This is said to support the proposition that the lodging of an appeal means that the judgment of the Court appealed from is not conclusive.

One must first consider the language used in the relevant Order.

In the present case, there is no reference in the stay Order to the expression “finally decided”.  Furthermore, the orders of the Local Court are made pursuant to an agreement between the parties and are not the subject of a statute.  Unlike the case of Shiloh Spinners (supra), where the legal aid legislation referred to “any proceedings”, the clause in the present case quite specifically says that the stay is to enure until the nominated District Court proceeding is concluded.

As stated earlier, the order resulted from agreement between the parties. If they had intended that the Local Court orders for payment be stayed until all appeal proceedings had been finally exhausted and the matter completely disposed of, it would have been an easy matter to insert such a provision in the consent orders.  Alternately, it would have been a relatively simple matter to have used words such as, “the final determination or resolution of the proceedings”.  Neither of these alternatives was adopted.  In my view, the expression “the conclusion of District Court proceedings No 113 of 1997” should be given its ordinary and natural meaning; that is to say, up to a time when orders are made and entered in that particular proceeding.  The language used is clear, specific and limited to a particular proceeding in a nominated Court.

Accordingly, for the above reasons, I conclude that the Local Court Order is not the subject of a stay and that the stay provided by the Local Court judgment has expired.

Set-off

The second argument goes to the Court’s power as a result of submissions made by BHA that this was not a case in which a Court has power to vary the demand under s 459H(4).

That section provides:

“459H(4)        [Substantiated amount equal to or greater than statutory minimum]

If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:

(a) varying the demand as specified in the order; and

(b) declaring the demand to have had effect, as so varied, as from when the demand was served on the company.”

It is submitted by BHA that its appeal to the New South Wales Court of Appeal in relation to the District Court judgment is not only against the amount awarded on the cross-claim against it, but is also against the decision of the District Court Judge dismissing its claim for damages, which could possibly amount to more than $250,000. This is equivalent to the amount claimed.  In addition, the appeal to the Court of Appeal is against the refusal of the District Court Judge to allow an amendment to permit BHA to rely on provisions of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987(NSW).

It is said that if BHA is successful on these appeals then the matter may be remitted back to the District Court where there is a possibility that it will be awarded an amount greater than the total amount claimed in the statutory demand.  Accordingly, it is said that the “substantiated amount” of the claim could be below the statutory minimum.  If this is so, then it is claimed that the power to vary under s 459H(4) of the Law is not enlivened.

The expression “substantiated amount” is referred to in s 459H(2) and is calculated by subtracting from the admitted total, an amount described as the offsetting total.  The admitted total is defined to mean the admitted amount of the debt offsetting claim terms.  The expression “admitted amount” is defined in s 459H(5) to mean a nil amount if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt.

The “offsetting claim” is defined in s 459H(5) to mean a genuine claim that a company has against a respondent by way of a counter-claim, set-off or cross-demand, even if it does not arise out of the same transaction or circumstances as the debt to which the demand relates.  The test for determining whether a company has a “genuine claim” is whether the Court is satisfied that there is a serious question to be tried that the applicant has an offsetting claim.  By way of analogy in Eumina Investments Pty Limited v Westpac Banking Corporation (Emmett J 3 July 1998, unreported), his Honour considered whether an application for leave to appeal was based on “reasonable and arguable grounds” and whether it contained something more than “mere assertion”: see also John Shearer Limited v Gehl Company (1995) 60 FCR 136.

In this case, it is said that because there is a possibility that the appeal could be successful and the matter remitted to the District Court, judgment of that Court may be greater than or equal to the amount claimed in total by Gorokan.  If this is the outcome then there is no substantiated amount.

In my view, this argument cannot be accepted.  There is no evidence placed before me to support the assertion that the outcome of the District Court claim for damages is reasonably likely to reduce an amount greater than that sought to be claimed in the varied statutory demands.  At this stage, the possibilities as to what may happen in the Court of Appeal and subsequently in the District Court are matters of speculation. The contingencies inherent in making a prediction as to possible outcome in two Courts and involving a possible quantification of damages, are too tenuous to treat as an offsetting total for the purpose of calculating the substantiated amount under s 459H.  On the material before me, I am not satisfied that there is evidence of a genuine claim as opposed to a mere assertion: see John Shearer Limited v Gehi Company (1995) 60 FCR 136 at 143.

Accordingly, I do not accept the submissions made on behalf of Gorokan as to the operation of s 459H in the present circumstances.

For the above reasons, I consider that the statutory demand should be varied by substituting an amount of $57,192.33 for the amount of $136,268 set out therein.  The respondent to the motion is to pay the applicant’s costs of the motion.

Associate:

Dated:              25 September 1998