FEDERAL COURT OF AUSTRALIA

Grocon Constructors (Vic) Pty Ltd v Dexus Funds Management Limited as Trustee for the Dexus 480Q Trust [2019] FCA 1168

ORDERS

THE COURT NOTES THAT: the applicant, by its counsel, gave the following undertakings to the Court:

(a)    it will not, during the period for which time for compliance with the demand is extended, dispose of or deal with its assets other than in the ordinary course of its business, charge any of its assets or provide security on behalf of any person or entity; and

(b)    it will prosecute its application for leave to appeal with diligence and expedition.

THE COURT ORDERS THAT:

1.    Pursuant to s 459F(2)(a)(i) of the Corporations Act 2001 (Cth), the time for compliance with the statutory demand dated 29 January 2019 and served on the applicant by the respondent (as varied by the order made by Moshinsky J on 22 July 2019 in proceeding No. VID 139 of 2019) be extended until the day that is 21 days after 22 July 2019, or such other period as the Court orders.

2.    Costs be reserved.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

1    On 22 July 2019, I gave judgment in two proceedings in which applications were made to set aside statutory demands: Grocon Constructors (Qld) Pty Ltd v Dexus Funds Management Limited as Trustee for the Dexus 480Q Trust (No 2) [2019] FCA 1117 (the 22 July Reasons). These reasons should be read together with the 22 July Reasons. I will adopt the abbreviations used in the 22 July Reasons.

2    Grocon (Vic) has filed an application for leave to appeal from my orders. Grocon (Vic) has also filed an interlocutory application seeking the following orders:

1.    An order under s 459F(2)(a)(i) of the Corporations Act 2001 (Cth) that time for compliance with the statutory demand dated 29 January 2019 and served on the Applicant by the Respondent (as varied by the order made by Moshinsky J on 22 July 2019 in proceeding in proceeding VID 139 of 2019), be extended until:

(a)    the day that is 7 days after the determination of the Applicant’s application for leave to appeal that order; and

(b)    if leave is granted, the day that is 7 days after the hearing and determination of the Applicant’s appeal.

2.    Costs reserved.

3    This interlocutory application came on for hearing before me today and is the subject of these reasons. The interlocutory application was opposed by Dexus.

4    In support of the interlocutory application, Grocon (Vic) relies on an affidavit of Asia Laurel Lenard, an employee solicitor of the solicitors acting for Grocon (Vic). In the affidavit, Ms Lenard states that she is instructed that Grocon (Vic) is prepared to give the following undertakings to the Court:

(a)    it will not, during the period for which time for compliance with the demand is extended, dispose of or deal with its assets other than in the ordinary course of its business, charge any of its assets or provide security on behalf of any person or entity; and

(b)    it will prosecute its application for leave to appeal with diligence and expedition.

Background facts

5    While these reasons should be read together with the 22 July Reasons, I note the following matters.

6    The two proceedings that were before me on the previous occasion were applications by the Grocon entities to set aside statutory demands that had been served on them by Dexus. I decided, in summary, that:

(a)    the statutory demand issued to Grocon (Qld) should be set aside; and

(b)    the statutory demand issued to Grocon (Vic) should be varied so that the amount of the debt was $13,910,008.99.

7    The aspects of my earlier decision concerning Grocon (Qld) can be put to one side for present purposes.

8    In relation to Grocon (Vic), I rejected the contention that the issuing of the statutory demand was an abuse of process; I accepted the contention that there was a plausible argument that the Initial Amount and interest on that amount were not due and payable when the statutory demand was issued; I held that there was, therefore, a genuine dispute as to whether or not the Initial Amount and the interest on the Initial Amount were due and payable at the time when the statutory demand was issued; and I rejected the contention that there was a genuine dispute as to the other amounts reflected in the statutory demand.

9    I therefore decided to vary the statutory demand issued to Grocon (Vic) by, in effect, excising the Initial Amount and interest on the Initial Amount: see the 22 July Reasons at [46]. The amount of $25,362.55 for “Outgoings – Prior yr adjustments” was also excised because Dexus conceded that this amount was the subject of genuine dispute: see the 22 July Reasons at [47].

10    A convenient reference point is the ‘aide memorie’ provided by senior counsel for Dexus, which is reproduced at [30] of the 22 July Reasons. The aide memoire itemises the component parts of the amounts claimed in the statutory demand. The effect of my decision was to excise the following three amounts:

(a)    Initial Amount - $13,970,000;

(b)    Interest on Initial Amount - $656,538.60; and

(c)    Outgoings – Prior yr adjustments - $25,362.55.

11    The total of the remaining amounts in the statutory demand is $13,910,008.99. This is the amount to which the statutory demand issued to Grocon (Vic) was varied.

12    At the hearing before me on the previous occasion, there was no issue that the amounts totalling $13,910,008.99 were due and payable under the Deed of Surrender. The only contentions that were raised in relation to this amount were: a contention that, although these amounts were due and payable under the Deed of Surrender, Grocon (Vic) should have been, and was not, provided with a reasonable period of time to make payment (see [37] of the 22 July Reasons); and a contention that there was a genuine dispute that liability was several rather than joint and several (see [49] of the 22 July Reasons). I rejected both of these contentions: see [44] and [49] of the 22 July Reasons.

13    It is convenient to note at this point that Grocon (Vic) does not challenge those aspects of the 22 July Reasons in its application for leave to appeal. At the hearing today, counsel for Grocon accepted that the amounts totalling $13,910,008.99 are due and payable by Grocon (Vic) under the Deed of Surrender. Moreover, he accepted that these amounts were due and payable by (at the latest) 31 December 2018.

The application for leave to appeal

14    Grocon (Vic) has filed an application for leave to appeal from the orders made on 22 July 2019 (in the proceeding relating to Grocon (Vic)). Grocon (Vic) has provided a draft notice of appeal. The proposed grounds challenge the part of my decision and reasons concerning abuse of process.

The interlocutory application for an extension of time

15    Grocon (Vic) has also filed an interlocutory application seeking an extension of time to comply with the statutory demand, pursuant to s 459F of the Corporations Act 2001 (Cth). That section provides as follows:

459F    When company taken to fail to comply with statutory demand

(1)    If, as at the end of the period for compliance with a statutory demand, the demand is still in effect and the company has not complied with it, the company is taken to fail to comply with the demand at the end of that period.

(2)    The period for compliance with a statutory demand is:

(a)    if the company applies in accordance with section 459G for an order setting aside the demand:

(i)    if, on hearing the application under section 459G, or on an application by the company under this paragraph, the Court makes an order that extends the period for compliance with the demand—the period specified in the order, or in the last such order, as the case requires, as the period for such compliance; or

(ii)    otherwise—the period beginning on the day when the demand is served and ending 7 days after the application under section 459G is finally determined or otherwise disposed of; or

(b)    otherwise—21 days after the demand is served.

16    The effect of s 459F(2)(a)(ii) is that, absent an order extending time, the period for compliance with the statutory demand issued to Grocon (Vic) will end 7 days after I finally determined the application, that is, on Monday, 29 July 2019.

17    In these circumstances, Grocon (Vic) seeks an order under s 459F(2)(a)(i) extending the period for compliance with the statutory demand. As noted above, Grocon (Vic) seeks an order extending time until the day that is 7 days after the determination of its application for leave to appeal; and, if leave is granted, the day that is 7 days after the hearing and determination of its appeal.

Applicable principles

18    There was no dispute between the parties as to the applicable principles. In Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2018) 134 ACSR 318 at [28]-[32], Beazley P summarised the principles as follows:

[28]    In Creata (Aust) Pty Ltd v Gary Adrian Faull, White JA, at [2], set out the well-established principles that the Court is to apply when determining an application under s 459F(2) for an extension of time for compliance with a statutory demand, where the application to set aside the statutory demand has been dismissed. The matters to be addressed by the Court are as follows:

(1)    First, the general question of the prospects of success in the appeal and whether an arguable case has been shown;

(2)    Second, whether the appeal will be rendered nugatory unless the extension is granted; and

(3)    Third, as to the prejudice the respective parties will suffer in the alternative eventualities.

See also Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd (2004) 50 ACSR 544; [2004] NSWSC 877 (Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd) at [5] per Barrett J; Jem Developments Pty Ltd v Hansen Yuncken (2006) 60 ACSR 393; [2006] NSWSC 1378 (Jem Developments Pty Ltd v Hansen Yuncken Pty Ltd) and Aus Asia Minerals Ltd v Ball [2015] WASCA 251 at [21] per Murphy JA.

[29]    White JA went on, at [5], to state:

“… in an appeal it is convenient to first consider the other two matters that need to be addressed: namely whether, if an extension is refused, an appeal would be rendered nugatory; and prejudice to the parties if an extension is either refused or granted.”

[30]    In Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd, to which White JA referred, Barrett J, at [5], after identifying the three matters to which White JA referred, continued:

“Indeed, the application before me should, I think, be approached by close analogy with the case where a stay of execution is sought pending appeal. In that connection I refer to what was said by the Court of Appeal in Kalifair Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737; [2002] NSWCA 383 at [18]:

‘Thus the relevant principles are analogous to those which govern the grant of interlocutory relief before trial to protect the status quo. The appellant must show that the appeal raises serious issues for the determination of the appellate court, and that there is a real risk that he will suffer prejudice or damage, if a stay is not granted, which will not be redressed by a successful appeal. This requirement will be satisfied if the appeal will be rendered abortive or nugatory unless a stay is granted. If these pre-conditions are established the Court will then consider the balance of convenience.’”

[31]    His Honour pointed out, at [7], that unless an order for extension was made a presumption of insolvency would arise. He was satisfied that the plaintiff had raised a sufficiently arguable prima facie case “to warrant consideration of the other matters relevant to s 459F(2)(a)(i) extension by application of the analogy with a stay pending appeal”: see at [11]. Having concluded that an extension of time should be granted and the terms if any that should be imposed in granting an extension of time, his Honour rejected the defendant’s argument that the plaintiff should be required to pay the full amount of the demand into court. In this regard, Barrett J stated, at [16]:

“The plaintiff says that the defendant should not be given the form of priority or security that that would entail. I accept the plaintiff’s submission. This is, after all, not a debt recovery action. A company on which a statutory demand is served is in no sense required to comply with it. It may, if it wishes, allow the statutory presumption of insolvency to arise (by not paying the demanded sum) and, if a winding up application follows, seek to show that it is in fact in a solvent state so that a winding up order is not justified. The statutory demand process is no more than a process that defines where the burden of proof lies in winding up proceedings.”

[32]    A similar point was made by Austin J in Jem Developments Pty Ltd v Hansen Yuncken Pty Ltd at [28]. His Honour, at [26], made another point relevant to the present matter, namely, the effect of the statutory provisions should an extension of time not be granted:

“… unless an extension order is made, the plaintiffs will have to choose between paying [the amount of the statutory demand] … and allowing their failure to comply with the demand to create … a presumption that they are insolvent, unless the contrary is proved. That presumption will probably be available to any creditor …who applies for winding up within the time stipulated by s 459C. In any such winding up proceeding, the relevant plaintiff (as defendant in the winding-up proceeding) will bear the burden of demonstrating solvency and will be subject to the restrictions contained in s 459S. These disadvantages will apply to the plaintiffs even if they succeed in their appeal, because under s 459C(2)(a) the presumption of insolvency arises if, during the defined period, the company fails ‘as defined by section 459F’ to comply with a statutory demand, and under s 459F(1) the company is taken to fail to comply with the demand at the end of the compliance period if the demand is still in effect and the company has not complied with it.”

19    I note the subsequent decision in that litigation: Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (No 2) [2018] NSWCA 341. See, in particular, [16]-[18].

Consideration

20    I consider the arguments for and against an extension of time to be finely balanced. For the reasons that follow, I have concluded that it is appropriate to provide for a short extension of time, namely a period of 21 days from the date on which I made the earlier orders (22 July 2019), for compliance with the statutory demand. This should be sufficient time for the application for leave to appeal to come before another judge of the Court on an expedited basis. It will then be a matter for that judge to consider whether or not to grant a further extension of time. This is broadly consistent with the approach taken, for example, by Black J in Re Britten-Norman Pty Ltd [2013] NSWSC 424 at [12].

21    My reasons for reaching this conclusion are as follows. It will be convenient to deal with the second and third matters referred to in Grandview at [28] and then to consider the first matter.

22    The second matter is whether the appeal will be rendered nugatory unless an extension is granted. In relation to this matter, it is common ground that, in light of the decision of the High Court in Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd (2008) 232 CLR 314, any appeal will be rendered nugatory unless an extension is granted.

23    The third matter is the prejudice the respective parties will suffer in the alternative eventualities. Starting with Grocon (Vic), it would suffer prejudice by reason of the fact that any appeal would be rendered nugatory. Further, in the event of non-compliance with the statutory demand, the statutory presumption of insolvency will arise against it. This may trigger defaults in various contracts to which Grocon (Vic) and other entities in the Grocon group are parties (although the evidence in this regard is not specific or definitive). Against this, it is true that the statutory presumption will not arise if Grocon (Vic) pays the relevant amount (which it accepts is due and payable).

24    On the other hand, Dexus may suffer prejudice if an extension of time is granted. As set out above, there is no issue that the amounts totalling $13,910,008.99 are due and payable by Grocon (Vic), and that they were due by (at the latest) 31 December 2018. These amounts were payable under the Deed of Surrender. Any further delay may impact on the amount that Dexus could recover in any liquidation of Grocon, because it would (in a practical sense) push back Grocon’s relation-back date (by reference to which antecedent transactions could be challenged).

25    I now return to the first matter, namely the question of the prospects of success in the appeal. In the present case, Grocon (Vic) needs leave to appeal. This is a matter that can likely be dealt with on an expedited basis before another judge of the Court. There is perhaps some awkwardness in the primary judge considering the prospects of success of an application for leave to appeal, but I note that this has occurred in a number of cases and the applicable principles require me to consider this matter. I consider it sufficient for present purposes to make the following observations (which are based on submissions made today on behalf of Dexus). First, while Grocon (Vic) contends in its draft notice of appeal that I found (at [34] of the 22 July Reasons) that it was necessary for Grocon (Vic) to establish that the “only inference available” was that the statutory demand was issued for a collateral or improper purpose, this paragraph of the 22 July Reasons reflects the way in which the contention was put on behalf of Grocon (Vic): see the 22 July Reasons at [32]. Secondly, the grounds of appeal do not expressly challenge the logic upon which it was concluded that it “may be inferred that Dexus issued the Current Statutory Demands as a means of testing the solvency of the Grocon entities”.

26    In light of the above, I do not consider it appropriate to grant an extension of time in the terms sought by Grocon (Vic). However, on balance, I consider it appropriate to grant a short extension of time, for the period indicated earlier in these reasons. This will, in effect, preserve the status quo for a short period of time to enable the leave to appeal application to be dealt with by another judge of the Court.

27    I will hear from counsel on the form of orders.

Associate:

Dated:    30 July 2019