Supreme Court New South Wales

• Medium Neutral Citation: Quarter Enterprises Pty Ltd v Allardyce Lumber Company Ltd [2011] NSWSC 1031
• Hearing dates: Wednesday, 17 August 2011
• Decision date: 17 August 2011
• Before: White J

Decision

Refer to para [26] of judgment.

• Catchwords: CORPORATIONS - statutory demand - application to set aside statutory demand - where statutory demand for judgment debt arising from registration of foreign judgment under Part 2 of the Foreign Judgments Act 1991 (Cth) - where plaintiffs have applied to have the registration of the foreign judgment set aside - where application to have registration of foreign judgment set aside not determined - circumstances analogous to case where statutory demand based on judgment debt and there is a pending appeal which has not been determined and no order staying execution of judgment - arguable grounds for setting aside registration of judgment - there is some other reason to set aside demand if the debt claimed is secured by payment into court or by other means - statutory demand set aside on the condition that plaintiff pay sum claimed in statutory demand into court or otherwise provide an assurance of payment by way of bank guarantee
• Legislation Cited: Foreign Judgments Act 1991 (Cth)
• Cases Cited: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd [1996] NSWSC 199; (1996) 20 ACSR 746; Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235; Eumina Investments Pty Ltd v Westpac Banking Corporation [1998] FCA 824; (1998) 84 FCR 454; Midas Management Pty Ltd v Equator Communications Pty Ltd [2007] NSWSC 759; (2007) 25 ACLC 1038; Cranney Farm Pty Ltd v Corowa Fertilizers Pty Ltd [2011] NSWSC 9; Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466; Allardyce Lumbar Company Ltd v Quarter Enterprises Pty Ltd [2010] NSWSC 807; Mendikwae Ltd v El-Mezin [2000] QSC 56; Standard Commodities Pty Ltd v Societe Socinter Department Centragel [2005] NSWSC 294; (2005) 23 ACLC 1175
• Category: Interlocutory applications
• Parties: Quarter Enterprises Pty Ltd (Plaintiff); Allardyce Lumber Company Ltd (Defendant)
• Representation: P Barham (Plaintiff); V Thomas (Defendant); Hayes Partners (Plaintiff); Jackson Lalic Lawyers (Defendant)
• File Number(s): 2011/99700

Judgment

1 HIS HONOUR : This is an application under s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand. The statutory demand is dated 7 March 2011. The statutory demand was for an amount of $US334,116.71 being an amount of $US315,118.93 payable under a judgment of this Court dated 12 August 2010 together with interest.

2 The judgment debt in this Court arose from the registration pursuant to Part 2 of the Foreign Judgments Act 1991 (Cth) of a judgment dated 20 May 2009 of the High Court of the Solomon Islands.

3 In his affidavit in support of the originating process a director of the plaintiff, Mr Gibbs, deposed that on 2 March 2010 the defendant had applied to register the judgment in this Court, that on 3 September 2010 solicitors for the defendant gave notice to the plaintiff of the registration of the judgment of the High Court of Solomon Islands and that on 27 September 2010 the plaintiff commenced a proceeding in this Court to set aside the registration pursuant to s 7 of the Foreign Judgments Act . He deposed that no application had been made to strike out or dismiss the application to set aside registration of the foreign judgment and that that application had been fixed for hearing on 30 June 2011.

4 On 3 May 2011 orders were made by consent for the defendant to file and serve any affidavit evidence by 20 May 2011 and for the plaintiff to file and serve any evidence in reply by 27 May 2011.

5 On 14 June 2011 Hammerschlag J set the proceedings down for hearing today. His Honour directed the parties to provide submissions in advance of the hearing.

6 It is common ground that the application to set aside the registration of the judgment of the High Court of the Solomon Islands was heard before Johnson J on 30 June 2011 and 5 and 6 July 2011 and his Honour reserved his decision. I was informed that an application has been made by the plaintiff to reopen its case before Johnson J and that the application for reopening will be before his Honour later this month.

7 When the matter was called on for hearing this morning the solicitors for the parties sought an order by consent adjourning the hearing of this application for some weeks. I was informed that the parties had not reached any agreement for the disposition of these proceedings, pending the outcome of the application to set aside the registration of the judgment on which the statutory demand is based. No prior application had been made for the proceeding to be adjourned. I refused the adjournment application having regard to the interests of other litigants and the public interest that requires that applications of this kind be dealt with promptly and that the orders of the Court for the listing of matters for hearing be adhered to. The parties cannot by their own agreement regulate the Court's procedures, and whilst the Court will take into account the wishes of the parties, it is not bound to give effect to them. The matter was adjourned briefly and subsequently the parties were represented by Mr Barham of counsel and Ms Thomas of counsel. I am grateful for the assistance of both counsel who have presented their respective client's cases with admirable ability having regard to the circumstances in which they were called upon to appear today.

8 The present circumstances are analogous to cases in which a statutory demand is served based on a judgment debt and where there is a pending appeal against the judgment which has not been determined and there has been no order staying the execution of the judgment. In such cases there can be no genuine dispute within the meaning of s 459H(1)(a) that the debt exists. The debt exists by reason of the judgment whether the judgment was entered in error or not.

9 Where it is shown that there are arguable grounds of appeal, the Court's discretion may be enlivened under s 459J(1)(b) to set aside the demand on the grounds that there is some other reason why the demand should be set aside. Some cases have stressed that there will not be some other reason for setting aside the statutory demand if to do so will have the practical effect of granting a stay of the judgment when the plaintiff ought to have sought a stay. A fortiori, if a stay has been sought but refused, or has been granted on conditions that have not been met, then (at least prima facie ) there will not be some other reason why the demand should be set aside. However, there is no rigid rule that can confine the scope of the power under s 459J(1)(b). That is not to say that under that section the Judge can do simply what he or she considers to be fair. The power must be exercised on a good reason relevant to the purposes for which the power exists ( Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd [1996] NSWSC 199; (1996) 20 ACSR 746 at 757). But it is consistent with the purposes of Part 5.4 for a Court to set aside a statutory demand based upon a judgment debt if satisfied that there are arguable grounds of appeal. Typically in such cases the demand is set aside on the condition that the debt claimed is secured by payment into Court or by other means (see Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235 at 239 -240; Eumina Investments Pty Ltd v Westpac Banking Corporation [1998] FCA 824; (1998) 84 FCR 454 at 462; Midas Management Pty Ltd v Equator Communications Pty Ltd [2007] NSWSC 759; (2007) 25 ACLC 1038 at [35]-[36]; Cranney Farm Pty Ltd v Corowa Fertilizers Pty Ltd [2011] NSWSC 9 at [56]-[60]; and Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 at [25]-[26]).

10 As Barrett J explained in the last case (at [26]) it is not to be implied that the judgment creditor enjoy a form of security over funds that may be paid into Court, or the payment of which may be otherwise assured, that would give it priority over other creditors. Rather, some other reason will exist for setting aside the statutory demand because the judgment creditor will be assured of the availability of funds to meet the debt the subject of the demand and therefore not stand in need of the presumption of insolvency.

11 All this is predicated upon there being arguable grounds for appeal or, in this case, arguable grounds for setting aside the registration of the judgment. Somewhat unusually the judgment of the High Court of the Solomon Islands in this case was not registered following an ex parte application but after a contested hearing before Davies J ( Allardyce Lumbar Company Ltd v Quarter Enterprises Pty Ltd [2010] NSWSC 807). His Honour noted that although the defendant before him, that is, the plaintiff in the present proceeding) opposed the registration of the judgment, it also contended that it would be entitled to apply to set aside any judgment given by his Honour in favour of registration. His Honour observed that on any such subsequent application there would be an issue as to whether or not the defendants before his Honour would be estopped from applying to set aside registration. However, his Honour observed that there was authority ( Mendikwae Ltd v El-Mezin [2000] QSC 56) that appeared to provide support for the defendant's position, although his Honour noted that differences between the relevant rules of Court would be relevant. His Honour made no concluded finding on that question (and it was not a question before his Honour for decision), but noted that it would be a matter for the Judge hearing any such application to consider.

12 The question was not argued at any length before me because it is a matter which doubtless will fall for decision by Johnson J. I express no view on the question except to say that I do not think the defendant's position is unarguable.

13 I have been taken to two affidavits sworn by Mr Gibbs in the application in proceedings 54251 of 2010 to set aside registration of the judgment, as setting out grounds on which that application is made. The judgment in question was a judgment for costs. It appears from the reasons of Davies J in Allardyce Lumbar Company Ltd v Quarter Enterprises Pty Ltd that the present plaintiff brought proceedings in the High Court of the Solomon Islands against, amongst others, the present defendant. It was initially successful in obtaining a judgment for $US2,753,936.54 together with interest and costs. That judgment was set aside by the Court of Appeal of the Solomon Islands which ordered a new trial. It appears from Davies J's reasons that the Court of Appeal considered that findings of credit made by the trial Judge had miscarried. Subsequently an order for security for costs was made against the present plaintiff and against its director Mr Gibbs.

14 On 20 May 2009 Goldsbrough J in the High Court of the Solomon Islands dismissed the present plaintiff's proceedings for its failure to provide the security and ordered that it pay the costs of the present defendant. Those costs were assessed in the amount of $US436,733.97. An appeal from those orders was later dismissed by the Court of Appeal.

15 The ground upon which the present plaintiff seeks to have the registration of the judgment set aside includes a ground that the first judgment of the Court of Appeal was obtained by fraud ( Foreign Judgments Act , s 7(2)(vi)).

16 It has been submitted by the plaintiff that that ground may be established by consideration being given in the registering court of the course of proceedings in the foreign court as to whether or not the foreign court was misled. The plaintiff contends that the Court of Appeal was misled. It is unnecessary to go into the detail of that allegation.

17 It is then said that if the first judgment of the Court of Appeal was obtained by fraud within the meaning of s 7(2)(vi) that that affects the judgment which followed.

18 It is further said that prior to the Court of Appeal delivering its second judgment, that is to say the judgment dismissing the appeal from the order of Goldsbrough J dismissing the proceedings and ordering the payment of costs, that the amount that had been ordered to be paid by way of security was provided. It is said that although the amount was provided only as security for future costs, the defendant had recourse to the security. I am not sure precisely how this contention is said to give rise to a ground for setting aside registration of a judgment under s 7 of the Foreign Judgments Act . I infer that it may be further ground on which it is said that the judgment was obtained by fraud.

19 I do not think it necessary or proper on the present application to delve into these questions. The objective facts are that the application to set aside registration of the judgment was heard over a period of three days before Johnson J and his Honour has reserved his decision. Whether or not the plaintiff is allowed to reopen, I can be satisfied from those bare facts that the matter is complex and that there are arguable issues for setting aside the registration of the judgment.

20 In these circumstances I am satisfied that I ought to follow the course adopted in a number of the cases I referred to earlier, that is to say, to set aside the statutory demand, but on condition that the plaintiff pay money into Court, or otherwise provide an assurance of payment by way of bank guarantee.

21 The plaintiff requests a period of 28 days for that to be done and I think that in the circumstances that is appropriate. I have regard to the fact that the defendant had earlier consented to an adjournment of this application to set aside the statutory demand. That is to say, the defendant was prepared to allow an extended period for compliance with the demand. I will also give the parties liberty to restore the matter if the condition is not satisfied within 28 days. In that event, unless there has been a material change of circumstances the originating process will be dismissed.

22 If judgment is given in proceedings 54251 of 2010 before final orders are made, that is, before the order setting aside the statutory demand comes into effect, or an order is made dismissing the originating process, then the matter can be relisted in order for an appropriate order to be made finalising these proceedings. I have in mind that if registration of the judgment is set aside that would clearly provide a basis for setting aside the statutory demand.

23 There is a question as to whether or not, even if the registration of the judgment is set aside, the plaintiff could serve a statutory demand based upon the judgment obtained in the High Court of the Solomon Islands. In Standard Commodities Pty Ltd v Societe Socinter Department Centragel [2005] NSWSC 294; (2005) 23 ACLC 1175 Barrett J observed at [17] and [20] that s 10 of the Foreign Judgments Act would not preclude reliance upon a foreign judgment as a basis for the service of a statutory demand and that a statutory demand for a debt owing under a foreign judgment could be made, notwithstanding that the judgment has not been registered in Australia.

24 However, depending on the grounds upon which registration of the judgment was set aside, there could be a real question whether or not there was a debt a court of this country should recognise as being due and payable. The possibility that a statutory demand could properly be served based not on the registered judgment but on the judgment in the Solomon Islands, does not affect the disposition of this application as it is based on the registered judgment.

25 There has been some debate in relation to costs. In my view neither party has been wholly successful. I think the appropriate order to make would be that made by Hammerschlag J in Midas Management Pty Ltd v Equator Communications Pty Ltd that the costs of the present application be costs in the proceedings to set aside the registration of the judgment.

26 Accordingly, subject to any submission that counsel may have as to the precise form of the orders to be made, I propose to make the following orders:

1. Order that subject to the condition that within 28 days the plaintiff pay into Court the sum of $US334,116.71, or provide a bank guarantee in a form acceptable to the defendant or as determined by a Registrar whereby a bank will undertake to pay the sum of $US334,116.71 as the Court may direct in proceeding number 54251 of 2010 or in any appeal from a judgment in those proceedings, the statutory demand dated 7 March 2011 served on the plaintiff by the defendant be set aside.

2. Grant liberty to the parties to restore the matter by arrangement with my Associate if:

(a) the condition in order 1 is not satisfied within 28 days; or

(b) judgment is delivered in proceedings 54251 of 2010 on the plaintiff's application to set aside registration of the judgment for $US315,118.93 prior to the order setting aside the statutory demand coming into effect.

3. Order that costs of this application be costs in the application in proceedings 54251 of 2010 to set aside registration of the said judgment.

4. Direct that Exhibits B, C and D an Exhibit 1 may be returned.

Decision last updated: 06 September 2011