RECENT DEVELOPMENTS IN COMMERCIAL LAW
Presented by the Honourable Justice Peter Dutney
North Queensland Law Association Conference
Mackay – 30 June, 2008.
I have a theory – not entirely all my own work – that the most that any of us can
comprehend from any single paper are three points. It doesn’t matter how long I
speak for or what ground I cover, if I go beyond that limit you won't take in a single
extra thing thing.
With that in mind, I am going to talk about three cases. The first case is significant
because our Court of Appeal overruled a long accepted decision of the Full Court of
the Federal Court and it is going to the High Court. The second case is significant
because it is vaguely connected with the first and has already been to the High Court
and the third case concerns the provisions under which purchasers can avoid off the
plan contracts under the Body Corporate and Community Management Act and it
might go to the High Court.
I thought I might start with the decision of the Court of Appeal in September last year
which may have some quite significant flow on effects. Since special leave to appeal
has been granted and the appeal is likely to be heard when the High Court is in
Brisbane in June, those effects might be short lived.
The first case is Neutral Bay Pty Ltd v Deputy Commissioner of Taxation1. The
Court of Appeal decided that an arguable appeal against a liability for GST
constituted a genuine dispute about the existence of the debt for the purposes of
setting aside a statutory demand under section 459H of the Corporations Act 2001
(Cwth).
Setting aside a statutory demand where there is an arguable appeal mightn’t sound
like a particularly astonishing proposition except that it involved an heroic effort at
distinguishing a decision of the Full Court of the Federal Court which had been
consistently applied for over a decade.
Let’s start at the beginning.
As you know, if a company owes a debt which is not disputed, rather than
commencing proceedings against the company in a civil court, the creditor can simply
serve a notice under s 459E of the Corporations Act demanding payment of the debt
within 21 days. If the company fails to pay the debt, it is deemed to be insolvent and
the creditor simply proceeds to a winding up.
If the company disputes its liability to pay the debt it can, under s 459G within 21
days file and serve an application to set aside the demand accompanied by an
affidavit setting out the grounds of dispute.
1
[2007] QCA 312 (28 September, 2007)
1
There are a couple of tricks to these applications. First, the application must be filed
and served within the 21 days. The Court does not have power to extend that time.2
Second, the affidavit which must accompany the application must set out all the
grounds of the dispute. Additional grounds cannot be added later.3
But I digress.
Under s 204 of the Income Tax Assessment Act 1936 (Cwth) (“ITAA”) as it existed in
1996, tax was due and payable on the date specified in a notice of assessment issued
by the Commissioner under the Act. If no date was specified, the tax was due and
payable within 30 days after the service of the notice. It was the notice of assessment
which created the liability. Without an assessment there was no liability.
If you didn’t like the assessment you could lodge an objection and appeal to the
Administrative Appeals Tribunal. Since sections 14ZZM and 14ZZR of the Taxation
Administration Act 1953 (Cwth) (“TAA”) provided that the fact that a review or
appeal was pending did not interfere with the decision represented by the notice of
assessment and the amount of the assessment could be recovered as if there was no
review or appeal, the commissioner could, should he wish, proceed to issue a
statutory demand and wind up a corporate taxpayer anyway.
The conventional view regarding the status of the debt and the genuineness of any
dispute was that expressed by the Full Court of the Federal Court in Hoare Bros Pty
Ltd v Commissioner of Taxation. There, the Court said:4
The structure of the ITAA strongly suggests a legislative intent that the
issue and service of a notice of assessment (after expiry of the appropriate
period) creates a debt that is immediately due and payable, and that the
assessment can be challenged only in the manner provided for by the TAA
Pt IVC. Thus, unless there is some genuine dispute about the validity of a
notice which has been duly served, there can be no genuine dispute about
the existence or amount of the debt specified in the notice (assuming the
requisite period has elapsed since service of the notice). A company, or
other taxpayer, served with a notice of assessment, is entitled to challenge
the assessment through the procedures laid down in the TAA Pt IVC. In the
meantime, however, the tax must be paid.
And at page 314:
In our view, it is clear from the scheme of the ITAA that the company in the
present case became indebted to the Commissioner in the amounts specified
in the notices of assessment once they were served and the time referred to
in s 204 had expired. There were a number of grounds that, if the supporting
facts were available, might have been relied upon by the company to
challenge the validity of the notices. None of these grounds was invoked.
Had they been, depending upon the circumstances, there may have been a
2
David Grant & Co Pty Ltd v Westpac Banking Corporation (1995)184 CLR 265.
See Energy Equity Corp Ltd v Sinedie [2001] WASCA 419 at [29]. Special leave to appeal was
refused.
4
At page 311
3
2
genuine dispute between the company and the Commissioner as to the
existence or amount of the debt to which the demand related. But the mere
fact that the company had objected to the assessments, or sought review of
the Commissioner's decision before the AAT, did not establish that there
was a genuine dispute as to the existence or amount of the relevant debt.
That debt was not the subject of a genuine dispute.
And that, so everyone thought, was that!
Although not subject to consideration at the level of an intermediate appeal court, i.e.,
a State Court of Appeal or the Full Court of the Federal Court, the decision was
regularly applied throughout the Commonwealth by trial division judges. 5 The
legislation was Commonwealth legislation and the High Court in Australian
Securities Commission v Marlborough Gold Mines Ltd6 had established that an
intermediate court of appeal should not depart from another such court’s earlier
construction of legislation having operation throughout Australia unless the court is
of the opinion that the earlier decision is clearly wrong. It was not surprising
therefore that there had been no earlier challenge to or reconsideration of the decision
in Hoare Bros.
How was Hoare Bros distinguished in Neutral Bay?
Neutral Bay concerned a liability to pay GST. Under the A New Tax System (GST)
Act 1999 (Cwth) (the “GST Act”), the taxpayer must self assess its tax liability. The
liability arises upon the taxpayer making a relevant supply. The tax is required to be
paid by a fixed date following the supply of the goods or services.7 At first instance,
P McMurdo J dealt with the argument this way:
[30] The debt claimed in Hoare Bros was therefore one which was fixed and
became payable by the issue and service of a notice of assessment. Unless
and until that assessment was successfully challenged, the debt which arose
by reason of the notice of assessment existed. Accordingly, at the time of the
company’s challenge to the statutory demand, there was then a debt the
existence of which could not be disputed. That debt might be extinguished by
the outcome of proceedings under Pt IVC, but that would result from
amendment to the assessment in accordance with the decision of the AAT or
the Federal Court (1996) 62 FCR 302, 307. So whilst the company was able
to challenge the assessment (by Pt IVC proceedings) it could not deny that
until the assessment was amended, the debt was due.
[31] In [this case], the assessed tax is GST, not income tax. As Gzell J noted
in Platypus Leasing, the GST Act is “self-executing” and does not depend
5
see eg Moutere Pty Ltd v DCT [2000] NSWSC 379; (2000) 34 ACSR 533; Re Softex Industries
Pty Ltd [2001] QSC 377; (2001) 187 ALR 448; Willemse Family Co Pty Ltd v DCT [2003] 2 Qd R
334; Maddison Resort Pty Ltd v DCT [2006] QSC 485; KW & KM Quinn Investments Pty Ltd v
DCT [2003] QSC 336; (2003) 202 ALR 335; Rocket Transport Services Pty Ltd v DCT [2006]
WASC 234.
6
7
(1993) 177 CLR 485 at 492
See s 33-5 and s 17-5 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth)
3
on the issue of a notice of assessment. The existence of a debt due and
payable for GST, is because of the occurrence of facts and circumstances as
set out the GST Act, and in particular the making of a taxable supply. A
notice of assessment for GST has effect, for example, in the operation of Pt
IVC, and it engages s 105-100. But it does not of itself create a debt due and
owing. Section 24(1) of the TAA provides that a liability to pay indirect tax
(which includes GST) and the time by which an amount of indirect tax must
be paid, do not depend on and are not in any way affected by the making of
an assessment of that tax.
[32] Accordingly, if these companies succeed in challenging the
assessments of GST, that will involve a determination by the AAT that the
GST has not at any time been payable. The result will not be to set aside a
debt which had been payable, but to resolve that the debt has not been
owed. In this way, an assessment of GST is different from the assessment of
income tax considered in Hoare Bros.
There is an appealing logic about McMurdo J’s decision. Whether it is correct or not
remains to be determined by the High Court.
It seems an odd situation to me, at least, that the Commissioner can wind up the
taxpayer relying on a statutory demand on the basis that there is no genuine dispute
about the debt in circumstances where there is in fact a real issue about the amount of
tax which a taxpayer should pay and that issue is proceeding properly under the
regime for dispute resolution which the Commonwealth legislation has set up.
In the Court of Appeal, Keane JA, while distinguishing the Federal court decision in
Hoare Bros on the same basis as McMurdo J was in fact critical of the earlier
decision. At paragraph [72] of his reasons, with which the other members of the
Court of Appeal agreed, he said this:
In summary, the appellant's submission requires the Court to ignore the
reality that the existence of the debt is being disputed, on a genuine basis, in
a forum which is competent to set the assessment, and hence the debt, aside.
This requirement is not apparent in the language of the tax legislation or the
Act. It seems to rest, at least in part, upon an assumption, not expressly
articulated in the reasons of the Full Court of the Federal Court in Hoare
Bros, that, unless the dispute as to the tax liability asserted by the appellant
is justiciable in the proceedings under s 459P or s 459G, the court before
which those matters are pending may not notice a genuine dispute pending
elsewhere. But there is nothing in s 459H(1)(a) which requires that the
dispute as to the debt be justiciable in the court which is asked to set aside
the statutory demand; it should not be given a narrower operation than its
language requires. Nor is there anything in the language or statutory
history of s 105-100 of Sch 1 of the TAA which would warrant the
expansive operation of its conclusive fictional effect for which the appellant
contends. The issue which arises on an application under s 459G of the Act
is not whether the tax liability assessed against the company is recoverable,
but whether the recovery of the tax is being genuinely disputed. If that
matter is being disputed, with arguable prospects of success, in a tribunal
4
able to set the assessment aside, then it accords with common sense to say
that there is a genuine dispute about the existence of the debt insofar as it is
sought to be made a basis for winding the company up in insolvency under s
459A of the Act.
The Court of Appeal, while purporting to distinguish the Federal Court decision in
fact indicated a contrary opinion.
That becomes obvious in the following passages of the judgment:
[73] In accordance with the ruling of the High Court in Australian
Securities Commission v Marlborough Gold Mines Limited, within the
Australian Federation, an intermediate court of appeal should not depart
from another such court's earlier construction of legislation having
operation throughout Australia unless the court is of the opinion that the
earlier decision is clearly wrong. This consideration gains added strength
where the earlier decision has been followed by other courts, as is the case
here. On the other hand, Hoare Bros has not been followed by any other
intermediate appellate court, and, importantly, the legislative basis for the
principal strand of reasoning supporting it has been removed by
amendments to the taxation legislation.
[74] This Court must follow the ruling of the High Court in Australian
Securities Commission v Marlborough Gold Mines Limited and give due
deference to the decision in Hoare Bros, but, of course, in the end, this
Court's obligation is to give effect to the intention of the legislature. To the
extent that the reasoning in Hoare Bros depends upon treating a dispute
about whether an assessment has correctly fixed the taxpayer's liability to
tax as preventing a court recognising the existence of a dispute about the
existence or the amount of the debt for the purposes of s 459H(1), it cannot
be justified, either by the language of the taxation legislation, or the
language of s 459H(1) of the Act.
[75] In my respectful opinion, the reasoning in Hoare Bros should not be
followed insofar as it adds a gloss to the language of s 459H(1) of the Act
which is not sustainable having regard to the terms of that provision and the
terms of the taxation legislation to which I have referred.
By now you are no doubt wondering what I find interesting about this case.
The decision sparked my interest when I was in the applications jurisdiction in
Brisbane a fortnight ago. I was dealing with an application to set aside a statutory
demand served by the Toowoomba Regional Council on a company called Seymour
White Constructions Pty Ltd. The statutory demand was based on a final certificate
issued by the superintendent for a major building project. The contract was in the
standard AS2124-92 form.
Clause 42.1 of that form of contract provides that:
5
… the contractor shall deliver to the superintendent progress claims for
payment supported by evidence of the amount due to the contractor
including the value of the work carried out by the contractor to that time.
Within 14 days of receipt of the claim for payment, the superintendent is to
issue to the principal and to the contractor a payment certificate stating the
amount of the payment which, in the superintendent’s opinion, is to be made
by the principal. Pursuant to the clause the principal is obliged to pay an
amount not less than that shown in the certificate within 14 days of its issue.
This obligation to pay the amount of the certificate without deduction is
without prejudice to the parties’ right to dispute claims under clause 47 of
the contract.
In other words the terms of the contract separate the obligation to pay the certified
amount without deduction and the right in other proceedings to raise matters in
dispute.
In Dalefield Pty Ltd v Pro-Civil Pty Ltd8, RR Douglas J dismissed an application to
set aside a statutory demand where a progress certificate had been issued but the
principal disputed the obligation to pay.
In paragraph [6] of his judgment Douglas J said:
Once a certificate is issued, there is no legal entitlement to deduct from any
amount certified as due for payment any amount which is claimed to be
payable to the contractor, including unliquidated damages or even
liquidated damages arising under the contract: see Merritt Cairns
Constructions Pty Ltd v Wulguru Heights Pty Ltd [1995] 2 Qd R 521 at
523, 525-526 (CA) and Re Concrete Constructions Group Pty Ltd [1997] 1
Qd R 6 at 8 and 12 (CA).
Such a result, although consistent with the decisions to which Douglas J referred is
difficult to reconcile with the Court of Appeal’s later judgment in Neutral Bay.
Neutral Bay seems to establish that the existence of a dispute, even though not
justiciable under s 459P of the Corporations Act or even in the Supreme Court is
sufficient to justify setting aside a statutory demand.
The arguable scope of the decision might go even further. Builders seeking to
enforce payment of adjudicated amounts under the provisions of the Building and
Construction Industry Payments Act 2004 (Qld) (“BCPA”) might be surprised to
discover that contractors will seek to set aside a statutory demand based upon the
adjudicated amount claiming that the debt is disputed notwithstanding the provisions
of s31 of the BCPA.9 If the Court of Appeal is right and Hoare Bros is wrong, I can
8
[2000] QSC 424
31(1) An adjudication certificate may be filed as a judgment for a debt, and may be enforced, in
a court of competent jurisdiction.
(2) …
(3 …
(4) If the respondent commences proceedings to have the judgment set aside, the respondent—
(a) is not, in those proceedings, entitled—
9
6
see no prima facie reason why a principal could not resist an attempt to wind it up
even where the contractor has registered the adjudicated amount as a judgment. Lest
it be thought I have a concluded view about this issue, I will, of course, be guided by
the arguments of counsel if the issue ever comes before me again.
The Neutral Bay decision also dealt at some length with the alternative basis on
which a statutory demand can be challenged. Section 459J of the Corporations Act
permits the Court to set aside a statutory demand for “some other reason”. In essence
the Court has a discretion to set aside a demand if it would be unjust to allow the
creditor to use it to wind up the company even though there may not be a dispute
about the debt or an offsetting claim. In Arcade Badge Embroidary Co Pty Ltd v
DCT10 the Full Court of the Federal Court at paragraph [22] explained that the
discretion:
…extends to conduct that may be described as unconscionable, an abuse of
process, or which gives rise to substantial injustice.
It is not the purpose of this paper to examine the limits of the unfairness discretion but
there are numerous examples of its being successfully invoked apart from the Neutral
Bay case.11 If the High Court is against the reasoning of the Court of Appeal in
Neutral Bay on the main issue, it is likely that the court will also consider whether it
can be unjust to allow the creditor to wind up the company where there is no genuine
disputed debt.
The view taken in the Queensland cases is not uniformly accepted. Olney J took a
contrary position in Kalis Nominees Pty Ltd v DCT12 on the grounds, inter alia, that to
exercise the discretion favourably to the debtor in a tax case would simply be an
example of the judge expressing distaste for the tax laws. Keane JA took umbrage at
this suggestion and gave 4 reasons for rejecting Olney J’s approach:13
In my respectful opinion, the strictures expressed by Olney J in this passage
tend to narrow the scope of the discretion conferred by s 459J(1)(b) in a
way which is not warranted by the language, subject matter or purposes of
the Act. In my respectful opinion, the approach of Holmes J and of Davies
JA in this Court is to be preferred to an approach which tends to narrow the
discretion conferred by s 459J(1)(b) by reading into it words which are not
there. There are four reasons why I prefer the approach of Holmes J and
Davies JA to the approach suggested by Olney J in the passage cited above.
First, to the extent that the passage cited assumes that the policy of the tax
law identified by Olney J would be defeated if a demand were set aside
because a review is pending and there is an arguable case that the review
(i) to bring any counterclaim against the claimant; or
(ii) to raise any defence in relation to matters arising under the construction contract; or
(iii) to challenge the adjudicator’s decision; and
(b) is required to pay into the court as security the unpaid portion of the adjudicated amount
pending the final decision in those proceedings.
10
(2005) 157 ACTR 22..
11
See eg Willemse Family Co Pty ltd v DCT [2003] 2 Qd R 334 especially at [42] (Holmes J); KW
& KM Quinn Investments Pty Ltd v DCT [2004] QCA 91 at [6].
12
(1995) 31 ATR 188 at 193.
13
Paragraph [83].
7
will be successful, the accuracy of his Honour's assumption as to the policy
of the tax law is not self-evident: it is certainly not expressly stated in the
language of the tax law. Secondly, the scope of the discretion conferred by s
459J(1)(b) should be determined by reference to the subject matter and
purposes of the Act not the tax law. Thirdly, to recognise that there is no
indication in the taxation legislation that companies engaged in genuine
disputes about their tax liabilities should be wound up before the dispute is
resolved is hardly to treat the discretion conferred by s 459J(1)(b) as an
occasion to express disapproval of the taxation legislation: in truth, it is
simply to acknowledge the legislative purpose which explains the existence
of s 459J. Fourthly, even if one were to accept the strict distinction drawn
by the Full Court of the Federal Court in Hoare Bros between the "process
of assessment" and the taxpayer's underlying liability to pay an amount of
tax, observations of the Court in that case suggest that the existence of a
genuine dispute as to the underlying tax liability could be taken into account
as one factor in exercising the discretionary power to set aside the demand
under s 459J(1)(b). And if one were to add to that factor consideration of
the disruption to the taxpayer and its creditors and contributors involved in
a winding up and the absence of any suggestion that the creditor would
suffer actual prejudice if left to remedies other than a winding up, it would,
in my view, be open to a court to conclude that there was a reason to set
aside the statutory demand without pausing to consider whether the
circumstances involved unconscionable conduct or unfairness on the part of
the Commissioner.
Unless and until the High court sets it aside, the Neutral Bay decision stands as the
law in Queensland on this issue. From your point of view, it is important not to
overlook the general discretionary ground in s 459J when seeking to set aside a
statutory demand.
While I am on the subject of the High Court and statutory demands, it is noteworthy
that on 26 March this year, the High Court handed down a decision in a matter called
Aussie Plant Hire Pty Ltd v Esanda Finance Corporation Ltd.14
The case dealt with the question of whether or not the court has power to extend the
time for compliance with a statutory demand after the prescribed time has expired.
Section 459F(2) of the Corporations Law specifies the time for compliance with a
statutory demand in these terms:
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
14
[2008] HCA 9 (26 March 2008).
8
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.
Since the High Court in David Grant & Co Pty Ltd v Westpac Banking
Corporation,15 had already determined that the time for bringing an application to set
aside a stautory notice could not be extended, you might well wonder why it would be
necessary to extend the time for compliance with a statutory demand.
The answer to that question is that it might be necessary to give effect to a right of
appeal.
The problem in Aussie Plant Hire arose because the Master in Victoria dismissed an
application to set aside a statutory demand and extended the time for compliance with
the notice under s 459F(2)(a). Dissatisfied with the outcome the debtor wanted to
appeal to a judge. Before the appeal was heard the extended time for compliance
expired, thus crystallizing the debtor company’s deemed insolvency. An application
was made to further extend the time for compliance under s 70 of the Corporations
Law. Section 70 provides that:
Where this Act confers power to extend the period for doing an act, an
application for the exercise of the power may be made, and the power may
be exercised, even if the period , or the period as last extended, as the case
requires, has ended.
Section 9 of the Corporations Law provides that unless the contrary intention
appears, “extend”, in relation to a period includes further extend and has a meaning
affected by section 70.
It might be thought that this combination of sections is a strong basis for a conclusion
that the time for compliance with a statutory demand can be extended whenever a
sufficient basis is established and whether or not it has already been extended. Of
course, if the obvious and intuitive answer was correct, there would be no point in
mentioning the case and probably no case at all.
Whelan J in the Victorian Supreme court ruled that the time for compliance having
expired, the company was already deemed to be insolvent and dismissed the
application.16 In doing so he said:17
The point is not whether an extension of time can or should be granted, the
point is that the consequence provided for by s459F(1) has already attached
... and no order which I make can or should purport to undo that.
15
(1995) 184 CLR 265.
Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd [2006] VSC 306
17
[2006] VSC 306 at [9].
16
9
What might seem a somewhat esoteric point then progressed from a single judge of
the Victorian Supreme Court to a special bench of five judges of the Court of Appeal.
A five member bench was required because the appellant debtor needed to overturn
an earlier decision of the Victorian Court of Appeal in Buckland Products Pty Ltd v
Deputy Commissioner of Taxation.18 That decision held that the time for compliance
could not be extended and an appeal after such time was incompetent. It is interesting
to note that Chernov JA was a member of both Courts. Four members of the Court
held that there was power to extend time although two of those dismissed the appeal
for other reasons. Consistently with his earlier decision, Chernov JA was the only
one of the 5 appeal judges in the Aussie Plant Hire who maintained that the Court had
no power to extend time. As things turned out, he was the only one who was right.
Despite its having now received the earnest consideration of 7 wise, judicial minds
the High Court was persuaded that the matter was of such importance as to justify the
grant of special leave. The High Court divided 4:1 on the outcome. It will not come
as any surprise to discover that Kirby J was the lone dissenter.
The reasoning of the majority of the High Court is to be found in paragraphs [18] to
[24] of the judgment.
After looking at the statutory provisions the majority concluded:
The emphasis which these provisions give to the speedy resolution of an
application to wind up in insolvency is coupled with provisions which seek
to focus attention at the hearing of an application to wind up in insolvency
upon whether the company is insolvent rather than upon the formal
adequacy of steps which have preceded the institution of the application to
wind up… It would be sharply at odds with the purposes revealed by the
provisions of Pt 5.4 to read the power to extend time for compliance with a
statutory demand as capable of exercise after the time has expired. That
may well be reason enough to consider that the Act intends that the general
provisions of s 70 and the definition of "extend" in s 9 should not apply to
the power to extend time for compliance with a statutory demand.
With the greatest of respect to the High Court, some of the logic of that escapes me.
Fortunately the Court went on to argue the real point rather more persuasively;
adding:
But the point is put beyond doubt when regard is had to the consequence
that the Act attaches to a failure to comply with a statutory demand. As
noted at the outset of these reasons, if a company fails to comply with a
statutory demand, and that failure occurs during or after the three months
ending on the day when that winding up application is made, the Court must
presume that the company is insolvent. It is s 459C that requires the Court
to make that presumption.
The temporal focus of s 459C is upon a period which commences three
months before the date of the application for winding up, but the period
18
[2003] VSCA 85 (18 June 2003).
10
does not terminate upon the date on which the winding up application
commences. The question for a Court is whether any of the identified events
has occurred at any time after the commencement of the relevant period.
The Act does not require any further consideration of whether the event
persists at the date of the application for winding up.
If one of the specified events has occurred at any time during the identified
period, the Court must presume that the company is insolvent. …
On its face, s 459F(1) is engaged if the time for compliance with a statutory
demand expires and the company has not then complied with it. The demand
was in force; the time expired; the company did not comply with the
demand.
The essence of this is that all a creditor has to establish to justify a winding up in
insolvency is that at some time in the last three months the debtor failed to comply
with a statutory demand. It does not have to be a continuous failure up to the time of
the winding up application. Even if the failure to comply was subsequently corrected
by having the time for compliance extended nunc pro tunc, it cannot alter the fact
that, at least in the period between the original date for compliance and the extension
of time, the company was deemed to be insolvent. As that is all that is required to
establish insolvency, there is no practical purpose in having the time extended and for
that at reason it can be inferred that the general power to extend time does not apply.
The important practical result of the case is that you cannot appeal against a decision
dismissing an application to set aide a statutory demand unless you obtain a sufficient
extension from the judge hearing the initial application to cover the period until the
outcome of the appeal is known. Alternatively, before the compliance period expires
it would be necessary to seek an extension by bringing an application under s 459F.
Mere success on the appeal will not be an answer to the demand if the time for
compliance has passed at any point.
The third case I wanted to talk about is the Court of Appeal decision in Lee & Anor v
Surfers Paradise Beach Resort Pty Ltd.19 A special leave application in relation to
that judgment is likely to be heard in the High Court’s Brisbane sittings in a couple
of weeks.
The case concerned the construction and application of the Body Corporate and
Community Management Act 1997 (Qld).
The facts were simple. The purchasers signed up to buy a unit in the Q1 building on
the Gold Coast. They paid a deposit of $94,000 which they would, as things have
transpired, very much like to have back. It was their intention to place their unit in
the pool available for rental and make it substantially self funding.
What the purchasers were unaware of was that in order to have their unit included in
the letting pool they were required to purchase a furniture and home ware package at
the very modest cost of $49,000 from the company associated with the vendor that
19
[2008] QCA 29.
11
operated the letting pool. Having something of an eye for the value of soft
furnishings, they baulked at this additional expense and looked about for a way to
avoid the contract or otherwise force the manager to include their unit in the letting
pool.
Their eyes fixed upon the provisions of Chapter 5 of the Body Corporate and
Community Management Act.
This case is illustrative of two things. First, it points out the limitations on the rights
of a purchaser to avoid a contract under the Act; and second, it reinforces the fact that
no matter how good you think your legal point is, it won’t fly without evidence.
Because the purchase of the unit was off the plan the vendor was required to give the
purchaser a disclosure statement under s 213 which contains a list of information of
obvious relevance to the purchaser such as, inter alia, the anticipated body corporate
fees, the terms of any management agreement or service agreement and the applicable
regulation module.
If the terms of any agreement change or the other information is overtaken by events
or changed before settlement the vendor is required by s 214 to give the purchaser a
new statement with the current information within 14 days after the change.
When the purchasers in Lee were called upon to complete the contract after
registration of the plan, they refused to settle without an accurate statement.
The vendor took the failure to settle as repudiation of the contract, rescinded and
forfeited the deposit.
The changes between the documents originally provided and the date of settlement
were slight. They did include the name of the manager, which was unspecified when
they had signed the contract, and the allocation to the manager for storage and
administration of some small parts of the car park which had previously been
unassigned space behind the lifts. A small space on the roof was leased to the
manager to site a satellite dish for the pay TV service.
If a purchaser is materially prejudiced by any change between the information in the
original disclosure statement and any updated disclosure statement s 214(4) affords a
right to rescind the contract. A similar outcome can be obtained from the provisions
of s 217 which gives a similar right to the purchaser to rescind if the information in
the latest disclosure statement is wrong.
Jerrard JA, who dissented, took the view that as at the settlement date the vendor was
not ready willing and able to settle because it had an obligation under s 214 as a
contracting party to provide the statement and when the statement was received, the
purchaser may have been entitled to avoid the contract.
The President and I took a different view. We focussed on the right to rescind being
conditional on the purchaser being materially prejudiced. Beyond identifying the
changes, the purchasers had not addressed how they were prejudiced by the changes
particularly where they had agreed to purchase the unit. Their exclusion from the
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letting pool was irrelevant because the letting pool arrangements were a separate
contract between the manager and the unit holders. It had nothing to do with the
vendor. This had been accepted by the purchaser by the time of the hearing of the
appeal and was no longer an issue.
Without evidence of any material prejudice it was my view that there was no right to
rescind. Whether a purchaser is materially prejudiced is a question of fact. Facts
must be proved by evidence. By the time the application came on for hearing, the
purchaser knew all the facts and could have identified any prejudice.
Time and again, cases fail for want of evidence. There will almost always be
differences between an original disclosure statement and the position when the
vendor calls for settlement. That is an inevitable consequence of contracts being
entered into before the building is built. Mostly, these changes will be of no
consequence. Sometimes, however, they will be such as to materially prejudice a
purchaser for some reason. Often, this will be because of some subjective intention
on the part of a purchaser as to the use to which it is intended to put the unit. Without
proper evidence of the purpose or the way the purchaser is prejudiced, the purchaser
will usually lose. It is not sufficient merely to point to the inaccuracies in the notice
and hope the Court agrees that they are material. It is unusual for a change to be so
obviously prejudicial that it speaks for itself and yet still be the subject of argument.
The purchaser having failed to adduce evidence of material prejudice, then
notwithstanding that s 215 of the Body Corporate and Community Management Act
made the disclosure statement a term of the contract, it seemed to me that the failure
to provide an updated disclosure statement was a breach of warranty only such that
the vendor could still insist on specific performance. Because the statute gave a right
of rescission only if the error caused material prejudice, the warranty was a non
essential term. In arriving at this conclusion I relied on the well known decision of
Jordon CJ in Tramways Advertising Pty Limited v Luna Park (NSW) Ltd20:
The test of essentiality is whether it appears from the general nature of the
contract considered as a whole, or from some particular term or terms, that
the promise is of such importance to the promisee that he would not have
entered into the contract unless he had been assured of a strict or
substantial performance of the promise, as the case may be, and that this
ought to have been apparent to the promisor.
The inability of the purchaser to rescind for a non prejudicial inaccuracy in the
disclosure statement was sufficient in my view to distinguish the decision of the High
Court in Foran v Wight21 on which the purchaser relied.
There! That exhausts the three points I think you can accommodate. Let me
summarise. A genuine dispute for the purposes of a statutory demand under the
Corporations Act may arise even if the dispute is not able to be litigated in the Court.
In any case you might still be able to rely on the Court’s discretion to set aside the
demand if it would be unfair not to. Second, if you want to appeal the refusal of the
20
21
(1938) 38 SR (NSW) 642 at 641-642.
(1990) 178 CLR 385
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Court to set aside a statutory demand you must not neglect to extend the time for
compliance sufficiently and, third, when the Body Corporate and Community
Management Act talks of the need for material prejudice as a precursor to rescission
by a purchaser it requires something more than merely an inaccuracy in the disclosure
statement. Importantly though, don’t forget that however good your legal point you
need evidence to run it.
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