A'la Carte Homes Pty Ltd v AAPD Co P/L
[2019] VSC 108
•5 March 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2018 02281
IN THE MATTER of A’la Carte Homes Pty Ltd
| A’LA CARTE HOMES PTY LTD (ACN 136 023 964) | Plaintiff |
| v | |
| AAPD CO PTY LTD (ACN 620 054 293) | Defendant |
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JUDGE: | Randall AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 18 February 2019 |
DATE OF JUDGMENT: | 5 March 2019 |
CASE MAY BE CITED AS: | A'la Carte Homes Pty Ltd v AAPD CO P/L |
MEDIUM NEUTRAL CITATION: | [2019] VSC 108 |
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CORPORATIONS – Corporations Act2001 (Cth) – Statutory demand – Application to set aside – Section 459G – Demand served by an assignee – S 459E(4) – Notice of assignment – Whether demand should be set aside on ‘other grounds’– S 459J.
APPLICATION TO SET ASIDE STATUTORY DEMAND – 21 day affidavit – S 459G – Graywinter principle – Whether the 21 day affidavit in support of application ‘revealed’ the grounds relied upon to constitute some other reason.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Waldren | COMLAW |
| For the Defendant | Mr D Didone | Wyndham Law Offices |
HIS HONOUR:
This is an application to set aside a statutory demand. The originating process, filed 19 November 2018, sets out that the application is made under ss 459G, 459H and 459J of the Corporations Act 2001 (Cth). The orders sought is that the ‘creditor’s statutory demand undated with affidavit accompanying statutory demand sworn 29 October 2018 be set aside’.
At the hearing, I made orders as follows:
(a) The statutory demand served by the defendant dated 29 October 2018 and referred to in the originating process as being undated is set aside; and
(b) The defendant pay the plaintiff’s costs, including reserved costs, on a standard basis.
At the hearing, I gave short ex temp reasons for that order. As requested, I now publish full reasons.
The 21 day affidavit in support of the application to set aside a statutory demand set out grounds that:
(a) there is a bona fide offsetting claim; and
(b) the statutory demand ought to be set aside for ‘some other reason’.
The bulk of the affidavit dealt with an offsetting claim under s 459H.
Paragraph 12 of the affidavit included:
As a result of the defective plumbing works the plaintiff incurred additional costs in rectifying the breaches of the contract by the defendant. As a result of the breaches the plaintiff incurred costs and expenses exceeding the sum now claimed in the creditors statutory demand the subject matter of this application. The costs and expenses will exceed the sum of $6,800. Further details of the costs and expenses incurred shall be provided.
In addition to the matters dealing with the offsetting claim, paragraph 14 of the affidavit provided:
On 18 November 2018 my solicitors wrote to the solicitors for the plaintiffs and inviting their client to withdraw the Statutory Demand. Now produced and shown to me and marked with the letters ‘DJ-3’ is a copy of the email from Comlaw to the defendant’s solicitors dated 18 November 2018.
The email marked ‘DJ–3’ relevantly provided:
Our client has an offsetting claim which exceeds your client’s claim. Your client was well aware that there is a dispute concerning the works performed by your client the basis of the invoices.
The invoices referred to in the description of debt in the schedule to this creditor’s statutory demand do not properly set out the relevant details.
At first blush, the statement referred in the preceding paragraph is nebulous and, but for the circumstances of this application, barely reveals the grounds to set aside a statutory demand for ‘some other reason’.
Mr Johnson swore two further affidavits in support of the application. The affidavit of 6 February 2019 squarely raises the issue. Paragraph 3 of that affidavit refers to Exhibit ‘SE–7’ of Mr El Houli’s affidavit which attached copy invoices 476, 541, 576 and 619. The two invoices relied upon by the defendant were 619 and 620. After comparing ABN numbers Mr Johnston concludes:
The ABN of 13 516 533 438, appearing on the invoices exhibited appears to be that of a partnership of A Bey & S El- Houli.
That affidavit was sworn outside the 21 days from service of the statutory demand.
A further affidavit was filed on behalf of the plaintiff by Mr Leonidis and sworn on 11 February 2019. Exhibited to that affidavit was a copy of an email transmission sent to the defendant’s solicitors on the same day. It relevantly set out that the two invoices which were referred in the statutory demand and attached to the correspondence were of a partnership and not the defendant.
The submissions filed on behalf of the defendant on the same day addressed the issue. At Paragraph 24 of those submissions, it was set out as follows:
As at 29 October 2018, when the Defendant’s Statutory Demand was issued, the indebtedness of the Plaintiff had been assigned to the Defendant from the partnership known as A Bey & S El Houli ABN 13 516 533 438. Accordingly, the Defendant was entitled to issue the Demand when it did.
Subsequent to those submissions, two further affidavits were filed on behalf of the defendant. The first was that of Mr Didone which confirmed service of a notice of assignment of debt. The covering letter and the notice both dated 29 October 2018 were exhibited to the affidavit. The covering letter set out as follows:
Re: Claim by AAPD Co Pty Ltd (trading as All Access Plumbing) against A’La Carte Homes Pty Ltd
We enclose Notice of Assignment of Debt by way of service.
The notice of assignment of debt is addressed to the plaintiff and relevantly sets out:
AAPD CO PTY LTD … (“the Assignee”) HEREBY NOTIFIES you that:
1.By a Deed of Assignment of Debt dated today’s date the Debt owing by the Debtor has been assigned to the Assignee.
2.The Debt is now owing to the Assignee and the Assignee requires payment of same immediately.
The notice is dated and signed by the Director of the defendant.
Mr El Houli swore a further affidavit on 15 February 2019 which referred to paragraph 3 of Mr Johnson’s affidavit sworn 6 February 2019 and explained that having received and taken advice, that the debt ought to be assigned for the purposes of the statutory demand, the assignment was executed. Paragraph 3 and 4 of that affidavit set out :
On 29 October 2018, I saw Danny Didone solicitor to swear an affidavit in support of a Statutory Demand issued by the Defendant on the Plaintiff that same day. I had previously received advice from Mr Didone to the effect that due to the status of invoices 619 and 620 in being issued by our previous business in which I was in partnership with Ahmed Bey, and bearing the ABN 13 516 533 438, that it was appropriate to assign the indebtedness of the Plaintiff to the Defendant company.
After speaking with my accountant, I accepted the advice of Mr Didone. To this end Mr Didone prepared a Deed of Assignment of Debt, which I signed along with Mr Bey on 29 October 2018.
The Deed of Assignment of Debt was produced.
For the reasons set out herein, I do not need to determine whether or not the deed of assignment was prepared before or after the swearing of the affidavit accompanying the statutory demand. Nor do I need to determine if the assignment bears upon the issue of the efficacy of the statutory demand.
The statutory demand
The statutory demand follows Form 509H save that it does not appear to have been dated or signed. Mr Didone, from the Bar table, informed me that the copy exhibited appears to have omitted page 2 which had been signed and dated. I accept that assurance.
Paragraph 1 of the statutory demand set out that the plaintiff owes the defendant (‘the creditor’):
…the amount of $6,800 as to AAPD Co Pty Ltd … and being the total of the amounts of the debt described in the Schedule.
Paragraph 2 set out:
Attached is the affidavit of Saad El Houli dated 29 October 2018 verifying that the amount is due and payable by the [Plaintiff].
The schedule to the statutory demand set out each of invoices no. 619 and 620, both dated 17 January 2018 and the quantum claimed.
The affidavit sworn by Saad El Houli, accompanying the statutory demand, relevantly set out as follows:
1.I am a director of the Creditor named in the Statutory Demand, which this Affidavit accompanies, in respect of a debt totalling $6,800 owed by [the Plaintiff] to it relating to payment for building goods and/or services supplied by the Creditor to the [Plaintiff] in respect of which the following invoices have been issued:
…..
3.I have inspected the business records of the Creditor in relation to the [Plaintiff’s] account with the Creditor.
There is no reference to the assignment by the partnership in the affidavit accompanying the statutory demand. Further, to the contrary, the natural inference to be garnered from the reference to goods and/or services supplied by the creditor to the debtor, is that the defendant had supplied the goods or services directly and the debt arose out of the relationship of creditor and debtor between the plaintiff and the defendant. That is reinforced by the reference to the inspection of the business records of the defendant.
Other grounds
On the morning of the hearing, the plaintiff sought to rely upon a further affidavit which I was informed by counsel dealt with the issue of non-receipt of the notice of assignment. I declined to read that affidavit as the question of whether the notice had been received or not was unnecessary to decide given the form of the notice of assignment relied upon. The purported notice was entirely unsatisfactory. It did not specify the identity of the assignor, nor the debts which had been assigned.
In any event, even if it had sufficiently identified the assignor and the debts being assigned to be effectual, in the circumstances of providing the same contemporaneously with the statutory demand, the statutory demand must still be set aside.
Barrett J in Condor Asset Management Ltd v Excelsior Eastern Ltd,[1] canvassed the cases where it was concluded that a statutory demand, of itself, could provide the necessary notice of assignment. The statutory demand in Condor set out:
… that the plaintiff “as responsible entity of the Peridon Village Trust” owes the defendant “as assignee of the GDK Financial Solutions Trust” the “amount of $15,768.50 being the amount of the debt described in the schedule”.[2]
[1][2005] NSWSC 1139 (‘Condor’).
[2]Ibid [1].
The affidavit accompanying the statutory demand set out relevantly:
I am an employee of the solicitor for the Creditor in relation to a debt of $15,768.50 owed by the Debtor company relating to advances made to the Debtor company by the GDK Financial Solutions Trust and assigned to the Creditor and am authorised …[3]
[3]Ibid [2].
Barrett J held:
Where the existence of the debt on which a creditor bases the statutory demand depends on matters of which the company has no knowledge and cannot reasonably be expected to receive knowledge in the ordinary course of events, such as assignment to the creditor of a debt originally owed to a third party, it becomes incumbent upon the assignee-creditor to show the missing particulars on which its claim depends. In the case of assignment, that included material from which the plaintiff could satisfy itself that there had been a legal or equitable assignment. Failure to include that information in this case produced a ‘defect’ in the demand that would produce ‘substantial injustice’ within the meaning of CA s 459J(1)(a) if the demand were not set aside …[4]
[4]Ibid 224.
At [35], Barrett J said:
In the context of a statutory demand issued by an assignee of a debt, it is reasonable to think that requirements under s 459E(2), including the requirement arising from the ‘Description of Debt’ instruction in form 509H, will not be satisfied unless it can be seen, when the demand is served, that circumstances warranting such an order of a court of equity exist in relation to a debt upon which the person serving a demand relies as a creditor by assignment. In other words, a self-professing assignee cannot be regarded as having satisfied the content requirements of s 459E(2) unless the statutory demand is framed in terms enabling the company to see the matters that would cause a court to order that the assignor’s name be used in a debt recovery action brought by the equitable assignee. If, as has been suggested, the statutory demand can operate as notice which causes a merely equitable assignment to become a legal assignment under s 12 of the Conveyancing Act [reference to the New South Wales Act], it does not follow as some form of corollary that the demand need not contain, in the way I have stated, information sufficient to show the status of the issuer as an assignee. Where the statutory demand represents the first intimation to the debtor regarding the assignment, the content I have described must, I think, be included.
Given the circumstances of this statutory demand, even if the purported notice of assignment had been provided to the plaintiff contemporaneously with the statutory demand and, even if the purported notice had sufficiently identified the assignor and the debts so assigned (which it did not), a copy of the assignment ought to have been included. This was to enable the plaintiff to satisfy itself that there had been a legal or equitable assignment which could be relied upon by the creditor. Given the statement by Barrett J in Condor, it is axiomatic that the failure to provide sufficient particulars of the assignment, or sufficient notice of the same, constituted a defect in the demand which produced ‘substantial injustice’. Accordingly, s 459J(1)(a) applies.
Although the defendant addressed the assignment point in its written submissions, at the hearing it was submitted that the plaintiff was precluded from relying upon the ‘assignment point’ by reason of the ‘Graywinter principle’.[5]
[5]Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452.
The Graywinter principle applies to the articulation of grounds under s 459J in the same way as there is the requirement to articulate grounds with respect to ‘a genuine dispute’.[6]
[6]See Galaxy Coins and Bullion Pty Ltd v Deputy Commissioner of Taxation [2018] VSC 728.
It was submitted that the 21 day affidavit sworn by Mr Johnson did not sufficiently reveal the argument. The reference in the email transmission exhibited to that affidavit to the invoices did not properly set out the relevant details and could have meant anything.
I disagree. It was open to conclude that upon a reading of the 21 day affidavit that the plaintiff did not appreciate that the debts had been assigned. The paragraphs dealing with the offsetting claim commence by reference to an engagement by the plaintiff of the defendant as a plumber to perform plumbing works at three properties. There is nothing deposed to which agitates a ‘genuine dispute’ about the debts. The concentration on the offsetting claim and the lack of material relating to a genuine dispute in the 21 day affidavit is understandable given that each of the relevant invoices is headed in bold ‘All Access Plumbing’. That business name or banner was used by the previous partnership and the defendant without change. Neither the partnership nor the defendant is otherwise identified in each of the invoices, save that under the address in the top right side of each of the invoices, there is a reference to the ABN number. As it was subsequently determined and referred to in the affidavits after the 21 day period, the ABN number related to the partnership assignor. In those circumstances, given that the amount of each of the debts in each of the invoice was not challenged, it is antithetical to submit that the reference to ‘the invoices referred to in the description of the debt and the schedule to the creditor’s statutory demand do not properly set out the relevant details’ and does not reveal an issue about the standing of the defendant as a creditor. After all, the amount of the invoices was not in dispute and the offsetting claim refers to works also referred to in the invoices. Further, the defendant must have appreciated that the deponent of the 21 day affidavit was still under the misapprehension that the plaintiff had engaged the defendant rather than the former partnership. After all, the defendant’s solicitor gave advice about the necessity for an assignment.[7]
[7]See affidavit of Saed El Houli, sworn 15 February 2019.
Graywinter principle
The Graywinter principle was considered by the Western Australian Court of Appeal in Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd (No 3)[8]. The Court of Appeal said at [62], referring to Graywinter:
In that case, his Honour referred to “minimum requirements” for a supporting affidavit. His Honour said that in an application that alleges a “genuine dispute” about the existence or amount of a debt (s 459H(1)(a)) the supporting affidavit must “disclose facts showing there is a genuine dispute between the parties. A mere assertion that there is a genuine dispute is not enough. Nor is a bare claim that the debt is disputed sufficient”. [citation omitted]
[8][2014] WASCA 132 (‘Pravenkav’).
At [63] the Court of Appeal in Pravenkav referred to Parker J in Financial Solutions Australasia Pty Ltd v Predella Pty Ltd[9] as follows:
In that case, Parker J said that there was no settled and universal principle, which must be satisfied by an affidavit before it can be accepted as “supporting the application” within the meaning of s 459G(3)(a) and as satisfying the jurisdictional requirement being considered. The statutory yardstick remains that the affidavit should support the application. The precise nature of the application may well influence what this requires. [citation omitted]
[9][2002] WASCA 51 (‘Financial Solutions’).
In Dromore Fresh Produce Pty Ltd v W Paton (Fertilisers) Pty Ltd,[10] Young J held that an affidavit by the plaintiff’s solicitor which simply said that the plaintiff disputed that it was indebted to the defendant, was insufficient to satisfy the statute.
[10](1997) 23 ACSR 230.
In Process Machinery v ACN 057 260 590,[11] Barrett J said:
It is thus reasonably clear that the relevant concept of “raising” or “identifying” a particular ground involves some verbal delineation of that ground in the s459G(3)(a) affidavit.[12]
[11][2002] NSWSC 45.
[12]Ibid [21].
In Hansmar Investments Pty Ltd v Perpetual Trustee Company Ltd,[13] White J stated at [28]:
The implication is now firmly established that the grounds for applying to set aside a statutory demand must be raised in the supporting affidavit, so that a ground which is not so raised cannot be relied upon. It is one thing to draw that implication from the requirement that an application be accompanied by a supporting affidavit. It is quite another to imply from the requirement that there be a supporting affidavit anything as to the precision with which such a ground must be expressed, other than that it be raised. Whether it is raised expressly, by necessary inference, or by a reasonably available inference, provided it is raised, in my view the requirements of s 459G are satisfied.
[13][2007] NSWSC 103 (‘Hansmar’).
Barrett J came around to the same view after considering his judgment in Elm Financial Services Pty Ltd v MacDougal,[14] the judgment of Austin J in POS Media Online Ltd v B Family Pty Ltd[15] and the judgment of White J in Hansmar:
[His Honour] concluded that his observation in Elm to the effect that the ground of challenge to a statutory demand must be raised expressly in, or appear by necessary inference from, the supporting affidavit, was ‘too strict’ and that the correct approach was to treat a ground as having been raised within the 21 day period ‘if the ground is evident from the supporting affidavit, even if only because it can be discerned from some annexed document the content of which “reveals” it.’[16]
[14][2004] NSWSC 560.
[15](2003) 21 ACLC 533.
[16]Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (In Liq) [2015] VSCA 330 [63].
In recent years, the Victorian Court of Appeal has found that the 21 day affidavit:
(a) must convey ‘a clear delineation of the area of controversy’;[17]
(b) must disclose ‘the general nature of the case being advanced’;[18] and
(c) must ‘fairly alert’ the respondent to the nature of the case made in support of the application and ‘must fairly notify the respondent of the evidentiary basis for a submission … on the particular ground upon which the applicant seeks to rely’.[19]
[17]Ibid [59].
[18]Bendigo and Adelaide Bank Ltd v Pekell Delaire Holdings Pty Ltd (2017) 118 ACSR 592 [62].
[19]Goconnect Ltd v Sono Strategic International Ltd (In Liq) [2016] VSCA 315 [40].
In Financial Solutions,[20] Parker J gave the leading judgment. Anderson and Scott JJ agreed with the reasons set out by Parker J. In Financial Solutions the creditor, in the particulars of debt in the statutory demand, set out:
Moneys owing pursuant to two loan agreements now consolidated made between the Company and the National Mutual Life Association of Australasia Ltd … assigned to the creditor by virtue of a deed of assignment …[21]
[20][2002] WASCA 51.
[21]Ibid[ 5].
The 21 day affidavit relevantly set out:
The applicant has not sighted the deed of assignment referred to in Annexure “AF-1” and being described as “moneys owing pursuant to two loan agreements now consolidated made between the Company and the National Mutual Life Association of Australasia Pty Ltd … assigned to the creditor by virtue of a deed of assignment … stamped on 27 September 2000, and it is the genuine bona fide belief of the applicant that the said deed of assignment may be void and of no legal force or effect.
Accordingly, the applicant seeks discovery of the documents referred to in the statutory demand comprising Annexure “AF-1” … in order to determine whether the respondent has a legally enforceable claim against the applicant.[22]
[22]Ibid [23].
At [30] Parker J said:
As Financial Solutions could be expected to have (or to have access to) the documents on which it’s claim depended, there appears to be substance and reality in the view that until Financial Solutions allowed Predella access to the documents on which its claim expressly depended, there existed adequate and sound reason for Predella to dispute the claim. The dispute was none the less genuine because its foundation may have been no more than Predella’s inability to verify the validity of the claim made by Financial Solutions with which Predella had not had any commercial relationship before the purported assignment.
[emphasis added]
At [33] Parker J said:
When the basis of Predella’s application is correctly appreciated it follows, in my view, having regard to the views of Sundberg J in Graywinter, that the material facts on which the applicant intended to rely to show a genuine dispute of the nature identified were sufficiently, though less than ideally, set out in [the 21 day affidavit and its annexures].
In NA Investments Holdings Pty Ltd v Perpetual Nominees Ltd[23], the 21 day affidavit did not articulate s 459G grounds to found an argument that there was a ‘genuine dispute’. However, the 21 day affidavit exhibited the contractual document relied upon. Ultimately the hearing judge permitted an adjournment to augment the 21 day affidavit to allow an argument with respect to construction of cl 11.18 to be ventilated.
[23][2010] NSWCA 210 (‘NA Investments Holdings’).
The creditor relied upon Tennant Limited v Flomin Inc[24] where Forster J said:
There must be something further provided to identify the point to be taken. Otherwise, the mere annexation of possibly relevant contractual documentation would be sufficient to permit an applicant for relief to raise any contractual argument, no matter how obscure, on the hearing of the application.
[24][2009] NSWSC 1246 [20].
Lindgren AJA, with whom Beazley JA and Handley AJA agreed, said in NA Investments Holdings[25] :
I accept that there was nothing in the affidavit or exhibits to alert Perpetual to the particular construction to be advanced by the company. Indeed, the affidavit was directed to an offsetting claim and was therefore apt to put Perpetual “off the scent”. Nonetheless, as noted above, the very clause on which the statutory demand depended contained the limitation of liability subclause.
In my respectful opinion, Perpetual’s submission confuses the concept of “support” with natural justice considerations which will attend the court’s hearing and determination of the application to set aside. Whatever may be the outer limits of the concept of “supporting” in s 459G(3), in my view the requirement is met where, as here, the only issue sought to be raised by the company is one of construction within the four corners of the provision on which the statutory demand depends, and the document in question, albeit with other documents, is put into evidence by the affidavit filed and served within the 21-day period.
The court’s powers of case management and the possibility of an adjournment and costs sanctions are available to ensure that the creditor is accorded procedural fairness in terms of an opportunity to respond to the construction advanced by the company. (It was not suggested that the Company was forensically disadvantaged by the failure of the affidavit to identity the construction ultimately advanced.)
It may be suggested that s 459G(3) serves no useful purpose if it is not to require the company to inform the creditor of the construction that is to be relied on. This is not so. Another purpose served is that of accelerating the filing and service of evidence in the interests of an early hearing of the application to set aside.
It will be clear from the last three paragraphs that my views generally accord with those expressed by White J in Tatler.com.au at [19].
Exceptionally, it is accepted that an “affidavit” may satisfy the requirements of s 459G(3) although it does not contain evidence in admissible form: see, for example, Graywinter at p 459; POS Media at [30] – [31]; Hansmar at [27]. But this is no reason why an affidavit that does contain evidence in admissible form should be held not to satisfy the requirements for failing to contain submissions or arguments normally alien to the nature and function of an affidavit. It is to be noted that Perpetual’s present contention would not be satisfied by an affidavit annexing the relevant document accompanied by a letter to the creditor from the company or its legal representatives identifying the particular provision and the construction of it to be relied on: these matters would have to be contained in the affidavit.
[25][2010] NSWCA 210, [85]-[90].
In Van Motman Pty Ltd v Creative Fitness Marketing Pty Ltd[26] Atkinson J considered a statutory demand based upon two agreements. Atkinson J further said:
The principal difficulty faced by the applicant is that Mr Van Motman, a director of the applicant, swore that the applicant and the respondent entered into the 2008 agreement. The affidavit exhibits that agreement. It is therefore necessary to look at what the 2008 agreement was said to be. ...[27]
[26][2010] QSC 105.
[27]Ibid [15].
Atkinson J’s analysis of the agreements exhibited led to the conclusion that it was not between the applicant and the respondent. On the face of the contract Mr Van Motman was mistaken as to whom the contracting parties were. Atkinson J said:
…That the respondent was not in fact the contracting party is an inference that is available from the contracts exhibited to the supporting affidavit. That ground of challenge was not precisely delineated in the affidavit itself nor was it a necessary inference from the affidavit. However it was an available inference from the exhibited material and so, as White J of the Supreme Court of New South Wales held in Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd, it could be said that the ground was raised in the supporting affidavit. …[28]
[28]Ibid [16].
Atkinson J turned then to the applicant’s alternative submission that the respondent in any event satisfies the test set out in s 459J(1)(b) of the Act. It was submitted that the Court may set aside the demand if it is satisfied that there is some other reason why the demand should be set aside.
Atkinson J further noted:
This elucidation of the compass of s 459J(1)(b), with which I respectfully agree, has been followed in many subsequent cases. In Saferack Pty Ltd v Marketing Heads Australia Pty Ltd, Barrett J held that the operation of the subsection was not confined to cases coming within established categories such as unconscionability and abuse of process but that the section applied wherever there was a need to counter some attempted subversion of the statutory scheme.[29]
[29]Ibid [20].
Atkinson J determined:
There is in my opinion an attempted subversion of the statutory scheme if a company which is not a creditor serves a statutory demand upon a company which is not indebted to it as a precursor to using the court process to wind up the company served with the statutory demand in insolvency because of its failure to pay the amount demanded in the statutory demand. The demand should therefore also be set aside pursuant to s 459J(1)(b) of the Act.[30]
[30]Ibid [21].
I adopt Atkinson J’s analysis and apply the same to the facts before me. The issue relating to the assignment was not delineated in the affidavit itself, nor was it a necessary inference from the affidavit. However, it was an available inference from the exhibited correspondence. The ‘available inference’ is derived from the reference in the email to ‘the invoices…do not properly set out the relevant details.’ Given what I have set out in para [33] hereof, it is an available inference that the standing of the Creditor to serve the statutory demand that is being questioned. I have not read any of the authorities as limiting the ‘available inference’ to the sole available inference. It is sufficient if it is an available inference, whether it be the sole available inference or an inference available among several. Each application of the concept will turn on the attendant facts and circumstances.
Further, I refer to In the matter of Spartan Sporting Goods Pty Ltd[31]. In the ex tempore judgment, Black J was vexed with the issue of whether the ‘Graywinter principle’ prevented subsequent reliance on material which could not have been known to the company at the time of making the s 459G application. Black J ultimately resolved the dispute by determining that the fact unknown at the time of the s 459G application, being the knowledge of the existence of a parallel proceeding filed by the creditor seeking to agitate the same debt claimed in the statutory demand, was a particular of the dispute raised by the company rather than a discrete and unconnected matter. In those circumstances Black J considered that the existence of the parallel proceeding could ‘be raised consistently with the requirements of s 459G of the Act, as applied by the Graywinter principle.’[32]
[31][2017] NSWSC 1146 (‘Spartan Sporting Goods’).
[32]Ibid [10].
Further, Black J said:
I should add that I more readily reach this view where it avoids a result that seems to me highly inconvenient, for all parties and for the administration of justice. If I had reached the contrary result, and Spartan was not entitled to raise the existence of the proceedings which existed but which were not known to it, in an application to set aside the Demand, then the Court would have had to determine that application on a wholly artificial basis. If that was what s 459G of the Corporations Act required, then the Court would, of course, proceed in that way. Had the Court been required to proceed in that way, then its consequence would have been that the Court should have more readily declined to wind up Spartan, in any subsequent winding up application founded on the Demand, where all relevant matters had not been able to be raised in the application to set aside the Demand. The Graywinter principle would not have prevented that matter being raised, as a matter relevant to the exercise of the Court’s discretion, in any subsequent winding up application. It would not have been in the interests of the parties, or the administration of justice, or consistent with the policies underlying the relevant provisions of the Corporations Act, that a dispute of that character, which the Act seeks to have determined in an application to set aside the Demand, should be deferred to the hearing of a winding up application.[33]
[33]Ibid [11].
Consistent with the approach taken by Black J in Spartan Sporting Goods, I have had regard to the circumstances of this statutory demand. It is for the sum of $6,800, the argument about its efficacy being brought in the Supreme Court in circumstances where costs will equate to or outweigh the amount claimed. If I had declined to set aside this statutory demand on the basis that the assignment issue had not been ‘revealed’ in the 21 day affidavit, I have no doubt that a court on a winding up application will find that ‘[t]he Graywinter principle would not have prevented that matter being raised, as a matter relevant to the exercise of the Court’s discretion, in any subsequent winding up application.’[34] Given the quantum of the debt, it is appropriate that, if I have erred in the application of the Graywinter principle, I have erred on the side of minimising the costs and inconvenience to the parties.
[34]Ibid.
Offsetting claim
In this application, the defendant, in its submissions, sets out substantial material in relation to the Graywinter principle with respect to the offsetting claims. Even though I had received extensive written submissions and had regard to the same, I did not permit further argument on the point given that it was unnecessary as I had determined that there was ‘some other reason’ for setting aside the statutory demand. However, I informed counsel for the defendant that if I were required to decide the question of whether an offsetting claim was available, I note that a similar argument was raised in Pravenkav.[35] The Western Australian Court of Appeal considered the Graywinter principle had been satisfied in circumstances where the 21 day affidavit set out:
The work … was not performed to the satisfaction of Diploma Construction or to the satisfaction of Diploma Construction’s client under the head contract. Any amounts which are said by PG to be owing to Diploma Construction under progress claim number 3 are not payable until the rectification costs have been collated in accordance with cl 5.12 of sch5 and the amount of those costs deduced from any amount payable.[36]
[35][2014] WASCA 132.
[36]Ibid [15].
The defendant’s analysis of Graywinter in its written submissions did not have regard to Pravenkav. The reference in para 12 in the 21 day affidavit: ‘the costs and expenses will exceed the sum of $6,800. Further details of the costs and expenses incurred shall be provided’ is sufficient to articulate or to ‘reveal’ the ambit of the quantum of the offsetting claim. Therefore, it was permissible to augment the material relating to quantum and the nature of the offsetting claim.
Further, if it had been necessary, I would have resisted the defendant’s argument that the material in support of the offsetting claim was largely hearsay and opinion. Again, I stress I did not hear any argument about the point and I am not deciding the same in these reasons.
However, in Pravenkav, the Court of Appeal permitted further material to quantify the amount. In doing so, the Court of Appeal also noted:
Counsel for PG submitted that Mr Farrelly’s evidence was hearsay, and that Mr Farrelly had not given any evidence that had particular invoices were associated with rectification work undertaken.
On this appeal, the parties proceeded on the basis, supported by authority, that the proceedings below were interlocutory. That approach is followed at first instance in this jurisdiction. Hearsay evidence is admissible where an affidavit ‘is made for the purposes of interlocutory proceedings’. ...[37]
[37]Ibid [73].
In Aussie Hoist Property Pty Ltd v Mulqueen,[38] Griffiths J said:
In Tokich,[39] White J held at [21] that evidence which may be inadmissible as hearsay or opinion to establish a fact relevant to indebtedness would not on that account be inadmissible to establish a fact relevant to whether there was a genuine dispute about indebtedness (citing McClelland J in Geoffrey W Hill & Associates v King (1992) 27 NSWLR 228 at 230).
Justice White added at [22] that, although a mere assertion that a debt is denied is insufficient, evidence in the form of conclusions as to primary facts which would be inadmissible as proof of the relevant facts under either ss 76 or 135 of the Evidence Act may be admissible as evidence that there is a dispute as to the existence or amount of the debt, and as to whether that dispute is genuine (citing Young J in John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 at 253). Importantly, at [25], White J acknowledged that whether evidence is sufficient to establish a genuine dispute is a different question from whether the evidence is admissible for that purpose.
The distinction drawn by White J in Tokich was approved by the Court of Appeal in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; 85 NSWLR 601. Their Honours stated at [37] that in a proceeding for the purposes of setting aside a statutory demand, the hearsay rule will not apply with the same strictness as is required in a fully contested hearing of a principal dispute and hearsay may be admissible provided that evidence of the source of the hearsay is adduced.
[38][2018] FCA 1493, [49]-[51].
[39]Tokich Holdings Pty Ltd v Sheraton Constructions [2004] NSWSC 527.
In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd,[40] Dodds-Streeton J (as her Honour then was) said:
As the terms of s 459H of the Corporations Act and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something ‘between mere assertion and the proof that would be necessary in a court of law’ may suffice. A selective focus on a part of the formulation in South Australia v Wall, divorced from its overall context, may obscure the flexibility of judicial approach appropriate in the present context if it suggests that the company must formally or comprehensively evidence the basis of its dispute or off-setting claim. The legislation requires something less.
[40](2008) 66 ACSR 67, [71].
Accordingly, subject to the circumstances of each application, it would be fair to say that generally hearsay and opinion evidence will be admissible to bear upon the question of whether there is a genuine dispute or a genuine offsetting claim and that the usual strictures placed upon such evidence in interlocutory applications such as this will not be so strictly applied.
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