Aero Marine Logistics v Kapur
[2013] VSC 217
•10 May 2013
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| Send for Reporting | ||
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
CORPORATIONS LIST
S CI 2012 7208
| AERO MARINE LOGISTICS PTY LTD (ACN 106 516 741) | Plaintiff |
| v | |
| NARENDRA KAPUR | Defendant |
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JUDGE: | GARDINER AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17 April 2013 | |
DATE OF JUDGMENT: | 10 May 2013 | |
CASE MAY BE CITED AS: | Aero Marine Logistics v Kapur | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 217 | |
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CORPORATIONS – External administration – Application to set aside statutory demand pursuant to Section 459G of the Corporations Act 2001 (Cth) on bases of genuine dispute and “some other reason” within the meaning of Section 459J(1)(b) of the Act by reason that affidavit accompanying demand failing to aver that subject debt was due and payable as required by Section 459E(3) – Demand set aside pursuant to Section 459J(1)(b) and by reason of finding that there is a genuine dispute as to debt the subject of the demand.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J. Kohn | Vernon da Gama & Associates |
| For the Defendant | Mr G. Moffatt | Pasha Legal |
HIS HONOUR:
The plaintiff, Aero Marine Logistics Pty Ltd (“AML”) makes application by originating process filed 27 December 2012 to set aside a statutory demand dated 4 December 2012 which was served on it by the defendant, Mr Kapur (who is also known as Kapsy), on 7 December 2012.
The schedule to the demand describes the debt as “monies due and owing pursuant to agreement between the creditor and the debtor” and claims the sum of $71,356.26.
The demand was accompanied by an affidavit of Mr Kapur. That affidavit does not follow Form 7 of the Supreme Court (Corporations) Rules 2003. While it sets out in somewhat detailed terms how it is alleged the debt is owing, the affidavit does not aver that the debt is due and payable as Form 7 requires.
AML seeks to set aside the demand on the grounds that there is a genuine dispute as to the debt and that there is “some other reason” within the meaning of that expression as it is found in s 459J(1)(b) of the Corporations Act 2001 (“the Act”). The second ground has its basis on the fact that the affidavit accompanying the demand does not, as observed, depose that the debt claimed is due and payable.
Should the demand be set aside for “some other reason”
I turn first to the question of whether the absence of the averment in the affidavit accompanying the demand that the debt claimed is due and payable warrants the setting aside of the demand under s 459J.
Section 459E(3) of the Act provides:
Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that:
(a)verifies that the debt, or the total amount of the debts, is due and payable by the company; and
(b)complies with the Rules.
Section 459J provides:
(1)On an application under s 459G, the Court may by order set aside the demand if it is satisfied that:
(a)because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b)there is some other reason why the demand should be set aside.
(2)Except as provided in sub-section (1), the Court must not set aside a statutory demand merely because of a defect.
The demand states, as Form 509H of the Corporations Regulations requires, that the amount demanded is due and payable. It does not, however, include, as the form requires where the creditor is not a judgment creditor, a statement to the effect that the demand is accompanied by an affidavit in support of the demand.
The affidavit which accompanied the demand was sworn by Mr Kapur on 4 December 2012. Because of its significance in the present context, I shall set it out in its entirety here. It states:
I, Narendra Kapur c/o Pasha Legal, Level 1, 605 Doncaster Road, Doncaster in the State of Victoria, the Creditor, say on oath: -
1.I am the abovenamed Creditor and I make this affidavit in support of the attached Statutory Demand.
2.I was a Director of the Debtor for the period 1 October 2003 until 14 February 2006.
3.Mr Pattathil Govinda (also known as Mr Madhavan Kutty, hereinafter “Kutty”) has been a Director of the Debtor since 1 October 2003. Now produced and shown to me marked with the letters “NK1” is a true copy of an ASIC historical company search dated 14 November 2012.
4.In or about February 2006, the Debtor was involved in litigation against Visy Board Proprietary Limited (ACN 005 787 913). The Supreme Court of Victoria proceeding number is 4537 of 2006 (“the Supreme Court proceeding”).
5.I was joined as a Defendant of the Supreme Court proceeding merely on the basis of being a Director of the Debtor at the relevant time.
6.In the course of the Supreme Court proceeding, my assets and bank accounts were frozen pursuant to a freezing order.
7.I was appointed as Director of the Debtor merely in order to comply with ASIC requirements. I was not involved in the day-to-day operations of the Debtor.
8.I had to defend the Supreme Court proceeding and incurred a substantial amount of legal costs in the process. Kutty as Director and on behalf of the Debtor agreed to indemnify me in respect of legal costs incurred in the course of the Supreme Court proceeding.
9.The Supreme Court proceeding was resolved by way of a settlement, the exact terms of which I am unable to disclose due to a confidentiality clause.
10.In or about April 2011, Kutty and I had discussions in respect of the loss and damage sustained by me.
11.On 2 May 2011, Kutty as Director and on behalf of the Debtor agreed that the Debtor would pay me $250,000 in full and final settlement of the matter. This agreement was made verbally in a telephone discussion in the presence of several witnesses.
12.By email dated 4 August 2011, I sent Kutty a formal Deed of Settlement outlining the terms of our agreement. However, this Deed was not executed by the parties. Now produced and shown to me marked with the letters “NK2” is a true copy of the email and unsigned Deed of Settlement.
13.In or about March 2012,Kutty agreed to pay me a sum amounting to the total of the legal fees expended by me in defending the Supreme Court proceeding immediately, with the remainder to be paid to me at a later date. The agreed amount was $71,356.26. This is substantiated by tax invoices provided by Kligers Partners, my legal representative at the relevant time. Now produced and shown to me marked with the letters “NK3” is a true copy of these tax invoices.
14.By email dated 7 March 2012, Kutty provided me with a basic agreement in the form of a short declaration which stated that the payment of $71,360.00 (sic) is in full and final settlement of the matter. This declaration was also not executed by the parties as this was not what I had agreed to. As indicted above, it was expected that the remainder of the money would be paid in due course. Now produced and shown to me marked with the letters “NK4” is a true copy of the email and declaration.
15.To date, despite numerous requests, I have not received any payment from Kutty. I believe that the Debtor owes me the amount of $71,356.26 as stipulated in the attached Statutory Demand being the legal costs component of the total debt owed to me by way of indemnification by the Debtor and its Director Kutty.
16.I believe that there is no genuine dispute about the existence of (sic) the amount of the debt referred to in this affidavit.
17.I believe the above matters to be true.
SWORN at DONCASTER in the )
State of Victoria this 4th day )
of DECEMBER 2012. )
Before me: (SGD)
This Affidavit is filed on behalf of the Creditor.
AML contends that the affidavit does not comply with s 459E(3) as: (i) it does not verify that the debts are due and payable by the company, and (ii) it is not in Form 7 of the Supreme Court (Corporations) Rules 2003 as required by Rule 5.2 of those Rules, in that it does not depose that the debts the subject of the demand are due and payable by the debtor company as required by paragraph 4 of Form 7.
In Main Camp Tea Tree Oil Limited and ors v Australian Rural Group Limited,[1] Barrett J considered an application to set aside a statutory demand where the statutory demand and the accompanying affidavit were said to suffer from several shortcomings. The demand itself did not contain, as Form 509H requires, a statement asserting that the amount referred to in the demand was due and payable, nor a statement that there was attached to the demand an affidavit verifying that the amount was due and payable.
[1][2002] NSWSC 219 (“Main Camp”).
In Main Camp, as in the affidavit the subject of present consideration, the accompanying affidavit contained no averment that the debt was due and payable. His Honour stated at paragraphs 5 to 9 of the judgment:
[5] Section 459E(3) of the Corporations Act requires that, unless the relevant debt is a judgment debt, a statutory demand be accompanied by an affidavit which satisfies two requirements. The first requirement is that the affidavit “verifies that the debt, or the total of the amounts of the debts, is due and payable by the company”, this being, clearly enough, a reference to the debt or debts to which the demand relates in accordance with s 459E(1). The second requirement is that the affidavit “complies with the rules”. The accompanying affidavit will thus satisfy the requirements of s 459E(3) only if it contains the verification contemplated by s 459E(3)(a) and, in addition, complies with the rules of this court, they being, in the present context, the “rules” as defined by s 9. The relevant provision of the rules is Corporations Act Rule 5.2 which, so far as relevant, is in the following terms:
For the purposes of sub-section 459E(3) of the Act, the affidavit accompanying a statutory demand relating to a debt, or debts, owed by a company must:
(a) be in accordance with Form 7 and state the matters mentioned in that Form …”
[6] The affidavit in Form 7 contains as its paragraph 4 the following:
*The debt/*The total of the amounts of the debts mentioned in paragraph 1 of this affidavit is due and payable by the debtor company.
[7] It is thus apparent that the relevant part of Form 7 really does no more than to reinforce the separate and independent requirement imposed by s 459E(3). Both the section and the rules (by means of the form) require the affidavit to verify that the relevant debt (or the total of all relevant debts) “is due and payable by” the company concerned.
[8] Despite this requirement (which I regard as effectively a single requirement arising from two sources), the relevant paragraph of the affidavit accompanying the statutory demand was in these terms:
I have duly verified by perusing the financial records of the Creditor, that the Debtor is indebted in the amount now demanded, and as described in the demand, and believe the details set out in the demand are true and correct.
[9] This departure from the required course of procedure cannot be made the subject of attack based on s 459J(1)(a). This is because that provision is exclusively concerned with a defect “in the demand”. A shortcoming which, although within the statutory concept of “defect” to which I am about to turn, is “in” the affidavit accompanying the demand rather than “in” the demand itself is not susceptible to the operation of a provision solely concerned with the content of the demand. The word “accompanied” in s 459E(3) emphasises the separateness of the two documents. But a “defect”, in the defined sense, in the affidavit is capable of activating s 459J(1)(b) as a basis for setting aside the demand without overstepping the line drawn by s 459J(2). All this emerges from the decision of the Full Federal Court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452: see also the observations of Austin J in Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456.
The purported verification in the affidavit accompanying the demand the subject of Barrett J’s consideration is extracted in paragraph 8 of his Honour’s judgment. It states that “the Debtor is indebted in the amount now demanded” and a belief that “the details set out in the demand are true and correct.”
At paragraph 15 to 25 his Honour stated:
[15] Mr Eassie of counsel, who appeared for Main Camp, submitted that the Master fell into error in this part of his judgment in two respects: first, by finding that he had no discretion in relation to the failure of the affidavit to conform to the express words of s 459E(3), in particular, in not including the words “due and payable”; and, second, in finding that the affidavit, while sufficient to verify that the debt claimed was due, did not go so far as to verify that it was also payable.
[16] I must confess immediately to difficulties with the Master’s finding that the affidavit effectively stated even that the debt was due. The words used are set out at paragraph 8 above. The operative term was “is indebted”. This was deposed to in the context of a demand which, in its paragraph 1, did no more than to say that ARG “owes” Main Camp a particular amount.
[17] A statement that one person “owes” a particular sum to another and “is indebted” in that sum asserts no more than the existence of a debt, that is, an obligation to pay the sum concerned. It says nothing about the time at which the obligation must be performed. It therefore says nothing about whether the sum concerned is “due” or “payable”. It is, of course, axiomatic that a debt, in the form of a payment obligation, may be presently owing but not yet either “due” or “payable”. It may likewise be “owing” and “due” but not yet “payable”, although it is not possible for a debt “owing” to be “payable” but not “due”: Marriott Industries Pty Ltd v Mercantile Credits Ltd (1991) 9 BCL 256 per King CJ. A statement that a sum is “due and payable” thus connotes not only that it is “owed” (so that the debtor is “indebted”) but also that the time for payment has arrived and the obligation to pay is an unqualified and unfettered obligation requiring immediate performance.
[18] On this basis, I consider that the Master went too far in finding that the word “indebted” in the affidavit, even viewed in conjunction with the word “owes” in the demand itself, conveyed the message that any sum was “due”. He was certainly correct, however, in holding that the words used carried no connotation that any sum was “payable”.
[19] In the result, the Master came to the correct conclusion in deciding that the affidavit did not comply with s 459E(3)(a) or conform with Form 7, in that it did not verify that the debt or total to which the demand referred was “due and payable by the company”. Furthermore, the Master was in my view correct to regard that non-compliance and non-conformity as a “defect” in the s 9 sense (although, of course, not a “defect in the demand” as referred to in s 459J(1)(a)). That being so, if the non-compliance and non-conformity are to form the basis for an order that the demand be set aside, the case must be one within s 459J(1)(b). The reason for this has already been mentioned by reference to Spencer Constructions and Goldspar.
[20] The Master did not explain the grounds on which he regarded the non-compliance and non-conformity (each, as I have explained, more substantial, in my view, than he recognised) as sufficient to constitute a reason why the demand should be set aside. But the reason seems to me to follow almost as a matter of course from the nature of the inadequacy.
[21] By serving a statutory demand on a company, a creditor takes the first step towards bringing into existence a statutory presumption of insolvency on the basis of which the creditor may proceed to ask the court to supplant the existing custodians of the company’s property and affairs in favour of an officer of the court whose first duty is to attend to the interests of the general body of creditors. If the court accedes to that request, the established order of administration within the company is put into abeyance and a regime in which the interests of shareholders are subordinated or deferred comes to the fore. The first step to which I have referred involves, in essence, a clear delineation of the creditor’s assertion of an entitlement to receive payment of a debt in respect of which there exists not only an unquestionable obligation to pay but also an unconditional obligation to pay immediately. The message conveyed by the demand is effectively a message of last chance: that, unless the payment already unequivocally and immediately required to be made is in fact made within the period stated in the demand, the company will be vulnerable to the grave consequences which the court may, on application made, visit upon it on the basis of the statutory presumption of insolvency.
[22] In the light of the radical consequences which may thus result from non-compliance with a statutory demand, the value to be placed on adherence in all material respects to the statutory requirements is necessarily high. It is not open to a creditor whose debt is merely owing to resort to the statutory demand procedure. The express words of both the legislation and the prescribed form of affidavit make it clear that the assertion of the debt’s status as being both due and payable is part of the message the creditor is compelled to convey in order to become entitled to the presumption of insolvency. This is not a matter of mere semantics or shades of meaning. Nor can it be suggested that slavish use of a particular verbal formula for its own sake is essential when exactly the same message may be quite adequately conveyed in different words: compare Daewoo Australia Pty Ltd v Suncorp-Metway Ltd [2000] NSWSC 35; (1999) 33 ACSR 481, a case to which the Master referred, where a requirement that an affidavit “state that the deponent believes those matters to be true” was held sufficiently satisfied where the deponent set out the relevant matters and concluded with the words, “and I so verify”.
[23] What is essential is that the documents put the company on notice in an unambiguous way of all the matters the legislation requires. The creditor’s contention that the debt, as well as being a debt (that is, owing), is both due and payable is one such matter. That contention is indispensable to the full understanding the legislation requires a company receiving a statutory demand to obtain from that demand and its accompanying affidavit. That full understanding was not conveyed by the creditor in this case. It is true that a demand for payment within the specified period was made. But the important fact (or assertion) that the company was under a legal obligation to make that payment without any further step on the creditor’s part, without the satisfaction of any intervening condition and without the passage of any further time was omitted. It is to clear notification of that important fact (or assertion) that the legislation attaches particular significance by the clear requirements expressed by reference to the words “due and payable”.
[24] The affidavit which accompanied the statutory demand did not convey the verification called for by s 459E(3)(a). In my judgment, the Master was correct in his conclusion that that failure on the creditor’s part was a sufficient reason under s 459J(1)(b) to set aside the demand.
[25] In stating this conclusion, I do not lose sight of the submissions made by Mr Eassie by reference to the decision of Hayne J in Azed Developments Pty Ltd v Frederick & Co Ltd (1994) 14 ACSR 54. It is true that the affidavit in that case did not use the words “due and payable”. It is clear, however, that the deponent’s rather long recitation of the circumstances surrounding the debt sufficiently conveyed that message. The recitation included a statement that the company was:
“... truly indebted to the creditor in the sum of $120,456.19 as moneys had and received by the company to the use of the creditor, or as moneys paid by the creditor at the request of the company.”
This specification of the debts in terms in which common money counts might be pleaded, with its clearly implied message of an immediate right to sue, carries the necessary connotation of “due and payable”.
Mr Moffatt, counsel for Mr Kapur, sought to distinguish the substance of the text of the affidavit under consideration by Barrett J in Main Camp from the affidavit accompanying the demand in this case by adopting the approach taken by Hayne J in AZED Developments Pty Ltd v Frederick & Co Limited.[2] In Main Camp, it will be seen that reference was made to AZED Developments where, despite the absence of the words “due and payable” in the affidavit accompanying the demand, Hayne J declined to set the demand aside. Barrett J observed that Hayne J considered that, by reason of the deponent’s lengthy recitation of the circumstances surrounding the debt, it was sufficiently conveyed that the debt was due and payable. In particular, there was a statement that the company was “indebted to the creditor … as moneys had and received by the company to the use of the creditor, or as moneys paid by the creditor at the request of the company”. Hayne J stated that this specification of the debts in terms which the common money counts might be pleaded, with its clearly implied message of an immediate right to sue, carried the necessary connotation of “due and payable”.
[2](1994) 14 ACSR 54 (“AZ Developments”).
I observe at this point that the moneys allegedly payable by AML are said to be “owing pursuant to agreement” between the two parties. I do not consider that it could be contended that any inference or implication can be drawn that that amount is immediately due and payable by reference to the nature of the debt claimed in Mr Kapur’s demand.
In Saferack Pty Ltd v Marketing Heads Australia Pty Ltd,[3] Barrett J again considered an application under s 459J where the issue of verification under s 459E(3) arose. The affidavit relied upon by the creditor as an affidavit in conformity of s 459E(3) was in unusual form. The deponent, after stating that he was a director of the defendant and was authorised by it to make the affidavit on its behalf, deposed “Annexed and marked ‘A’ is a true copy of a creditor’s statutory demand for payment of debt under s 459E(2)(e) of the Corporations Act 2001 dated …“ but did not depose in the affidavit itself that the debt was due and payable. Annexed to the deponent’s affidavit was the statutory demand. Clause 2 of the demand stated:
[3][2007] NSWSC 1143.
Attached is the affidavit of John Wakeling, director of the creditor, dated 30 July 2007, verifying that the amount is due and payable by the company.
There was not, however, any annexure to the statutory demand, which was itself an annexure to the affidavit of the deponent.[4] His Honour stated at paragraph 39:
This rather odd juxtaposition of documents is relevant to the first of the deficiencies upon which the plaintiff seeks to rely. Mr Wakeling does not say in the text of his own affidavit that the debt of $57,102.35 is due and payable by the plaintiff, although he does say that the plaintiff is “indebted” to the defendant in that sum. The annexure to the affidavit, being a copy of the statutory demand, contains a statement that the amount is due and payable by the defendant. But the words in the statutory demand come from the defendant which issued it, not from the director of the defendant by whom the affidavit was made. The requirement in s 459E(2)(e) that a statutory demand be in the prescribed form imports, via the Corporations Regulations 2001 (Cth) and Form 509H, a requirement that the demand itself state that the debt is due and payable. The separate and independent requirement concerning verification of that attribute comes from s 459E(3)(a) and is a requirement imposed in relation to the affidavit. It is thus envisaged by the legislation not only that a company which claims to be a creditor will state in the demand itself that the debt is due and payable but also that some human being acting with the authority of that company and capable of swearing an affidavit (and therefore of being punished for perjury) will independently form and state an opinion that the debt is due and payable. The latter requirement is not satisfied in this case.
[40] The legislative intention is that, where a corporation claims to be a creditor entitled to serve a statutory demand, some natural person acting in the interests of (and with the authority of) the corporation must turn his or her mind consciously and deliberately to one of the fundamentals of the statutory scheme – namely, that there is not only a debt in existence but also that the debt is due and payable. The fundamental nature of that matter comes from the description in s 459E(1) of the type of debt in respect of which a statutory demand may be served. Having considered the characteristics of the debt, the person concerned must say on oath that the debt is due and payable. There is no such sworn statement in this case. So far as Mr Wakeling’s affidavit is concerned, he says, by using the words “is indebted”, no more than that the debt exists.
[41] For reasons discussed in a number of cases to which Mr M. R. Ellicott of counsel for the plaintiff referred (see, in particular, Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd [2002] NSWSC 219; (2002) 20 ACLC 726 and Rivercorp v Casement [2004] NSWSC 280), failure of the creditor or, in the case of a corporate creditor, some natural person on its behalf to verify on oath the qualities of the debt as a debt due and payable (as distinct from merely owing so as to cause the company to be “indebted”), these being qualities going to the root of the statutory scheme, is a material departure from the statutory demand process envisaged by s 459E.
[4]Ibid at 38.
His Honour concluded that the demand should be set aside under s 459J(1)(b).
Mr Moffatt referred me to the decision of Macready AsJ in FMA Facilities Management Australia Pty Ltd v Reflections Group Services Pty Ltd.[5] In that case, the creditor had issued an invoice for cleaning services. The statutory demand was accompanied by an affidavit which contained an averment stating that the amount of the debt specified in the accompanying demand was due and payable by the debtor to the creditor. In paragraph 3 of the affidavit, the deponent went on to state: “The debt is due because the invoice to which the debt relates has not been paid by the debtor”. At paragraph 16, Macready AsJ stated:
The other defect is what appears in paragraph 3 of the actual affidavit, where there is a reference to “the debt is due”. In paragraph 4 of Form 7 there is a requirement that either the debt or the total amount of the debt referred to in paragraph 1 of the affidavit be stated as “is due and payable by the debtor company”. The difference is immediately apparent and is by leaving off the words “and payable”.
[17] This is not a case like Main Camp v Australian Rural (2002) NSWSC 219, where there was a failure to comply with the words “due and payable” in both the demand and the affidavit in support. As was pointed out in that case, and is apparent from the Form, which is Form 509H, paragraph 2 of the statutory demand has to say, “The amount is due and payable by the company” or another alternative. The other alternative is, “attached is the affidavit of [blank] dated [blank] verifying that the amount is due and payable by the company.”
[18] Plainly the demand also picks up the requirement that there be a reference to the amount being due and payable. There would seem to be compliance with the requirement in respect of the demand as one of the alternatives has been complied with. To the extent that that was not correct there is no suggestion that there was any evidence of substantive injustice caused by this minor non compliance in the demand.
[19] One needs, as in Panel Tech Industries v Australian Skyreach [2003] NSWSC 619, to look at whether there was an unconditional demand for immediate payment. The affidavit refers to the invoice and the demand identifies it by both number and date. That invoice makes it clear that it is “due” seven days after 1 June 2005. That time has well elapsed.
[20] I was not addressed on the precise difference between the word “due” and the word “payable” and in one sense either word carries the connotation that an amount is required for immediate payment.
[21] A consideration of the whole of the material, which includes specific references to a particular identified invoice, the message required by “due and payable” in the specification which is made necessary by the legislation was, I believe, conveyed to the recipient of the demand in the affidavit which, as Barrett J observed in Pantech, are intended to be read together.
[5][2006] NSWSC 257.
Mr Moffatt contended, relying on an application of the approach taken by Macready AsJ in FMA Facilities, that paragraph 13 of the affidavit accompanying the demand served by Mr Kapur which is extracted above suffices to verify the demand in compliance with s 459E. For convenience I recite it again:
In or about March 2012, Kutty agreed to pay me a sum amounting to the total of the legal fees expended by me in defending the Supreme Court proceeding immediately, with the remainder to be paid to me at a later date. The agreed amount was $71,356.26. This is substantiated by tax invoices provided by Kliger Partners, my legal representative at the relevant time. Now produced and shown to me and marked with the letters “NK3” as a true copy of these tax invoices.
I do not accept that submission. The documents which are exhibited are directed for the main part to Mr Kutty (or his associate, Mr Nielsen), and save for one document, are not tax invoices but trust account receipts issued by Kliger Partners. They do not establish expressly or by necessary implication that there is indebtedness which is immediately due and payable by AML.
In my view, paragraph 13 of Mr Kapur’s affidavit does not suffice to verify the demand in compliance with s 459E(3).
In paragraph 15 of the affidavit the deponent states:
To date, despite numerous requests, I have not received any payment from Kutty. I believe that the debtor owes me the amount of $71,356.26 as stipulated in the attached Statutory Demand being the legal costs component of the total debt owed to me by way of indemnification by the Debtor and its Director Kutty.
Again, I do not consider that this paragraph verifies the demand, speaking of the monies being owed with no reference to the debt being due and payable.
I consider that the statutory demand should be set aside as it does not comply with the requirements of s 459E(3)(a) and (b) in that it does not conform with the requirements of the Supreme Court (Corporations) Rules 2003, nor does it verify that the debt is “due and payable”.
Is there a genuine dispute in respect of the debt?
If my view in regard to the form of the affidavit which comprises the demand is later considered not to be correct, I now turn to the question of whether there is a genuine dispute in respect of the debt which is the subject of the demand.
AML relies on affidavits of Stephen D’Souza sworn 26 December 2012 and Pattathil Govinda (who is also known as Mr Kutty) sworn 28 March 2013. Mr Kutty adopts the evidence of Mr D’Souza so far as it is relevant to him. Mr Kapur relies on his affidavits sworn 4 December 2012 and 8 March 2013.
Factual background
AML was incorporated in October 2003 and since that time Mr Kutty has been a director. Between 1 October 2003 and 14 February 2006, Mr Kapur was a director of AML. Mr D’Souza has been a director of AML since 30 October 2012.
In February 2006 AML, together with Messrs Kutty, D’Souza and Kapur and others, were defendants in a proceeding brought by Visy Board Pty Ltd in the Supreme Court of Victoria (“the Supreme Court proceeding”).
In the Supreme Court proceeding, Mr Kutty swore an affidavit on 28 August 2006 in which he deposed:
AML has a contingent liability to its previous Director, Mr Narendra Kapur with respect to his legal costs incurred and likely to be incurred in defending this proceeding on his behalf. A claim for indemnity for such costs has been made upon AML, although the quantum of costs remains to be fixed.
AML paid the legal costs incurred by it, Mr Kutty, Mr D’Souza and Mr Kapur during the period October 2006 to May 2011 in defending the Supreme Court proceeding.
On 2 May 2011 the Supreme Court proceeding was settled and terms of settlement were executed between the parties. The terms of settlement included the following provisions in respect of releases and indemnities and an agreement that the parties bear their own costs of and incidental to the Supreme Court proceeding. They state as follows:
RELEASE AND INDEMNITY
(a) Upon receipt of the Settlement Sum by the plaintiffs, the parties forever release, discharge, indemnify and hold each other harmless from all past present and future claims, actions, suits, demands, damages, expenses and liabilities of any description whatsoever, howsoever arising (including any costs, whether or not the subject of an order of the Court in the Proceeding) connected with or incidental to:
(i) the Proceedings;
(ii) the factual circumstances referred to in the Proceeding or on which the Proceeding was based;
(iii) any other circumstances or matters whether connected with the Proceeding or otherwise, which were or could reasonably have been known to the parties as at the date of these Terms of Settlement and Release.
(b) The release and indemnity referred to herein includes a release in favour of any party’s:
(i) directors (if the party is a corporation);
(ii) related bodies corporate;
(iii) officers;
(iv) employees; and
(v) agents from time to time.
(c) The parties undertake not to assert a claim or commence or maintain proceedings in law or equity against any other party in relation to the facts and circumstances giving rise to or pleaded in the Proceeding by the parties.
(d) The parties shall bear their own costs of and incidental to the Proceeding.
It was contended by AML that the terms of Deed of Settlement provided a release which included Mr Kapur’s claim for costs pursuant to the agreement whereby Aero Marine Logistics Pty Ltd agreed to indemnify Mr Kapur in respect of legal costs incurred in the Supreme Court proceeding. Mr Moffatt objected to reference to such terms of settlement by reason that it was agreed that they were confidential and were not to be disclosed, even for the purpose of legal proceedings in a court. In my view, whatever the position in that regard, for present purposes it seems reasonably clear that the terms involved the provision of releases between the plaintiffs (i.e. the Visy Board parties) on the one hand and the defendants (AML, and Messrs Kapur, Govinda and D’Souza) on the other, i.e. they were not intended to operate as a release between the defendants.
Mr D’Souza deposes that after the settlement of the proceedings, Mr Kapur called Mr Kutty and demanded that Mr Kutty pay him the sum of AUD$250,000 for his legal costs incurred in connection with the Supreme Court proceeding.
Mr Kapur alleges that AML agreed to pay him $250,000 in full and final settlement during the telephone conversation. The conversation was said to have taken place in the presence of several witnesses, however, they are not identified and none of them has filed an affidavit in support of Mr Kapur’s allegations.
Mr Kutty denies the allegation concerning the agreement to pay $250,000. He says he told Mr Kapur the proceedings had just been concluded, it was too early to talk about the issue of payment and that AML would not pay him $250,000.
On 4 August 2011, Mr Kapur sent an email to Mr Kutty which stated:
it was good to see you and have a nice long chat today. further to our meeting, attached herewith is the settlement deed which kindly sign in triplicate and mail the originals to me so that i can execute the same and return an original to you.
it’s imperative that this matter be settled. I’d like to see this happen this week itself but no later than next week. i have already explained my precarious financial situation to you. so, pls do the needful. thanx
(Text as it appears in the original).
Mr Kutty deposes that when he received the above email he telephoned Mr Kapur and indicated to him that he did not agree with the settlement deed and that he would not execute it. The settlement deed has never been executed by the parties.
Shortly afterwards, on 9 August 2011, Mr Kutty sent an email to Mr Kapur stating:
But there are certain things we can and must do right now. From around October or November 2006, your legal bills have been paid by AML. I request you when we met, for the bills for the amounts you had paid out of your pocket before that date, so that AML can reimburse this amount to you. This is not only a perfectly valid request but it will enable us to file the tax returns for that year properly. I asked the same from Valerie D’Souza and she is providing the legal invoices. Similarly, we need to get the same for all amounts paid to Starnet Legal. I hope your discussions with Mr Kimani would produce the desired results soon. I also intend to write to him.
On 12 January 2012, Mr Kapur sent an email to Mr Kutty stating:
It’s taken one heck of an effort to get receipts from kligers but with the help of Kimani, we finally have them. attached pls find receipts from kligers for payments made to them by me for their legal services.
payment summary:
09 feb 2006
inv # 032817
$10,000.00
15 feb 2006
inv # 032818
$10,000.00
15 mar 2006
inv # 032816
$ 5,000.00
10 apr 2006
inv # 032815
$ 5,000.00
11 may 2006
inv # 032819
$10,000.00
04 jul 2007
inv # 027595
$ 7,158.00
23 feb 2008
inv # 075738
$19,198.26
TOTAL
$71,356.26
(Text as it appears in the original).
On the same day, Mr Kutty sent an email to Mr Kapur (as Kapsy) which stated:
I acknowledge the e-mail and its attachments. As with all the other leagal (sic) bills I have recieved (sic) (Such as for Val) I will send these across to John Lobo to be included in his tax filing, if that is possible. We are late since all details upto (sic) June 2011 has (sic) already been given to him months ago. He is filing the returns year by year and half is accomplished as of last week.
I will discuss this with him and how these need to be tackled at this stage. You will have to bear with me for some time, till he advices (sic) the correct course of action. The intention is to reimburse all legitimate legal bills at the earliet (sic) opportunity, but though Valerie had giver hers last year, no paymnents (sic) have been made to her as yet.
I will get back to you as soon as possible.
(Text as it appears in the original).
Mr Kapur alleges that in or about March 2012, Mr Kutty “agreed to pay me a sum amounting to the total of the legal fees expended … in defending the Supreme Court proceeding immediately, with the remainder to be paid … at a later date. The agreed amount was $71,356.26”. Mr Kutty denies having the alleged conversation with Mr Kapur and denies agreeing at any time to pay Mr Kapur the sum of $71,356.26.
On 7 March 2012, Mr Kutty sent an email to Mr Kapur which stated:
AML will settle your legal bills sent in full and immediately. However, like other issues I have to tackle, I need to do this in a professional way and to keep AML’s interests protected from taxation/legal points of view.
I am attaching an “agreement” which both of us need to sign and witnessed (sic). Please go through this and let me have your approval and I will start things in motion.
The attached agreement provided that:
(a)AML would pay Mr Kapur the equivalent of AUD 71,360 incurred personally towards legal costs incurred in the Supreme Court proceeding.
(b)AML would make the payment to Mr Kapur as “full and final settlement of any claims” which Mr Kapur might have as a result of the court proceedings brought about by the Visy Group.
(c)Mr Kapur would accept this payment of $71,360 as the “full and final settlement of all claims” he might have against AML or its directors, past and present, as a result of the court proceedings brought about by the Visy Group.
In his affidavit material, Mr Kapur deposes that the agreement was not executed “as this was not what I had agreed to … it was expected that the remainder of the money would be paid in due course”.
On 5 June 2012, Mr Kutty emailed Mr Kapur stating:
As far as AML is concerned, my e-mail dated March 7th with its attachment is the best AML can do under the circumstances. The underatking (sic) has to be signed and witnessed. If you had any “understandings” with anyone before you took the responsibility of becoming AML’s Resident Director, you may address the issue with those individuals for the remainder of your claims.
AML has made an offer to you in March. This is June. We have to file taxes by the end of this month and therefore, I cannot continue holding this proposal much longer. Therefore I will expect your final decision on this matter by June 15th.
Mr Kapur never executed the agreement. Mr Kutty deposes that Mr Kapur has never provided him with the tax invoices which evidence the legal costs incurred by Mr Kapur in defending the Supreme Court proceedings in the sum claimed of $71,356.26.
AML contends there is a genuine dispute in respect of the debt claimed in the demand by reason that first, there is a dispute as to whether or not there is a concluded and binding contract in law which has come into existence for the payment of Mr Kapur’s legal expenses. It says further that if there is an agreement, which is denied, the terms of the agreement are uncertain, including, for example, whether it was a term of the agreement that the $71,356.26 would be part-payment or payment in full of the amount claimed for indemnity. In addition, it is submitted that it is not clear whether the sum is payable immediately upon the provision of tax invoices which evidence the total legal costs incurred or some reasonable time shortly thereafter. Further, it is said that if the payment is conditional upon the provision of tax invoices, the amount demanded in the statutory demand is not due and payable because AML has not been provided with the tax invoices.
As observed, the documents provided and which are exhibited to Mr Kapur’s affidavit of 4 December, with one exception, are trust account receipts and office account receipts addressed to Mr Kapur (or a Jorn Nielsen, apparently an associate of Mr Kapur’s). AML also submits that if the tax invoices are payable upon the provision of the tax invoices or some reasonable time thereafter, that the statutory demand should be set aside because there was no debt due and payable at the time of serving the demand.
Mr Moffatt, counsel for Mr Kapur, submits that on AML’s own material an agreement to indemnify Mr Kapur is not in contention. He states that this is confirmed by the affidavit of Pattathil Govinda sworn 14 August 2006 which was filed in the Supreme Court proceeding.
Mr Moffatt submitted that there is clearly an agreement that AML would indemnify Mr Kapur in respect of the legal costs he incurred in the course of the Supreme Court proceeding and in accordance with that agreement, on 12 January 2012 he emailed documents from Kligers Solicitors for payments made to that firm by Mr Kapur for their legal advice. In response to that email, Mr Kapur received an email of the same day acknowledging the email and the attachments and that the attachments would be forwarded to Mr Lobo to be included in the taxation returns. It is said that the intention was to reimburse all legal bills at the earliest opportunity. The receipts attached to the email are all in relation to the matter “DFC060275 Kapur, Mr Narendra claim by Visy Board Pty Ltd”. It is submitted by Mr Moffatt that these documents evidence the payments made to Kliger Partners for legal costs incurred by Mr Kapur in the course of the Supreme Court proceeding and in accordance with the agreement the amounts are recoverable. The determination of the quantum of those legal costs merely involves adding the amounts.
Mr Moffatt submits that the evidence demonstrates that the agreement was that AML would indemnify Mr Kapur in respect of legal costs incurred in the Supreme Court proceeding and Mr Kapur has provided AML with evidence of those legal costs which amount to $71,356.26. As such Mr Moffatt says, there is no “plausible contention requiring investigation”.
Legal principles
In this application AML bears the onus of establishing that it has a genuine dispute within the meaning of s 459G which provides:
Company may apply
(1) [Order setting aside demand] A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2) [Time limit] An application may only be made within 21 days after the demand is so served.
(3) [Affidavit and copy of application] An application is made in accordance with this section only if, within those 21 days:
(a) an affidavit supporting the application is filed with the Court; and
(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.
Section 459H of the Act provides:
Determination of application where there is a dispute or offsetting claim
(1) [Court satisfied of dispute or offsetting claim] This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b) that the company has an offsetting claim.
The principles to be applied in applications of this type were collected and discussed by Robson J in Rhagodia Pty Ltd v National Australia Bank (2008) 67 ACSR 367 at 91 and following. Robson J stated:
[91] In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd[6] Dodds-Streeton JA (with whom Neave and Kellam JJA concurred) said:
[6](2008) 66 ACSR 67 (“TR Administration”).
[56] The court, in the context of an application to set aside a statutory demand, must determine whether there is a genuine dispute about the existence or amount of the debt or whether the company has a genuine off-setting claim.
[57] No in-depth examination or determination of the merits of the alleged dispute is necessary, or indeed appropriate, as the application is akin to one for an interlocutory injunction. Moreover, the determination of the “ultimate question” of the existence of the debt should not be compromised.
[92] Dodds-Streeton JA further said:
[71] As the terms of s 459H (sic) of the Corporations Act 2001 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,[7] 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.
[7](1980) 24 SASR 189.
[93] In Eyota,[8] McClelland CJ of the Supreme Court of New South Wales said:
[8]Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ASCR 785 (“Eyota”) 787-8.
It is, however, necessary to consider the meaning of the expression “genuine dispute” where it occurs in s 450H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the “serious question to be tried” criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit “however equivocal, lacking precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be” not having “sufficient prima facie plausibility to merit further investigation as to [its] truth” (cf Eng Mee Yong v Letchumanan),[9] or “a patently feeble legal argument or an assertion of facts unsupported by evidence”: cf South Australia v Wall.[10]
[9][1980] AC 331, 341 (PC).
[10](1980) 24 SASR 189, 194.
But if it does mean that, except in such an extreme case, a court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments[11] Hayne J said, after referring to the state of the law prior to the enactment of Div 3 of Pt 5.4 of the Corporations Law, and to the terms of Div 3:
[11]Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362 (Mibor Investments) 366–7.
“These matters, taken in combination, suggest that at least in most cases, it is not expected that the court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute.”
In Re Morris Catering (Aust) Pty Ltd[12] Thomas J said:
“There is little doubt that Div 3 … prescribes a formula that requires the court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the court will examine the merits or settle the dispute. The specified limits of the court’s examination are the ascertainment of whether there is a “genuine dispute” and whether there is a “genuine claim”.
It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it), the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.
The essential task is relatively simple — to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).”
I respectfully agree with those statements.
[94] In TR Administration,[13] Dodds-Streeton JA (with whom Neave and Kellam JJA concurred) cited this passage with apparent approval[14] and noted it was also cited by the Full Federal Court in Spencer Constructions Pty Ltd v GAM Aldridge Pty Ltd.[15]
[12](1993) 11 ACSR 601, 605.
[13](2008) 66 ACSR 67.
[14]At 64.
[15](1997) 76 FCR 452.
In Powerhouse Australasia Pty Ltd v Viarc Pty Ltd[16] Dodds-Streeton JA observed at paragraph [48]:
While it is not a very exacting standard, on the other hand mere, assertion of a dispute or off-setting claim, mere bluster or advancing grounds which are illusory or spurious or insufficiently particularised will not suffice. The Court must not enter into the merits of the dispute, but it is not crossing the line in relation to its legitimate role in these applications to consider evidence which “bears on whether or not the asserted dispute or off-setting claim is genuine”. Indeed, that is its necessary function.
[16][2006] VSC 508.
Her Honour went on to say at paragraph [49]:
The dispute or off-setting claim should, as has been recognised, have some objective existence, and the plaintiff bears the onus of establishing the genuineness of the dispute or off-setting claim.
In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd,[17] the Full Court of the Federal Court observed that for a genuine dispute to exist, it must be “bona fide and truly exist in fact”, and the grounds for alleging its existence must “be real and not spurious, hypothetical, illusory or misconceived”.
[17](1997) 76 FCR 452, 464.
In Statutory Demands and Winding Up in Insolvency,[18] it is observed:
5.22 The company seeking to set aside the demand on the basis that there is a genuine dispute bears the onus of establishing that such a dispute exists on the balance of probabilities. The onus is not a heavy one and the courts afford considerable latitude to a company asserting the existence of a genuine dispute. Accordingly, the task faced by a company challenging a statutory demand on the genuine dispute ground is by no means a difficult or demanding one and is no more onerous than seeking to resist the creditor’s application for summary judgment. What is required is something between mere assertion and the proof that would be necessary in a court of law. The company served with the demand does not need to prove on oath that it has a defence to the claim made against it in the statutory demand. Where the creditor relies upon a barely articulated claim, the company’s ‘plausible contention requiring further investigation’ does not have to rise higher than the creditor’s inadequate articulation of the claim.
[18]Farrad Assaf, 2nd ed (2012) (citations omitted).
In CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd,[19] Barrett J stated:
[16] … It is sufficient that I repeat what I have said in other cases, namely, that the task faced by the company challenging a statutory demand on the genuine dispute grounds is by no means at all a difficult or demanding one. The company will fail in that task only if it is found, upon the hearing of its s459G application, that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that on rational grounds indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger.
[19][2003] NSWSC 728 (emphasis added).
I consider that on an application of these principles, that if one considers the matters referred to in paragraph 46 above, such matters give rise to genuine disputes within the meaning of s 459G as interpreted by the above authorities which warrant further investigation. Some of the authorities dealing with this type of application liken the appropriate approach to the test to be applied when considering whether there should be leave to defend in a summary judgment application. If I consider hypothetically that the matter was the subject of an application by Mr Kapur for summary judgment against AML, I consider that the nature of the evidence and the issues at large are such that AML would be given leave to defend.
I will order as follows:
1.The statutory demand dated 4 December 2012 which was served on the plaintiff by the defendant be set aside.
I will hear the parties on the question of costs.
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