Complete Hire and Sales Pty Ltd v Terrafirma Constructions Pty Ltd [No 2]
[2018] WASCA 111
•3 JULY 2018
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: COMPLETE HIRE AND SALES PTY LTD -v- TERRA FIRMA CONSTRUCTIONS PTY LTD [No 2] [2018] WASCA 111
CORAM: BUSS P
MITCHELL JA
BEECH JA
HEARD: 28 MAY 2018
DELIVERED : 28 MAY 2018
PUBLISHED : 3 JULY 2018
FILE NO/S: CACV 48 of 2018
BETWEEN: COMPLETE HIRE AND SALES PTY LTD
Appellant
AND
TERRA FIRMA CONSTRUCTIONS PTY LTD
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram: MASTER SANDERSON
Citation: COMPLETE HIRE AND SALES PTY LTD -v- TERRA FIRMA CONSTRUCTIONS PTY LTD [2018] WASC 138
File Number : COR 303 of 2017
Catchwords:
Corporations law - Application to set aside statutory demand - Whether evidence of genuine dispute or offsetting claim - Whether subsequent affidavits inadmissible so far as they raise a new claim not supported by affidavits filed within 21 days after service of statutory demand - Whether statutory demand was defective in failing to list separate debts - Whether any substantial injustice will be caused because of a defect in the statutory demand if not set aside
Legislation:
Corporations Act 2001 (Cth), s 459E, s 459G, s 459H, s 459J
Corporations Regulations 2001 (Cth), Form 509H of sch 2
Result:
Appeal dismissed
Category: B
Representation:
Counsel:
| Appellant | : | Mr D K Skender |
| Respondent | : | Mr J M Healy |
Solicitors:
| Appellant | : | Holborn Lenhoff Massey |
| Respondent | : | Ramsden Lawyers |
Case(s) referred to in decision(s):
20*20 Pty Ltd v D&G Developments Pty Ltd [2009] WASC 343
Bakota Holdings Pty Ltd v Bank of Western Australia Ltd [2011] NSWSC 1277
Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601
Classic Ceramic Importers Pty Ltd v Ceramica Antiga SA (1994) 13 ACSR 263
Condor Asset Management Ltd v Excelsior Eastern Ltd [2005] NSWSC 1139; (2005) 56 ACSR 223
Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91
Dream Money Pty Ltd v Bernhard [2016] WASCA 193
Edge Technology Pty Ltd v Lite-on Technology Corporation [2000] NSWSC 471; (2000) 156 FLR 181
Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560
Energy Equity Corporation Ltd v Sinedie Pty Ltd [2001] WASCA 419; (2001) 166 FLR 179
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785
Fleur De Lys Pty Ltd v Jarrett [2004] FCA 1357; (2004) 51 ACSR 238
Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd [2007] NSWSC 103; (2007) 61 ACSR 321
Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (1994) 13 ACSR 455
Macleay Nominees v Belle Property East [2001] NSWSC 743
Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330
NA Investments Holdings Pty Ltd v Perpetual Nominees Ltd [2010] NSWCA 210; (2010) 79 ACSR 544
No 96 Factory Bargains v Kershel Pty Ltd [2003] NSWSC 146
Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation [2006] SASC 91; (2006) 94 SASR 269
Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd (No 3) [2014] WASCA 132; (2014) 46 WAR 483
Re Acu Rate Pty Ltd [2017] NSWSC 1845
Re Australia Zhongfu Oil Gas Resources Pty Ltd [2012] NSWSC 1208
Re Douglas Aerospace Pty Ltd [2005] NSWSC 167; (2015) 294 FLR 186
Re Halal Meats Pty Ltd [2015] NSWSC 2041
Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601
Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 214 FLR 393
REASONS OF THE COURT:
At the conclusion of the hearing of the appeal on 28 May 2018, the court made the following orders:
(1)If leave to appeal is required, leave to appeal is refused.
(2)Appeal dismissed.
(3)The time for the appellant to comply with the respondent's creditor's statutory demand for payment of debt dated 2 December 2017 be extended to 5.00 pm on 5 June 2018.
(4) The appellant is to pay the respondent's costs of the appeal, including reserved costs, to be assessed if not agreed.
These are our reasons for making those orders.
Introduction
On 5 December 2017, the respondent (Terra Firma) served on the appellant (CHS) a statutory demand, pursuant to s 459E of the Corporations Act 2001 (Cth) (Act). The statutory demand was for an amount of $376,315.58, being:
(1)$88,090.78 owed pursuant to invoices issued to CHS by a company in liquidation (formerly called CS Industries WA Pty Ltd) and assigned to Terra Firma by Deed dated 10 July 2015; and
(2)$288,224.80 owed pursuant to invoices rendered by Terra Firma to CHS.
The invoices referred to in (1) were issued by CS Industries in respect of work it undertook in respect of the installation of five buildings at a terminal yard in Roy Hill (Decmil Project) and construction work undertaken at the Wheatstone LNG project near Onslow (Wheatstone Project). The invoices referred to in (2) comprised invoices for work done at the Decmil and Wheatstone Projects, as well as work undertaken in the redevelopment of the Beadon Bay Hotel in Onslow (Beadon Bay Project).[1]
[1] See affidavit of Christopher Denis Streat affirmed on 1 February 2018, pars 9 - 24 (GAB 196 - 196); Annexures MRT1 and MRT2 to the affidavit of Matthew Roy Thomson affirmed on 1 February 2018 (GAB 202 - 212).
On 27 December 2017, CHS applied to set aside the statutory demand. That application was heard by the master on 11 April 2018. On 8 May 2018, the master dismissed CHS's application and published written reasons for doing so.[2] CHS now appeals against that decision.
[2] Complete Hire and Sales Pty Ltd v Terra Firma Constructions Pty Ltd [2018] WASC 138 (Primary decision).
Statutory context
Section 459G of the Act allows a company, within 21 days of service of a statutory demand on the company, to apply to the court for an order setting aside the statutory demand. Section 459H provides for the court to make an order setting aside or varying the statutory demand on the basis of a genuine dispute about the existence or amount of the debt to which the demand relates and/or an offsetting claim. Section 459J provides for the court to set aside the statutory demand because of a defect in the demand which will cause substantial injustice if the demand is not set aside, or there is some other reason why the demand should be set aside. Unless the court makes an order under s 459H or s 459J, it must dismiss the company's application.[3]
[3] Section 459L of the Act.
Failure to comply with a statutory demand which has not been set aside gives rise to a presumption that the company is insolvent for purposes which include an application that the company be wound up in insolvency.[4] Failure to pay an undisputed debt on formal demand suggests that the company is unable to pay all its debts as and when they become due and payable.[5] The onus of proving solvency is cast on the company, rather than the person seeking to wind it up in insolvency, in circumstances where a rational inference is that insolvency is the reason for a failure to pay a formally demanded debt which is due and payable. The evident object of s 459H is to confine the effect of a statutory demand to amounts which are undisputedly due and payable (having regard to offsetting claims). The existence of a dispute as to the claim or of an offsetting claim provides a reason, other than insolvency, for why a company may refuse to pay the amount which is demanded.
[4] Section 459C(1)(a) and s 459C(2)(a) of the Act.
[5] See the definition of solvency and insolvency in s 95A of the Act.
In the primary proceedings, CHS sought to have the statutory demand set aside under s 459G read with s 459H of the Act. Section 459H provides for the following stages in the court's assessment of the application.
At the first stage, the court must consider whether it is satisfied that there is a genuine dispute about the existence or amount of a debt to which the demand relates or that the company has an offsetting claim.[6] If not satisfied as to either or both of those matters, s 459H does not apply and, unless an order is made under s 459J, the court must dismiss the company's application.
[6] Section 459H(1) of the Act.
The second stage arises if the court is satisfied that there is a genuine dispute about the existence or amount of the debt to which the demand relates or an offsetting claim of the kind referred to in s 459H(1) of the Act. In that event, the court must calculate the 'substantiated amount' of the statutory demand in accordance with the formula:[7]
Admitted total - Offsetting total
[7] Section 459H(2) of the Act.
The admitted total is, in effect, the undisputed amount of the debt.[8] The offsetting total is, in effect, the amount of any offsetting claim(s) (that is, the amount of the genuine claim(s) which the company has against the respondent by way of counterclaim, set-off or cross-demand) or, otherwise, a nil amount.[9]
[8] Section 492H(2) (definition of 'admitted total') and s 492H(5) (definition of 'admitted amount') of the Act.
[9] Section 459H(2) (definition of 'offsetting total') and s 492H(5) (definition of 'offsetting claim') of the Act.
The third stage arises once the court has calculated the substantiated amount of the statutory demand. The step which the court must or may take depends on whether the substantiated amount is, or is not, less than the statutory minimum of $2,000.[10] If the substantiated amount is less than $2,000, then the court must, by order under s 459H(3), set aside the statutory demand. If the substantiated amount is at least $2,000, the court 'may make an order', under s 459H(4), 'varying the demand as specified in the order' and declaring the demand to have effect as so varied. If no such order is made, the court must dismiss the company's application unless it makes an order under s 459J of the Act.
[10] See the definition of 'statutory minimum' in s 9 of the Act.
The express terms of s 459H(4) do not oblige the court to vary the statutory demand by reference to the substantiated amount. The court may make an order varying the demand 'as specified in the order'. However, in specifying a variation of the statutory demand the court will have regard to the evident purpose of the provision, which is to confine the statutory demand to amounts which are undisputed (non-payment of which is evidence of insolvency). Ordinarily, the discretion will be exercised by varying the statutory demand by reducing the amount specified in the statutory demand to the substantiated amount. Given the purpose of the provision, it is difficult to see how reducing the debt specified in the statutory demand by more than the company has established to be genuinely in dispute (having regard to offsetting claims) could be justified.
On an application to set aside a statutory demand, the court does not attempt to resolve an offsetting claim or predict its outcome.[11] Rather than deciding the merits of the alleged claim, the court examines whether there is a genuine claim sufficiently quantified to give rise to an offsetting amount.[12] On an application to set aside a statutory demand, the court must identify the alleged claim which must 'be bona fide and truly exist in fact',[13] and assess whether it is a genuine claim.
[11] Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601, 605, cited with approval in 20*20 Pty Ltd v D&G Developments Pty Ltd [2009] WASC 343 [15]; Classic Ceramic Importers Pty Ltd v Ceramica Antiga SA (1994) 13 ACSR 263, 269 - 70; Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation [2006] SASC 91; (2006) 94 SASR 269 [49]; Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601 [38], [46] - [47].
[12] Ozone Manufacturing [49]. As to the meaning of the terms 'counterclaim, set-off or cross-demand' see Ozone Manufacturing [43] - [44].
[13] Ozone Manufacturing [47].
In Britten-Norman,[14] the court made the following observations by reference to the reasons of McLelland CJ in Eq in Eyota Pty Ltd v Hanave:[15]
In determining whether there is evidence of a genuine dispute as to the debt, or that there is an offsetting claim, except in extreme cases, the court is not concerned to engage in an inquiry as to the credit of the deponent of the affidavit filed in support of the application. However, as McLelland CJ in Eq observed in Eyota:
'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 in 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", or "a patently feeble legal argument or an assertion of facts unsupported by evidence".'
What underlay those remarks, of course, was that the court's concern was to determine whether there was plausible evidence to establish the existence of a genuine dispute, not whether the evidence was disputed or even likely to be accepted on a final hearing of any such claim. (citations omitted)
[14] Britten-Norman [46] - [47].
[15] Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787.
An offsetting claim is not confined to debts which are due and payable. A claim for an unliquidated sum may be an offsetting claim. To be used as an offsetting total, the counterclaim, set-off or cross-demand must be for an amount capable of being quantified in money terms.[16] It is necessary for the person applying to set aside a statutory demand to take steps to quantify the counterclaim, set-off or cross claim.[17]
[16] No 96 Factory Bargains v Kershel Pty Ltd [2003] NSWSC 146 [27], cited with approval in Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91 [78]; Dream Money Pty Ltd v Bernhard [2016] WASCA 193 [23].
[17] Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 [18]; Bakota Holdings Pty Ltd v Bank of Western Australia Ltd [2011] NSWSC 1277 [38] - [39].
In a claim for unliquidated damages for economic loss, the court will not be able to determine whether the amount claimed is claimed in good faith unless the company adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated.[18] As this court noted in Diploma Construction, an affidavit in support will be insufficient if it does not contain material from which a court can make an estimate of the amount of an offsetting claim.[19]
[18] Macleay Nominees v Belle Property East Pty Ltd [2001] NSWSC 743 [18], cited in 20*20 [16].
[19] Diploma Construction [90].
A company seeking to set aside or reduce a statutory demand on the basis of an offsetting claim does not need to set out evidence supporting the claim in meticulous detail. It is enough that the company provides evidence of a plausible and coherent basis for quantifying the claim which it genuinely asserts, or showing that it exceeds the amount of the debt demanded.[20] Precise quantification is unnecessary.[21]
[20] See Diploma Construction [90]; Royal Premier Pty Ltd v Taleski [2001] WASCA 48 [57]; Elm Financial Services [19]; Edge Technology Pty Ltd v Lite-on Technology Corporation [2000] NSWSC 471; (2000) 156 FLR 181 [45]; Durkan v Sandbank Holdings Pty Ltd [2008] WASCA 249 [8].
[21] Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd (No 3) [2014] WASCA 132; (2014) 46 WAR 483 [81]; Dream Money [24].
In conducting this exercise, the court must keep in mind that the task which it is performing is the determination of the amount of a genuine dispute or claim, which must exist in fact, rather than resolving the dispute or offsetting claim or attempting to predict its outcome.[22]
[22] Britten-Norman [46] - [53].
The court may assign a nominal value where damage is an element of the claim and there is no evidence of damage.[23] The court may also assign a nominal value to the offsetting total if it cannot estimate the amount of the offsetting claim.[24] As Brereton J noted in Re Douglas Aerospace Pty Ltd:[25]
If the offsetting claim must plainly exceed the amount of the demand, it is unnecessary that it be precisely quantified. But where that is not clear, the court must be able to quantify an offsetting claim, and if the evidence does not permit it to do so, will attribute to it only a nominal value. (citation omitted)
[23] Macleay Nominees [18], Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (1994) 13 ACSR 455, 462.
[24] Edge Technology [48]; Fleur De Lys Pty Ltd v Jarrett [2004] FCA 1357; (2004) 51 ACSR 238 [29]; Re Douglas Aerospace Pty Ltd [2005] NSWSC 167; (2015) 294 FLR 186 [40].
[25] Re Douglas Aerospace [40].
Primary proceedings
Three issues were debated before the master.
First, CHS contended that the parties had agreed that an amount of $150,000 would be paid in full and final settlement of the invoices. The master rejected this contention.[26] As this aspect of the master's decision is not challenged in the appeal, it is not necessary to say anything more about it.
[26] Primary decision [9].
Secondly, CHS contended that the amount claimed did not take account of a 'credit' in an amount of $115,702.28. The master's rejection of that contention[27] is the subject of ground 1 in the appeal.
[27] Primary decision [12].
Thirdly, CHS contended that it had an offsetting claim in respect of remedial work required for substandard construction work at the Decmil, Wheatstone and Beadon Bay Projects.
The master concluded that evidence of the claims in respect of the Wheatstone and Beadon Bay Projects was inadmissible as only claims in respect of the Decmil Project were addressed in the foundation affidavit filed in support of CHS's application.[28] That aspect of the master's decision which rejects the admissibility of an offsetting claim in respect of the Beadon Bay Project is the subject of grounds 2 and 3 in the appeal. The grounds of appeal do not challenge the decision to exclude evidence of a claim relating to the Wheatstone Project.
[28] Primary decision [17].
The master also concluded that the claim in respect of the Decmil Project was too vague and unquantified to be recognised as an offsetting claim.[29] As this aspect of the master's decision is not challenged in the appeal, it is not necessary to say anything more about it.
[29] Primary decision [18].
Ground 1: claim for credit of $115,702.28
Ground 1 in the appeal contends that the master erred in fact in finding that the evidence of an entitlement to a credit of $115,702.28 was vague and indecisive in circumstances where the evidence supported a plausible contention requiring investigation of an entitlement in favour of CHS to a credit of that amount.
Evidence in support of claim
CHS's application was accompanied by the first affidavit of its managing director, Emanuel Dillon.[30] Mr Dillon referred to and annexed an email of 23 November 2017 from Terra Firma's chief financial officer, Matthew Thomson.[31] Mr Thomson's email set out the basis of Terra Firma's demand in terms consistent with the statutory demand, and attached the relevant invoices.[32] Mr Dillon then continued:[33]
The assertions made by Mr Thompson in his email are incorrect. The Invoices have either been paid by the Applicant or have been taken up by a credit note validly issued by [Terra Firma] (Annexure 'ED-18' refers).
[30] Affidavit of Emanuel Richard Brian Dillon sworn 27 December 2017 (First Dillon Affidavit).
[31] First Dillon Affidavit, pars 21 - 23 (GAB 44).
[32] Annexure ED9 to the First Dillon Affidavit (GAB 54 - 55).
[33] First Dillon Affidavit, par 24 (GAB 44).
Annexure ED18 to the First Dillon Affidavit was a customer ledger prepared by Terra Firma, relating to the period 1 March 2015 to 6 January 2017.[34] Mr Dillon indicated that this was a spreadsheet which he instructed a staff member to mark up with amounts that had been paid by CHS to Terra Firma.[35] The spreadsheet refers to three credit notes in amounts of $11,611.62, $2,475 and $1,760. A column of the spreadsheet, which appears to have been completed by CHS's employee, shows a balance outstanding of $51,541.50 out of a total amount of $361,617.81 claimed by Terra Firma. The spreadsheet does not refer to a credit note in the amount of $115,702.28.
[34] GAB 188.
[35] First Dillon Affidavit, par 45 (GAB 47).
Mr Dillon deposed that, when a payment was made on the invoices, a remittance advice was generated by CHS's system. He attached the remittance advices as annexure ED10 to the First Dillon Affidavit.[36] One of the remittance advices related to a payment of $40,000 made to Terra Firma on 22 September 2016.[37] That remittance advice, which relates to invoices claimed by Terra Firma to be wholly or partly unpaid,[38] includes a deduction of $115,702.28 relating to an 'Invoice Ref' of 'CN300616' and an 'Inv Date' of '30/6/16'. [39]
[36] First Dillon Affidavit, par 26 (GAB 44).
[37] A bank record of the payment appears at GAB 90.
[38] See the spreadsheet which is annexure MRT6 to the affidavit of Matthew Roy Thomson affirmed on 11 April 2018 (GAB 270).
[39] GAB 60.
CHS relies on a reference to a credit in an email sent by Christopher Streat, the sole director of Terra Firma, at 4.05 pm on 30 June 2017. That email is part of a chain of emails which is annexure ED17 to the First Dillon Affidavit.[40] Mr Dillon's affidavit refers to the employee sending a letter to Terra Firma indicating that she was going to 'closeout the matter with a balance owing of $51,541.50' (meaning that she would finalise the project and all amounts owing for the balance of $51,541.50). He then annexed ED17 as 'that email'.[41] The email from the employee referred to appears to be one sent at 1.24 pm on 7 August 2017.[42] Mr Streat's email of 30 June 2017 was the first email of that reproduced chain. In the course of referring to other matters, Mr Streat wrote in the first email:[43]
As a side note I have attached the statement with the addition of the credit of 115k.
[40] GAB 181 - 187.
[41] First Dillon Affidavit, par 44 (GAB 47).
[42] GAB 183.
[43] GAB 187.
The attachment referred to is not annexed to the First Dillon Affidavit but is included in his second affidavit.[44] It is a customer ledger which is largely illegible in the copies available to the court. At the foot of the page, after the spreadsheet, is a note:
Credit as per agreed between Emanu ($115,702.28) TBA
[44] Annexure ED17 to the affidavit of Emanuel Richard Brian Dillon sworn 6 March 2018 (Second Dillon Affidavit) (GAB 239).
In his affidavit, Mr Streat referred to the remittance advice for the payment of $40,000 made to Terra Firma on 22 September 2016, which claimed a deduction of $115,702.28 relating to 'CN300616'. Mr Streat deposed that no credit note with that number or amount was issued by Terra Firma to CHS, and he therefore believed that 'it corresponds to the alleged part settlement' referred to by Mr Dillon.[45]
[45] Affidavit of Christopher Denis Streat affirmed on 1 February 2018, par 27 (GAB 196).
In the Second Dillon Affidavit, Mr Dillon deposed that the credit note was styled as 'CN300616' because that was the date that Mr Streat sent the email containing the credit note (being 30 June 2016).[46] It appears that Mr Dillon is referring to the email quoted at [30] above, although that email was sent a year later.
[46] Second Dillon Affidavit pars 46 - 48 (GAB 223).
CHS also relied on an affidavit of Jamie Monk, its group accountant, which refers to the above documentation, but does not materially add to the evidence, other than by stating that Mr Streat did not dispute the way the credit was applied in the remittance prior to the primary proceedings.[47]
Master's approach
[47] Affidavit of Jamie Steven Monk sworn 6 March 2018, pars 11 - 16 (GAB 242 - 243).
The master referred to the evidence noted above, and expressed his conclusion in the following terms:[48]
There is still no evidence of the credit note nor is there any indication as to why the note was issued. In summary, the evidence, such as it is, is vague and indecisive and I simply could not conclude that CHS was entitled to offset an amount of $115,702.28 against Terra Firma's claim.
CHS's submissions
[48] Primary decision [12].
CHS submits that there is a plausible contention requiring investigation, namely that the parties agreed that a credit of $115,702.28 would be applied against the outstanding balance of invoices issued by Terra Firma. CHS submits that Mr Streat's email of 30 June 2017 evidences that the credit was agreed. It submits that, against the background of correspondence between the parties attempting to resolve a dispute, it is plausible that the credit is on account of delays or poor workmanship and that consideration for the credit would be a forbearance to sue. CHS submits that the absence of any adequate explanation for the email by Mr Streat leaves open an inference that an agreement was reached.[49]
[49] Appellant's Submissions, par 19.
CHS submits that the existence of evidence that might cast doubt, even significant doubt, on the contention cannot be a basis for concluding that there is no offsetting claim. It submits that matters relied on by Terra Firma - the absence of a credit note document, the letters 'TBA' on the attachment to Mr Streat's email and Mr Streat's speculation about a connection between the credit and the $150,000 settlement claimed by CHS - do not make the contention implausible. CHS submits that to embark upon the exercise of weighing up the evidence supporting the contention with other evidence, without the benefit of cross-examination, would go beyond what CHS is required to satisfy under s 459H of the Act.[50]
Disposition of ground 1
[50] Appellant's Submissions, pars 20 - 21.
As noted above, the concern of the court is to determine whether there is evidence to establish the existence of a genuine dispute or offsetting claim. The concern is not with whether plausible evidence on which an applicant relies in support of the dispute or claim is likely to be accepted at a final hearing. However, the court may conclude that there is no genuine dispute or offsetting claim where a statement in an affidavit is inherently improbable, inconsistent with undisputed documentary evidence or constitutes an assertion of facts unsupported by evidence.
The terminology used by the master - that 'I simply could not conclude that CHS was entitled to offset an amount of $115,702.28' - was unfortunate in that it suggests that the master was evaluating the strength of CHS's claim rather than the existence of a genuine dispute or offsetting claim. However, the master was correct to conclude that the evidence adduced in the proceedings was not sufficient to establish a genuine dispute or offsetting claim in respect of the amount of $115,702.28.
The principal difficulty facing CHS is that there is no evidence which suggests what the claimed credit of $115,702.28 might be for. As counsel for CHS conceded,[51] none of CHS's affidavits give any indication of that matter. The effect of Mr Streat's evidence is that there was no credit given. CHS's submission that the claimed credit might relate to a claim for delay or defective workmanship is pure speculation unsupported by any evidence. The absence of any evidence from an officer of CHS as to why CHS was entitled to claim the credit, or even why he or she believed CHS to be entitled to the credit, creates a substantial obstacle to establishing the existence of a genuine dispute or offsetting claim.
[51] Appeal ts 68, 74.
Nor does the evidence provide any basis for contending that the parties agreed that a credit of $115,702.28 was to be applied to CHS's account, much less reached any binding agreement. The evidence of the Supplier Remittance Advice does indicate that, on or about 22 September 2016, CHS applied a reduction of $115,702.28 when it made a payment in respect of certain invoices. However, there is no evidence suggesting that Terra Firma accepted that reduction or reached an agreement with CHS in relation to it. Agreement does not arguably arise from Mr Streat's statement in the email of 30 June 2017 that he has attached a statement 'with the addition of the credit of 115k'. The attached statement did not include the credit in the spreadsheet which indicated amounts payable. While it is true, as counsel for CHS emphasised, that the text of the note at the foot of the page included the words 'credit as per agreed … ($115,702.27)', the note was qualified by the letters 'TBA', clearly indicating that the matter was 'to be agreed' or 'to be advised'. The note appears below the 'Total Owing' row in the spreadsheet, and so cannot reasonably be read as reducing the amount owing.
Counsel for CHS referred to the collaborative nature of the spreadsheet, which contained columns where the amounts claimed to be owing by each party were identified, a column for notes by CHS and a column for responses by Terra Firma. However, the collaborative nature of the spreadsheet does not explain the fact that, in contrast to other credits which are included in the body of the spreadsheet to reduce the 'Total Owing', the credit of $115,702.28 is included below the 'Total Owing' row and qualified by Terra Firma's response 'TBA'.
Contrary to the submission of counsel for CHS, no adverse inference can be drawn against Terra Firma from the absence of any explanation by Mr Streat in his affidavit as to what he meant by his email of 30 June 2017 and the note in the attached spreadsheet. As discussed at [30] above, the email was part of an annexure ED17 which was said, in par 44 of the First Dillon Affidavit, to contain an email sent by an employee of CHS. The First Dillon Affidavit did not contain the spreadsheet. Mr Streat could not reasonably have anticipated that the email chain was attached for the purpose of proving an agreement for a $115,702.28 credit, or that there was any call for him to explain the content of the email of 30 June 2017, much less its attachment.
Counsel for CHS referred to the absence of evidence of objection by any officer of Terra Firma to the credit claimed in the Supplier Remittance Advice for the payment made on 22 September 2016. However, absence of evidence of objection is not evidence of agreement. Further, it was clear from the spreadsheet sent to CHS by Terra Firma on or around 1 May 2017 that Terra Firma was making no allowance for such a credit in its accounting of the amount owing by CHS.[52]
[52] Annexure ED16 to the First Dillon Affidavit (GAB 180), referred to in par 42 of that affidavit (GAB 47).
The significance of the documents on which CHS relies, outlined at [41] ‑ [44] above, must be evaluated in the light of the absence of any evidence from any officer or employee of CHS about this alleged credit.
Ultimately, the claim for a credit of $115,702.28 was no more than an assertion unsupported by evidence. In the context in which the master's conclusion was made, his comments should be understood as indicating that there was no evidence to support the existence of a genuine dispute or offsetting claim in relation to that sum. The evidence did not establish the existence of a genuine dispute or offsetting claim. Therefore, ground 1 is not established.
Grounds 2 and 3
Grounds 2 and 3 relate to the refusal of the master to consider evidence of an offsetting claim by CHS against Terra Firma in respect of defective workmanship at the Beadon Bay Project.
Evidence of offsetting claim in the First Dillon Affidavit
The First Dillon Affidavit contained the following passage, upon which CHS relies:[53]
32. [Terra Firma] carried out work for [CHS] on a series of remote projects for Decmil Australia ('Project Work'). Some of the work carried out by [Terra Firma] was remedial work arising from the conduct of [CS Industries] ('Remedial Work').
33. The standard of that work carried out by [Terra Firma] for [CHS] for both the Project Work and the Remedial Work, was not to the appropriate standard and was not fit and proper or proper and proficient. In fact, in relation to the Project Work, Decmil raised the workmanship issues in a series of formal correspondences with [CHS], requiring [CHS] to incur further costs by extending its bank guarantees ('Guarantee').
34. The failure to adhere to the requisite standard was set out in a series of emails between myself and [Terra Firma]. Annexed hereto and marked 'ED-13' are some of those emails.
[53] GAB 45.
Annexure ED13 comprises an email from Mr Dillon to Mr Streat sent at 2.10 pm on 20 May 2016 and a response sent at 8.29 am on 23 May 2016.[54]
[54] GAB 161 - 164.
Mr Dillon's email refers to exposure which CHS has with 'CSI and or TF @ Decmil', and made complaints evidently directed to the Decmil Project. Under the heading 'BBH' (which presumably relates to the Beadon Bay Project), Mr Dillon referred to flying an engineer to site to approve certain matters, and said:[55]
I would like to confirm this b4 we remit full payment to TF.
Given your agreement to settle @ $150K Inc On this project and the fact you have some personal stuff to deal with
I am suggested (if you agree) we will send you (on confirmation) payment of $50K inc and once engineer has been to site.(assuming next week) once all confirmed pay the remaining balance .
…
Again I just need confirmation that you accept the terms on BBH inc Full and final payment of $150K inc
[55] GAB 163 - 164.
The effect of Mr Streat's response was to indicate that this was the first he had heard with any issues at the Decmil Project and that the contemplated $150,000 payment was a global settlement to which no further reductions would be applied.[56]
[56] GAB 161 - 162.
After annexing ED13, the First Dillon Affidavit continues:[57]
[57] GAB 46.
35.Arising from the substandard work, [CHS] incurred costs to remedy these defects and the ongoing cost associated with the Guarantee and set out at paragraphs [36] - [37] and [39].
36[CHS] suffered further losses arising from the conduct of [Terra Firma] in that:
a. The reputation of [CHS] was damaged;
b. There was additional time expended by [CHS] to make good the Remedial Work and Project Work; and
c. Arising from that conduct of [Terra Firma], Decmil Australia refuses to engage [CHS] on further projects.
37. I would estimate that the costs associated with making good the works and the costs of the bank guarantees is $280,000.00. In fact, I specifically emailed Mr Streat in relation to these costs. Annexed hereto and marked 'ED-14' is that email.
Annexure ED14 was an email sent by Mr Dillon to Mr Streat at 7.55 am on 19 May 2016, which included the following text:[58]
[58] GAB 165.
The issue is Chris I am learning more and more of the costs I incurred as for poor (lack off) supervision and planning
We have to date paid Valnintens $175K for painting, Crane's cost over $250K leaking in buildings as leeks (connection of plumbing and aironds (in some cases) were not installed or tested correctly
A building in the wrong place
Flashing not completed or fixed properly
Sizer lift and boom lift hire
Transport
Fail to order all flashing's
Incorrect flashing ordered
Landscaping (DEAD PLANTS)
Not to mention the delays etc to programme
List goes on and on
There is nothing in the text of the email to indicate that the defects being referred to related to the Beadon Bay Project.
After annexing ED14, Mr Dillon's affidavit continues:[59]
38. I was consistently emailing and telephoning Mr Streat, in relation to the defective works and enquiring as to when he would attend to remedy.
39. In fact, [CHS] in a further attempt to have [Terra Firma] complete the project works and the remedial works, [CHS]:
a. Provided accommodation for [Terra Firma];
b. Incurred the cost of additional materials that should have been provided by [Terra Firma]; and
c. Assisted with the scheduling and management of the works.
[59] GAB 46.
The First Dillon Affidavit then proceeds to give evidence in relation to the $150,000 settlement discussions, in the following terms:[60]
Eventually, [CHS] and [Terra Firma] entered into a part settlement where [Terra Firma], accepted $150,000.00 in full and final settlement for a series of invoices, to compensate [CHS] for its losses associated with the Project Works ('Project Works Credit'). The Project Works Credit was taken up in a series of invoices as agreed between the parties. Annexed hereto and marked 'ED-15' is an email chain between myself and Mr Streat for [Terra Firma], evidencing the Project Works Credit.
[60] First Dillon Affidavit, par 40 (GAB 46).
Annexure ED15 comprised a series of emails, including those quoted or summarised at [50] - [51] and [53] above. The emails reproduced in annexure ED15 are a jumbled mess of fragments of different emails copied across different pages of the annexure in no discernible order. At the hearing of the appeal, counsel for CHS attempted to reconstruct the chain of emails in chronological order, but not in a manner which gave the court any reassurance as to the accuracy of the attempt. In any event, assuming, favourably to CHS, that the emails should be reconstructed and read in the manner it asserts, for the reasons set out at [66] ‑ [76] below, ground 3 must be rejected. Although there was some reference to amounts charged by Terra Firma for the Beadon Bay Project in those emails, there was no discernible complaint about the timing or standard of work undertaken by Terra Firma for that project.
The master's approach
The master noted Terra Firma's submission that the only reference in pars 32 ‑ 37 of the First Dillon Affidavit was to Decmil Australia. There is no reference to the Wheatstone Project or to the Beadon Bay Project. Counsel for Terra Firma had submitted that, insofar as offsetting claims in relation to these two projects were advanced in subsequent affidavits, the evidence was inadmissible on what has become known as the 'Graywinter principle'.[61]
[61] Primary decision [14] - [15].
The master set out the following passage of the reasons of Barrett J in Elm Financial Services Pty Ltd v MacDougal:[62]
The Graywinter principle derives from the judgment of Sundberg J in Graywinter Properties Pty Ltd v Gas and Fuel Superannuation Fund (1996) 70 FCR 452 and may be regarded as now firmly established: see the most recent survey of the authorities in Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd [2004] NSWSC 527 (21 June 2004, White J). What it means is that the application for an order setting aside the statutory demand and the affidavit in support of that application, both filed and served within the 21 day period stipulated in s.459G(3), must fairly alert the claimant to the nature of the case the company will seek to make in seeking to have the statutory demand set aside. The content of the application and affidavit must convey, even if it be by necessary inference, a clear delineation of the area of controversy so that it is identifiable with one or more of the grounds made available by ss.459H and 459J for setting aside statutory demands. That process of delineation may not be extended after the end of the 21 day period, although it is open to the plaintiff to supplement the initial affidavit by way of additional evidence relevant to the area of controversy identified within the period. (emphasis added)
[62] Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 [7], quoted at Primary decision [15].
The master also noted counsel for CHS's submission that the emails attached to the First Dillon Affidavit made reference to the Wheatstone and Beadon Bay Projects and therefore any subsequent evidence which further expanded on the claims in relation to those two projects was admissible.[63]
[63] Primary decision [16].
The master expressed his conclusion in the following terms:[64]
In my view, submissions put on behalf of Terra Firma should be accepted. What is important, as Barrett J noted, is that the founding affidavit established the area of controversy between the parties. Counsel for Terra Firma illustrated the point by suggesting that what was necessary was for the founding affidavit to peg out an area. Subsequent affidavits could sketch in the detail within that area, but they could not stray outside its boundaries. Broadly speaking, I think that is correct. In this case anyone reading the affidavit of Mr Dillon would assume the only complaint related to the Decmil project. That is what Mr Streat in his affidavit addressed. Consequently, any subsequent affidavit material referring to projects other than the Decmil project is, in my view, inadmissible.
CHS's grounds of appeal and submissions
[64] Primary decision [17].
On appeal, CHS does not take issue with the existence of the 'Graywinter principle'.
However, by ground 2, CHS contends that the master erred in finding that the application and supporting affidavit must convey a clear delineation of the area of controversy by at least a 'necessary inference', in circumstances where a 'reasonably available inference' would have been sufficient. It relies principally on the subsequent observations of Barrett J in Saferack Pty Ltd v Marketing Heads Australia Pty Ltd,[65] and the decision of the Victorian Court of Appeal in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq).[66]
[65] Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 214 FLR 393 [25].
[66] Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330 [52] - [65].
By ground 3, CHS contends that the master erred in finding that the evidence contained in the First Dillon Affidavit did not sufficiently refer to offsetting claims in relation to the Beadon Bay Project for the purposes of the 'Graywinter principle', and therefore was inadmissible in circumstances where those claims were sufficiently raised.
CHS submits that, although the body of the First Dillon Affidavit did not make express reference to a dispute concerning the Beadon Bay Project, it included attachments ED14 and ED15, which did make that reference. Those attachments contained evidence of an exchange of emails between CHS and Terra Firma which revealed the existence of a dispute between them over the Beadon Bay Project works. The emails included complaints by CHS on account of delay and poor workmanship by Terra Firma in relation to that project. CHS says that the body of the affidavit did not exclude claims in relation to the Beadon Bay Project, or any other project.
CHS submits that, by reason of those emails being included in attachments ED14 and ED15, it was a reasonably available inference, if not a necessary inference, that an offsetting claim concerning the Beadon Bay Project was raised. CHS says that, although not determined by the master, CHS has an offsetting claim in excess of the statutory demand in relation to the Beadon Bay Project works performed by Terra Firma.
Disposition of grounds 2 and 3
Section 459G(2) of the Act provides that an application to set aside a statutory demand may only be made within 21 days after the demand is served. By s 459G(3)(a), an application is made in accordance with that section only if, within those 21 days, an 'affidavit supporting the application' is filed with the court.
It is implicit in these provisions that an affidavit filed more than 21 days after service of the statutory demand which raises a new ground or grounds to set aside a statutory demand (as opposed to an affidavit which expands on grounds supported by an earlier affidavit) cannot be used in an application of this nature.[67]
[67] Energy Equity Corporation Ltd v Sinedie Pty Ltd [2001] WASCA 419; (2001) 166 FLR 179 [29].
The First Dillon Affidavit did not support any offsetting claim by CHS against Terra Firma in respect of the timing or quality of work performed by Terra Firma at the Beadon Bay Project. That is so whether the requirement is for the affidavit to identify an offsetting claim, or the material facts which establish an offsetting claim, by necessary implication or inference, as a reasonably available implication or inference, or whether some other combination of words to similar effect is used to describe the requirement for an offsetting claim to be dealt with in a supporting affidavit.
Paragraph 32 of the First Dillon Affidavit defined the terms 'Project Work' and 'Remedial Work' by reference only to work carried out on the Decmil Project. Paragraph 33 referred to Decmil raising workmanship issues which required CHS to incur further costs by extending the 'Guarantee'. The balance of the affidavit is clearly referring only to the costs associated with the Decmil Project.
Annexure ED14 is referred to in par 37 of the First Dillon Affidavit as evidencing emails 'in relation to these costs', which is the 'costs associated with making good the works and the costs of the bank guarantees', said to be $280,000. In context those are clearly costs associated with the Decmil Project.
Annexure ED15 is referred to in par 40 as an email chain evidencing the 'Project Works Credit', which was to compensate CHS 'for its losses associated with the Project Works' (ie, the 'series of remote projects for Decmil Australia').
CHS's counsel contended that a genuine dispute or offsetting claim may be supported by an annexure to the supporting affidavit, even where the nature of the dispute is not apparent from the body of the affidavit. That may well be so in some cases. An illustration of such a case is found in the decision of the New South Wales Court of Appeal in NA Investments Holdings Pty Ltd v Perpetual Nominees Ltd.[68] In that case, a statutory demand was issued by Perpetual, relying on a guarantee in a finance agreement. The finance agreement was annexed to an affidavit in support of an application to set aside the statutory demand. The body of the supporting affidavit asserted an offsetting claim that was ultimately not pursued. A question arose as to whether the debtor could raise a limitation of liability subclause in the guarantee clause as a basis for disputing the claim. The court held that the limitation of liability subclause did not avail the debtor, but that it was not precluded from raising its construction of the clause on the ground that the affidavit did not support the claim. Lindgren AJA, with whom other members of the court agreed, observed:
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'. None the less, 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 [85] - [86]. (emphasis added)
[68] NA Investments Holdings Pty Ltd v Perpetual Nominees Ltd [2010] NSWCA 210; (2010) 79 ACSR 544.
The dispute in NA Investments is not analogous to the present case. Further, the decision in NA Investments does not deny the permissibility of having regard to the body of the affidavit when considering whether a genuine dispute or offsetting claim is supported by annexures to the affidavit.
CHS's submission that in determining whether an affidavit supports a ground, the contents of documents annexed to the affidavit can be considered without regard to what is said in the body of the affidavit[69] cannot be accepted. Contrary to the assertions of counsel for CHS, none of the authorities to which he refers support this contention. In some cases, a ground of dispute or an offsetting claim that is evident on the face of an annexed document may be supported by the affidavit even though not referred to in the body of the affidavit.[70] But that is not to say that, in every case, the contents of the affidavit can be ignored in evaluating whether an annexure to the affidavit supports a ground of dispute or an offsetting claim. As Brereton J said in Re Australia Zhongfu Oil Gas Resources Pty Ltd,[71] after a thorough review of the authorities, 'while explicit reference to the ground or necessary implication may not be necessary, it remains important that the affidavit convey some fair notice to the [other party] of the case that is to be made'.
[69] Appeal ts 96.
[70] Saferack [24] ‑ [25]; Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd [2007] NSWSC 103; (2007) 61 ACSR 321 [31]; Malec [63] ‑ [65].
[71] Re Australia Zhongfu Oil Gas Resources Pty Ltd [2012] NSWSC 1208 [31], cited with approval in Malec [65].
Annexures ED14 and ED15 are not to be read divorced from the substantive paragraphs of the First Dillon Affidavit which indicate the purpose for which the evidence is adduced. Further, while the Beadon Bay Project is mentioned in some of the annexed emails, the text of the emails does not disclose the existence of any claim about the timing or standard of workmanship on the Beadon Bay Project to any reasonable reader. While they might be read as containing discussions about providing a discount on charges for the Beadon Bay Project, there is nothing to indicate that the works for the Beadon Bay Project were, or were claimed to be, delayed or defective. A fair reading of the whole of the First Dillon Affidavit does not give rise to any reasonably available inference as to the existence of an offsetting claim based on delays and substandard workmanship in relation to the Beadon Bay Project. Nor does any such inference arise from annexures ED14 and ED15 considered in isolation.
The master was correct to conclude, in effect, that it would not be apparent to any reasonable reader of the First Dillon Affidavit that CHS was making a claim in respect of delays or defective workmanship on the Beadon Bay Project. The First Dillon Affidavit simply did not contain any evidence supporting the existence of such a claim in respect of the Beadon Bay Project, did not make such a claim and did not identify material facts supporting such a claim by necessary implication, reasonably available inference or otherwise. The master was correct to conclude that subsequent affidavits, filed more than 21 days after the statutory demand was served, were inadmissible to the extent that they advanced the new claim in respect of work done for the Beadon Bay Project.
It follows that ground 3 is not established. As success on ground 2 could not, of itself, lead to the master's decision being set aside, it is unnecessary to determine that ground.
Ground 4
Ground 4 contends that the master erred in law in dismissing CHS's application:
in circumstances where [Terra Firma] ought to have stated in the statutory demand each of the invoices to which the lump sum amounts related, and stated, in relation to each invoice, the amount alleged to be outstanding, but did not do so.
CHS's submissions
In support of this ground, CHS relies on the decision of the New South Wales Supreme Court in Condor Asset Management Ltd v Excelsior Eastern Ltd.[72] In that case, Barrett J held that a statutory demand relating to two or more debts must give a description of the individual debts and state their amounts as well as state the total of those amounts.
[72] Condor Asset Management Ltd v Excelsior Eastern Ltd [2005] NSWSC 1139; (2005) 56 ACSR 223.
CHS notes that Terra Firma's statutory demand refers collectively to two groups of invoices, one group totalling $88,090.78 and the other group totalling $288,224.80, without further particularisation. The attached affidavit of Mr Thomson refers to both a debt of $376,315.58 and debts of $376,115.58.[73] CHS submits that both sums are aggregate amounts of multiple alleged debts and therefore the statutory demand infringes the 'Condor rule'.
[73] GAB 51.
CHS submits that the claimed sum of $288,224.80 was approximately two thirds of the face value of the invoices issued by Terra Firma, namely $451,466.07. CHS says that, at the time the statutory demand was served, it could not have determined what amount Terra Firma alleged to be outstanding in relation to any particular invoice or each of the projects.
CHS claims that the preparation of the statutory demand in this manner caused it prejudice, amounted to a substantial injustice and is likely to have impacted upon how the initial affidavit in support of the application to set aside the demand was prepared.
CHS recognises that this point was not taken before the master. CHS submits that it should be allowed to advance this ground on appeal because:
(1) To do so would not disturb a settled pattern of litigation given that there has not been a trial of issues;
(2) Fresh evidence is not required as the evidence is already contained in the initial affidavit in support of the application; and
(3) In the event that CHS does not succeed on grounds 2 and 3, Terra Firma will effectively be taking the benefit of its own error. This is because of the likelihood that Terra Firma's failure to comply with the 'rule in Condor' has, at least in part, been responsible for the way in which CHS's initial affidavit was prepared.
Statutory provisions
Section 459E(2) of the Act identifies the requirements for a statutory demand in the following terms:
The demand:
(a)if it relates to a single debt-must specify the debt and its amount; and
(b)if it relates to 2 or more debts-must specify the total of the amounts of the debts; and
(c)must require the company to pay the amount of the debt, or the total of the amounts of the debts, or to secure or compound for that amount or total to the creditor's reasonable satisfaction, within 21 days after the demand is served on the company; and
(d)must be in writing; and
(e)must be in the prescribed form (if any); and
(f)must be signed by or on behalf of the creditor.
The form of a statutory demand is prescribed in Form 509H of sch 2 to the Corporations Regulations 2001 (Cth). The introductory paragraphs of the form are in the following terms:
1. The company owes (name) of (address) ('the creditor')
* the amount of $(insert amount), being the amount of the debt described in the Schedule.
* the amount of $(insert total amount), being the total of the amounts of the debts described in the Schedule.
*2. The amount is due and payable by the company.
*2. Attached is the affidavit of (insert name of deponent of the affidavit), dated (insert date of affidavit), verifying that the amount is due and payable by the company.
The schedule in the prescribed form is set out as follows:
SCHEDULE
Description of the debt Amount of the debt
(indicate if it is a judgment debt,
giving the name of the court
and the date of the order)
*Total Amount
The notes to the prescribed form show that an asterisk is intended to indicate 'Omit if inapplicable'.
As noted at [5] - [13] above, s 459G of the Act authorises a company to apply to set aside a statutory demand, while s 459H provides for the court to set the demand aside on the ground that there is a genuine dispute as to the debt or an offsetting claim. Section 459J of the Act provides for additional grounds on which the statutory demand may be set aside, in the following terms:
(1)On an application under section 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 subsection (1), the Court must not set aside a statutory demand merely because of a defect.
Disposition of ground 4
In Condor, multiple separate debts were described in the schedule as short term loans advanced by an initial creditor which had assigned the debts to the issuer of the statutory demand. Barrett J held that this description constituted a defect in the statutory demand, on the basis that the demand was not in the prescribed form. His Honour's reasoning was expressed in the following terms:[74]
The form of the schedule to Form 509H was the subject of comment by Lindgren J in Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 55 FCR 562. His Honour said (at p.579), after setting out that schedule:
'Clearly, a statutory demand relating to two or more debts must give a 'description' of the individual debts and state their amounts as well as state the total of those amounts.'
I respectfully agree. The matter to be specified in the first column of the schedule is 'Description of the debt'. Against that must be shown in the second column 'Amount of the debt'. Where, consistently with s.459E(1)(b), a single demand is based on several debts, the reference in the heading of each of the schedule's columns to 'the debt' is a reference to each of the several debts individually. That reference to 'the debt' is not concerned with the totality of the several debts. The direction in the heading of the first column does not call for an amalgamated single description of all the debts together; and the direction in the heading of the second column does not call for a statement of the aggregate amount of the several debts. The requirement that such an aggregate amount be stated where the demand is based on several debts comes from the words 'Total amount' which is positioned on the lowest of the three ruled lines at the foot of the second column so as to indicate that that the separate amounts specified on the lines above in respect of individual debts are to be added together and the aggregate inserted on the lowest line. The clear intention is that a separate description and a separate amount be stated for each debt, together with an aggregate amount for all together. The case in which, as envisaged by the asterisked footnote, 'Total amount' will not be applicable is the case where there is only one sum under 'Amount of the debt' because there is only one debt. It is this analysis that underlies Lindgren J's observation.
The approach taken by Lindgren J was expressly approved and adopted by Nicholson J in Delta Beta Pty Ltd v Vissers (1996) 20 ACSR 583. His Honour held (at p.586) that, in a case where a statutory demand relates to several debts, compliance with s.459E(2)(e) (requiring adherence to the prescribed form) entails specification of individual debts and the total amount of all debts.
[74] Condor [20] - [22].
Barrett J recognised that it was then necessary to ask whether the defect is of such a quality that substantial injustice will be caused unless the demand is set aside. His Honour observed:
That question must, of course, be addressed in context; and it is clear that a defect will not be productive of 'substantial injustice' if the demand, viewed in the light of what the company already knows or ought reasonably be expected to know, contains sufficient information to assess its liability for the amounts demanded [25]. (citation omitted)
His Honour observed that the description given in Condorcould fail to identify which of a series of loans, only some of which may have fallen due, were the subject of the statutory demand. Barrett J said:
Fundamental, in these circumstances, is the proposition that the company on which the demand is served must be able to identify with precision the debt - or each and every one of the several debts - upon which a statutory demand is based. Failure to provide the means of such identification means that the company is denied the ability even to begin to consider whether s.459H(1)(a) provides a ground for challenge. A company in that position suffers severe prejudice; and that prejudice must, of its nature, mean that there will be, in terms of s.459J(1)(a), 'substantial injustice' unless the demand is set aside [28].
Condor has been cited with approval by a number of subsequent single judge decisions,[75] although the approach does not appear to have been previously considered by an intermediate appellate court. In Acu Rate, Brereton J described the requirement in the following terms:
[A] creditor's statutory demand must contain a sufficiently clear and accurate description of the debt claimed to identify to a reasonable person in the shoes of a director of the debtor company the general nature of the debt, to a sufficient degree that the director can assess whether there is a genuine dispute as to its existence or amount, or any offsetting claim. The demand must enable the company served to identify with precision the debt, or each and every one of the multiple debts upon which it is based and where multiple debts are claimed each must be itemised, together with the total sum claimed. Failure to describe a debt with sufficient clarity is a defect in the demand, although such a defect will warrant setting aside the demand only if the Court is satisfied that it will be productive of a substantial injustice unless the demand is set aside [10].
[75] See for example Re Halal Meats Pty Ltd [2015] NSWSC 2041 [11] - [13]; Re Acu Rate Pty Ltd [2017] NSWSC 1845 [8] - [10].
In our view, s 459E of the Act requires that a statutory demand identify the debt or debts in a manner that enables a person in the position of the debtor company to identify the debt or debts with a sufficient degree of precision to assess whether there is a genuine dispute as to existence or amount of the debt or debts, or any offsetting claim. That requirement emerges from the text of s 459E(1), (2) and (3) and the text of s 459G, s 459H and s 459J, having regard to the context in which, and purpose for which, the statutory demand process exists.
It is unnecessary to examine further the observations of Barrett J in Condor. That is because the description of the debts in Terra Firma's statutory demand, understood in the context of the email of 23 November 2017[76] and attached invoices, together with the spreadsheet at annexure ED16[77] to the First Dillon Affidavit,[78] enabled CHS to identify the invoices and the manner in which Terra Firma had applied payments to them. This was, as counsel for CHS conceded,[79] sufficient to enable CHS to identify the invoices, and to determine from its own records the extent to which payments had been made.
[76] Annexure ED9 to the First Dillon Affidavit (GAB 54).
[77] GAB 180
[78] GAB 188 - 192.
[79] Appeal ts 101 ‑ 102.
Ultimately, CHS did not dispute the debt on the basis that the amounts specified in the invoices were not owing (subject to any offsetting claim) or had been the subject of payments (other than the claimed credit of $115,702.28). There was no evidence either at first instance or on appeal that there was a dispute or offsetting claim which CHS could or would have advanced if the amounts owing under individual invoices had been listed in the statutory demand. Nor was there any evidence at first instance or on appeal that asserted or suggested that the form of the statutory demand caused CHS any confusion or misled it in any respect. We do not accept counsel for CHS's submission that the form of the statutory demand contributed to the failure of the First Dillon Affidavit to raise an offsetting claim in respect to delays and defective workmanship at the Beadon Bay Project. The availability of that claim was not affected by the detail of the invoices or the amounts said to be outstanding in respect of individual invoices.
Terra Firma's statutory demand identified the claimed debts in a manner that enabled CHS, in the context of the previous dealings between the parties, to identify the debts with a sufficient degree of precision to assess whether there was a genuine dispute as to their existence or amount, or any offsetting claim. To any extent that a failure to list the invoices and amounts outstanding on each invoice in the statutory demand constituted a defect, such a defect did not cause any material (let alone any substantial) injustice to CHS and did not require that the statutory demand be set aside under s 459J of the Act.
There is no merit in CHS's submissions based on a discrepancy in the figures identified in the statutory demand and the affidavit. Paragraph 1 and the schedule to the statutory demand identified the amount of $376,315.58, as did par 1 of the accompanying affidavit. It seems clear that the amount of $376,115.58 referred to in par 4 of the affidavit is a typographical error. In the context of the amount claimed, a discrepancy in the amount of $200 could not give rise to any substantial injustice or provide some other reason why the statutory demand should be set aside. At the hearing of the appeal, counsel for CHS did not contend otherwise.
For these reasons, ground 4 is not established. It may also be noted that the contention that the master erred in the manner alleged by the ground of appeal is not sustainable. The master, appropriately, did not consider whether there was a ground for setting aside the statutory demand under s 459J of the Act, because no such ground was raised by CHS in the primary proceedings. He did not err in failing to deal with a ground not raised by CHS. It is unnecessary to consider whether the point could be taken on appeal in some other form, in circumstances where no possible additional evidence relevant to the new point has been identified.
Other matters
Terra Firma has filed a notice of contention, raising issues as to whether CHS had established an offsetting claim in relation to the Beadon Bay Project, in the event that the master is held to have erred in refusing to admit evidence of CHS's claim in relation to that project. The failure of ground 3 means that it is unnecessary to consider that notice of contention.
Submissions were advanced as to whether CHS requires leave to appeal against the master's decision, on the basis that it is an interlocutory decision. It is unnecessary to resolve that debate, as the appeal must be dismissed even if leave were required and granted.
To enable the appeal to be dealt with, the time for compliance with Terra Firma's statutory demand was extended to 4.00 pm on the day of the hearing of the appeal. At the conclusion of the hearing of the appeal, we considered it appropriate that a further extension to 5.00 pm on 5 June 2018 be granted under s 459F(2)(a)(i) of the Act. Terra Firma did not oppose that further extension.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
ET
RESEARCH ASSOCIATE/ORDERLY TO THE HONOURABLE JUSTICE MITCHELL3 JULY 2018
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