Edge Homes & Developments Pty Ltd v Epic Feast Pty Ltd - [2010] SASC 57

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
EDGE HOMES & DEVELOPMENTS PTY LTD v EPIC FEAST PTY LTD
[2010] SASC 57
Reasons of Judge Lunn a Master of the Supreme Court
16 March 2010
CORPORATIONS
Statutory demand - served on 24 December - application to set aside the demand - affidavit in support stating a ground that debt not due for payment - evidence for that ground only in subsequent affidavit filed outside 21 day period - extent to which such evidence has to be in the initial affidavit and whether any indulgence to be granted where affidavit has to be prepared in Christmas-New Year period - effect of defendant making no prior demand for payment - held genuine dispute and demand set aside.

EDGE HOMES & DEVELOPMENTS PTY LTD v EPIC FEAST PTY LTD
[2010] SASC 57
Reasons on application to set aside a statutory demand.

JUDGE LUNN: The plaintiff is a building company. It sole director is Simon Jarrad (“Mr Jarrad”).
The defendant is a supplier of doors and windows to builders. Up until about mid-December 2009 Geoffrey Bird (“Mr Bird”) was its sales manager. Daniel Kornaat (“Mr Kornaat”) is its production manager.
On about 22 September 2009 the defendant sold and delivered material to the plaintiff for a price of $18,395.30. There were several telephone discussions between representatives of the plaintiff and the defendant about the payment of this account, and on the plaintiff’s version of those conversations they encompassed claims for defects in previous materials supplied by the defendant to the plaintiff. This amount has not been paid. The central issue is whether there was some oral agreement that payment would be deferred until 31 January 2010.
On 24 December 2009 the defendant’s solicitor served on the plaintiff a statutory demand dated 23 December 2009 under s 459E of the Corporations Act 2001 (“the Act”) claiming the debt of $18,395.30. On 13 January 2010 (ie just within the 21 days allowed by s 459G(2) of the Act), the plaintiff applied to set it aside.
The application to set aside the demand was supported by an affidavit of Mr Jarrad, sworn on 13 January 2010. In paragraphs 11 to 13 of that affidavit he deposed:
11On or around the second and third week of November 2009 I engaged in two discussions (“the discussions”) with Mr Bird regarding payment of Invoice Number 00023686.
12I informed Mr Bird that the owner of the West Lakes property had taken issue with the roof framing and accordingly the first fix framing and the external walls payment would be delayed.
13As a result of the discussions Mr Bird confirmed that the due date of the Invoice would now be extended to close of business 31 January 2010. Mr Bird further undertook to notify the Accounts department of this variation.
A statutory demand can only be set aside on a ground which is disclosed by the initial supporting affidavit for the application. As Debelle J, speaking for the Full Court, said in Bentham Management Pty Ltd v Union Finance Pty Ltd (2007) 247 LSJS 103 at [17]:
The affidavit filed in support of the application to set aside the demand must disclose facts showing that there is a genuine dispute between the parties. A mere assertion that there is a genuine dispute or that the debt is disputed will not suffice. A mere claim that the debt is disputed is not sufficient. Unlike the usual function of an affidavit, it may read like a pleading. At the other extreme, the affidavit need not detail in admissible form all the evidence that supports the contention of a genuine dispute. All of those propositions were established in John Holland and in Graywinter Properties Ltd v Gas & Fuel Corporation Superannuation Fund….. The first affidavit must alert the person issuing the statutory demand to the nature of the case the company will seek to make: (References to authorities omitted).
The degree of detail and accuracy required in the disclosure of the ground relied upon, as set out in the affidavit which must be sworn and filed within 21 days of service of the demand, is confined by the stringent time constraints placed on the plaintiff in putting forward that affidavit. Plaintiffs have particular difficulties when the statutory demand is served between Christmas Eve and New Year as no account can be taken of the difficulties in obtaining legal assistance in that period. It is my strong impression that over the past few years more applications to have demands set aside have been issued in early to mid January in respect of statutory demands served between Christmas and New Year than have been issued within any other corresponding period throughout the year. While this is allowable under s 459G of the Act, the Court should grant what indulgence it can to plaintiffs who are likely face greater difficulties in that particular 21 day period in obtaining legal assistance than they do at any other time of the year.
This case also illustrates another increasing trend observable in applications to set aside statutory demands where creditors are increasingly issuing statutory demands without first making any formal written demand for payment. In former times it was expected that a creditor would make a formal written demand for payment a reasonable time before suing for the debt. This is now incorporated into such provisions as Rule 20A of the Magistrates Court Civil Rules 1992. However, now it seems to be frequently the case that the first formal written demand for payment is a statutory demand under s 459E of the Act. Under the old practice of a written demand for payment before suing the defendant often responded with a letter setting out alleged grounds of defence. If the creditor sends such a letter of demand and gets a response indicating a defence, it is an impediment to then serving a statutory demand because the creditor may then be restricted in swearing in the supporting affidavit for the demand that there is no genuine dispute about the existence or the amount of the debt. A creditor who serves a statutory demand without making prior formal demand does not have the impediment of an answer to that demand setting out any basis of dispute. While there is nothing in the Act requiring any prior formal demand the Court can take the plaintiff’s lack of prior opportunity to respond to a demand into account in what is required to be in the initial affidavit in support of the application to set aside the demand.
In paragraph 3 of his second affidavit sworn on 3 March 2010 Mr Jarrad resiled from paragraph 13 of his earlier affidavit and stated that the extension was only for two to four weeks. On that basis the debt was due for payment by about 23 December 2009. However, in paragraph 12 of that latter affidavit he deposed to a phone conversation with Mr Kornaat on 15 December 2009 as follows:
I said:‘Over the past few years you guys have been far from perfect. I have had several issues with jobs in the past, like, Pt Willunga. On that job you guys made a mess of the windows, but I rebuilt the frames and fixed it all at my cost. We also have current issues with you (sic) workmanship take for example, West Beach, West Lakes and Brompton. Geoff was always notified of these issues and he would arrange discounts off future work to make up for it because getting a credit through your boss was impossible. Plus I have current jobs through you and want to continue our relationship.’
He said:‘So when will it be paid?’
I said:‘Well, given where we are at with the Timber Company and our client I would be looking at the end of January.’
He said:‘Ok that will be fine but I know Peter will want to get an agreement in writing.’
Mr Kornaat’s earlier affidavit is inconsistent with this having been said. However, if Mr Jarrad’s evidence is accepted, it is reasonably arguable that a Court could find that the debt did not become due for payment until 31 January 2010.
The basis for the contention that the payment of the debt was deferred until 31 January 2010 as set out in the first affidavit of Mr Jarrad is different from that set out in his second affidavit. However, the ground of dispute is the same, ie that there was an oral agreement for the deferment of the payment of the debt until 31 January 2010. The difference is about the way in which it is to be proved. I consider that in the circumstances of the potential difficulties of the plaintiff putting forward its initial affidavit because of the Christmas break, and because the defendant was on notice from the first affidavit that the issue was whether the payment of the debt had been deferred, the plaintiff should be permitted to rely upon that ground based on the evidence of the phone conversation between Mr Jarrad and Mr Kornaat on 15 December 2009.
The tests for whether a genuine dispute has been shown within s 459H of the Act are set out in the following passage from the judgment of Debelle J in Bentham Management Pty Ltd v Union Finance Pty Ltd above at [14]:
The question what is meant by the expression “genuine dispute” has been frequently considered. The expression denotes a plausible contention requiring investigation, raising similar considerations to the requirement of a serious question to be tried which arises on an application for an interlocutory injunction:
…..
The question whether there is a genuine dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of the dispute are real and not spurious, hypothetical or misconceived: ….. once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. (Citation of authorities omitted).
I am satisfied on this test that there is a genuine dispute about whether the debt here was due for payment at the time of the service of the demand. If the debt is not immediately enforceable at that date, the subject of the demand is not a “debt” for the purposes of s 459E of the Act on which a valid statutory demand can be based: re Elgar Heights Pty Ltd [1985] VR 657.
On 23 February 2010 a solicitor employed by the defendant’s solicitors filed an affidavit deposing that on 22 January 2010 she had a telephone conversation with Mr Bird, who was then no longer employed by the defendant. She deposed that Mr Bird replied to her question about whether he had told Mr Jarrad he did not have to pay the invoice until 31 January 2010 with the words, “No, I would not have said that”. She further deposed that these words were said to her “by Mr Bird, who I know to be a person of good standing and credibility”.
The plaintiff exhibited to an affidavit an e-mail of 2 March 2010 which it had received from Mr Bird, which said, inter alia, that he had refused to sign an affidavit which had been prepared for him by the defendant’s solicitors because he did not agree with all of its contents. The defendant’s counsel did not dispute that Mr Bird had refused to sign an affidavit. This Court is concerned that a solicitor would depose to a conversation she had with Mr Bird, whom she said was a person of good standing and credibility, but not disclose that he had refused to sign an affidavit presumably deposing to what the solicitor was saying he had told her. This Court expects its practitioners in their affidavits to make a full and frank disclosure of all relevant matters. As it transpired, the Court has not needed to act on what was said between Mr Jarrad and Mr Bird in deciding this matter. Counsel for the defendant gave some oral explanation about why it was not disclosed that Mr Bird had refused to sign his affidavit. As it is a matter of concern to the Court the solicitor who swore the affidavit is to file another affidavit explaining the circumstances about why she did not disclose that Mr Bird had refused to swear an affidavit about what he had told her. In the light of that affidavit the Court will consider what, if any, further action should be taken on the matter.
I have today made the following orders:
1The statutory demand served by the defendant on the plaintiff on 24 December 2009 is set aside.
2The question of costs is reserved.
3Fit for counsel.