Fairstar Resources Ltd (Receivers & Managers Appointed) v Bhalla - [2017] WASC 74

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: FAIRSTAR RESOURCES LTD (RECEIVERS & MANAGERS APPOINTED) -v- BHALLA [2017] WASC 74

CORAM: MASTER SANDERSON

HEARD: 8 MARCH 2017

DELIVERED : 8 MARCH 2017

PUBLISHED : 17 MARCH 2017

FILE NO/S: COR 278 of 2016

BETWEEN: FAIRSTAR RESOURCES LTD (RECEIVERS & MANAGERS APPOINTED)
Plaintiff
AND
MADHUKAR YASHPAL BHALLA
Defendant

Catchwords:

Corporations law - Application to set aside a statutory demand - Turns on own facts

Legislation:

Corporations Act 2001 (Cth)

Result:

Demand varied
Application otherwise dismissed

Category: B

Representation:

Counsel:

Plaintiff: Ms M L F Chua
Defendant: Mr M F Holler

Solicitors:

Plaintiff: M 6:8 Legal
Defendant: AustAsia Legal Pty Ltd

Case(s) referred to in judgment(s):

Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746
Wildtown Holdings Pty Ltd v Rural Traders Company Ltd [2002] WASCA 196

MASTER SANDERSON: This was the plaintiff's application to set aside a statutory demand. At the conclusion of the hearing I varied the amount of the demand but otherwise dismissed the plaintiff's application. I said I would provide reasons for my decision. These are those reasons.
In support of the application the plaintiff relied on an affidavit of Kevin John Robertson sworn 19 December 2016. A copy of the statutory demand appears as KJR3 to that affidavit. The amount of the demand as set out in the schedule is $609,084.62. This amount relates to 11 separate items which the plaintiff says he was entitled to under an employment agreement. By way of example $306,980.16 is claimed as 'unpaid salary'. An amount of $55,122.80 is claimed as 'unpaid annual leave'. The statutory demand is accompanied by an affidavit sworn by the defendant. It sets out in some detail how the amount in the schedule is calculated with particular reference to an 'offer of employment' which forms the basis of the plaintiff's engagement of the defendant.
The relevant facts were not seriously in dispute. The defendant began working for the plaintiff on 23 June 2008. The original terms upon which the defendant was engaged was set out in a letter from the plaintiff to the defendant dated 19 June 2008. That letter appears as attachment MYB1 to the affidavit of the defendant accompanying the statutory demand (a copy of the agreement appears as part of attachment KJR3 to which I have already referred). The employment agreement was varied from time to time with the effect that at the relevant time the defendant was entitled to a salary of $200,000 per annum plus a car allowance of $18,000 per annum and superannuation.
The defendant resigned his position as company secretary with the plaintiff on 24 November 2016. By that time he had not been paid by the plaintiff for some time. It was not in dispute the plaintiff was experiencing financial difficulties - as the title to this action indicates receivers and managers had been appointed to the plaintiff some time prior to the defendant's resignation. Essentially what the defendant was claiming was what he said was his entitlement under his contract of employment.
At the commencement of the hearing counsel for the defendant tendered a document entitled 'Amended Schedule of Claim as per Aide Memoire'. What that document did was pick up items which were disputed by the plaintiff and for the purposes of this application concede there was an argument which would exclude those amounts from the amount claimed in the statutory demand. By way of example the plaintiff disputed an amount of $8,030.26 was owed by way of unpaid salary. The defendant conceded the point (for the sake of the statutory demand process) and revised his claim for unpaid salary to $298,949.90. As to unpaid annual leave the plaintiff disputed any amount was owing. So once again the defendant conceded the point and removed any claim for unpaid annual leave. That meant the amount of the demand was reduced by $55,122.80. When all of the concessions were taken into account the defendant said the amount of the demand could be reduced from $609,084.62 to $332,053.77.
Those concessions meant that one aspect of the plaintiff's claim was satisfied. The issue of genuine dispute as to part of the claim could be put to one side. Effectively the defendant conceded the point.
The plaintiff still maintained there were two reasons why the demand should be set aside. First, it was said the demand was defective and should be set aside under s 459E of the Corporations Act 2001 (Cth). Second, it was said the demand should be set aside 'for some other reason' under s 459J(2) of the Act.
Dealing first with the alleged defects in the demand s 459J reads as follows:
(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.
It is to be noted that what the section requires is the court not set aside a statutory demand 'merely because of a defect'. The defect must cause 'substantial injustice'. If it does not then the demand should stand.
It was the plaintiff's position there were two defects in the demand which would cause substantial injustice. The first was the failure of the demand to specify an address for service of the defendant. Paragraph 6 of the demand was in the following terms:
The address of the creditor for service of copies of any application and affidavit is (insert the address for service of the documents in the State or Territory in which the demand is served on the company, being, if solicitors are acting for the creditor, the address of the solicitors).
From the bar table counsel for the defendant explained that error in this way. The defendant consulted solicitors about the prospect of issuing a statutory demand and was provided with copies of the relevant documents. He completed those documents himself and in doing so failed to properly complete par 6 of the demand. It was the plaintiff's position this omission was significant and in and of itself was enough to set aside the demand. The second point raised by the plaintiff was the fact items were included in the demand about which it was at the hearing conceded there was a genuine dispute. As I understand counsel's submissions she said the difference between the amount of the demand and the claim now pressed - being almost 50% of the amount demanded - was so large the demand should be seen as defective.
Providing an address for service in the body of the statutory demand is of real importance. A plaintiff has only 21 days to file and serve any application. It is not generally speaking in the interests of justice for a plaintiff under time pressure to have to make investigations to establish where and on whom any application to set aside the demand has to be served. That said in this case the plaintiff must have known the application to set aside the statutory demand was to be served on the defendant. The defendant in his affidavit in support of the demand gives his residential address. He was a long‑term employee of the plaintiff and the plaintiff must have had a record of his residential address. Furthermore there is nothing on the face of the demand or in the affidavit to suggest service on the defendant at his residential address was not appropriate. Indeed that is precisely what was done. So although there was undoubtedly a defect in the demand itself it did not produce 'substantial injustice'.
In support of her submission that an overstatement of the amount of the debt could amount to a basis for setting aside the demand counsel relied on the decisions in Wildtown Holdings Pty Ltd v Rural Traders Company Ltd [2002] WASCA 196 and Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746. Based upon these two authorities I accept that overstatement of the amount of the debt can, in appropriate circumstances, warrant setting aside the demand. But this demand related solely to amounts the defendant claimed he was entitled to under his employment agreement. If he had it wrong it was not difficult for the plaintiff to check the figures and point out errors made by the defendant. Furthermore there was no dispute the defendant was owed a substantial amount of money pursuant to his employment contract with the plaintiff. A claim the plaintiff was in the circumstances likely to suffer a 'substantial injustice' rings hollow.
The further claim that the demand ought be set aside under s 459J(1)(b) really repeated the points already made. Essentially the plaintiff maintained the overstatement of the amount due from the plaintiff to the defendant was so significant as to justify the demand being set aside. Insofar as this argument differed from the argument put in relation to s 459J(1)(a) I was not satisfied there would be substantial injustice caused to the plaintiff and in my view there was no warrant for setting the demand aside.
The statutory demand procedure is widely used and it would seem quite effective. It is a very simple process. But care does need to be taken to ensure that the demand itself and the accompanying affidavit comply with the requirements of the rules. It is difficult to understand here why par 6 of the demand was not properly completed. The standard form is as clear and straightforward as can be imagined. While the defects in the demand here did not warrant the demand being set aside nothing in these reasons should be taken to suggest careful consideration is not required in drafting both the demand the supporting affidavit.
For these reasons I varied the demand to an amount of $332,053.77. I will hear the parties as to costs.