Garuda Aviation Pty Ltd v Commonwealth Bank of Australia - [2012] WASC 115

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: GARUDA AVIATION PTY LTD -v- COMMONWEALTH BANK OF AUSTRALIA [2012] WASC 115

CORAM: MASTER SANDERSON

HEARD: 21 MARCH 2012

DELIVERED : 5 APRIL 2012

FILE NO/S: COR 172 of 2011

BETWEEN: GARUDA AVIATION PTY LTD
Plaintiff
AND
COMMONWEALTH BANK OF AUSTRALIA
Defendant

Catchwords:

Company law - Application to set aside statutory demand - Demand made for part of debt - Whether such demand possible

Legislation:

Corporations Act 2001 (Cth)

Result:

Demand set aside

Category: A

Representation:

Counsel:

Plaintiff: Mr C R C Newlinds SC & Mr J C Giles
Defendant: Mr S Vandongen SC

Solicitors:

Plaintiff: Hotchkin Hanly
Defendant: Corrs Chambers Westgarth

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

Accordent Investment Pty Ltd v RMBL Investments Ltd [2009] SASC 144
Candetti Constructions Pty Ltd v M & I Samaras (No 1) Pty Ltd [2011] SASC 165
Cooloola Dairys Pty Ltd v National Foods Milk Ltd [2005] 1 Qd R 12
Hooker Cockram Ltd v Minesco Pty Ltd (2001) 3 VR 466
Sentinel Financial Management Pty Ltd v Entercorp Finance Pty Ltd (1996) 15 ACLC 201

MASTER SANDERSON: This is the plaintiff's application to set aside a statutory demand. The application raises a short but important point to do with what 'debt' means in the context of the statutory demand regime.
On 29 September 2011 the respondent bank served on the applicant a creditor's statutory demand asserting a debt of $2,099,047.13. The alleged debt is said to be part of a wider claim the bank has against the applicant in an amount in excess of $US6,896,535.05. The respondent's approach to the application depends on evidence tendered and submissions made in proceedings between the respondent and Pankaj Oswal in this court (CIV 1180 of 2011) which was the subject of an application by the respondent for summary judgment. That application was heard by Le Miere J on 4 November 2011 and the decision remains reserved.
It is the respondent's position that upon analysis of the evidence and submissions before Le Miere J it is inevitable that there is an undisputed portion of the claim which is an amount at least as much as that claimed in the statutory demand.
The schedule to the statutory demand reads as follows:

Accompanying the statutory demand was an affidavit of Peter William Ficko verifying the debt. Because of the way in which this case was argued I will quote the affidavit in full:
I, PETER WILLIAM FICKO of care of Level 1, 150 St Georges Terrace, Perth in the State of Western Australia, manager, being duly sworn MAKE OATH AND SAY:
1I am a manager in the Risk Management - Institutional and Business Banking division of the respondent (Commonwealth Bank of Australia) who is the creditor named in the statutory demand dated 29 September 2011 (referred to in this affidavit as CBA).
2I am authorised to swear this affidavit on behalf of CBA and the contents of this affidavit are within my own knowledge and on the basis of facts known to me personally except where otherwise stated.
3I refer to CBA's statutory demand dated 29 September (Statutory Demand) and the accompanying affidavit sworn by myself on 29 September 2011 (My Statutory Demand Affidavit).
4I swear this affidavit in response to the application by Garuda Aviation Pty Ltd (Garuda) to set aside the Statutory Demand.
Background
5On or around 25 October 2007 CBA and Garuda entered into a written loan agreement by which CBA agreed to provide Garuda with a commercial loan facility to a limit of USD $27,000,000 on the terms and conditions set out in that loan agreement (Loan Agreement).
Attached and marked 'PWF‑1' is a copy of the Loan Agreement.
6On or about 25 October 2007 CBA and Garuda entered into a written chattel mortgage, registered with ASIC as a fixed charge and given number 1535442 (Chattel Mortgage), and mortgaging to CBA a Gulfstream Aircraft (Aircraft).
Attached and marked 'PWF‑2' is a copy of the Chattel Mortgage.
7On or around 25 October 2007 CBA and Mr Pankaj Oswal, a director of Garuda, entered into a written deed of guarantee (Guarantee) by which Mr Oswal guaranteed to CBA the payment by Garuda of all moneys now or in the future owing or payable to the plaintiff by Garuda, to a limit of USD $27,000,000 plus interest and costs.
Attached and marked 'PWF‑3' is a copy of the Guarantee.
Amount owed
8CBA advanced financial accommodation to Garuda under and in accordance with the Loan Agreement.
9The interest rate under the Loan Agreement was fixed at 5.95% per annum comprised of the bank's costs of funds (which was 4.8%) plus a margin of 1.15%.
Attached and marked 'PWF‑4' is a copy of a confirmation letter from CBA to Garuda dated 8 November 2007 recording, amongst other things, the initial draw down and the agreed interest rate accruing under the Loan Agreement.
10The total amount owed by Garuda has been reduced from the initial amount advanced of US $27,000,000 by a principal repayment of USD $10,350,000 on or around 14 May 2010. The principal amount owed after that was USD $16,650,000.
11As at 17 December 2010 there were existing a number of events of default under the Loan Agreement and the Chattel Mortgage, including (amongst others):
(a) failure to provide financial information to CBA;
(b)failure to provide maintenance records for the Aircraft on request; and
(c) an appointment by Australian and New Zealand's Banking Group Ltd of a receiver and manager to assets of Mr Oswal, the facility guarantor, on 16 December 2010.
12On 17 December 2010 CBA appointed a receiver to the Aircraft under the Chattel Mortgage (Receiver).
Attached and marked 'PWF‑5' is a copy of the notice of appointment of the Receiver and a fax to Garuda notifying it of the appointment.
It is clear then the respondent has issued a demand for only part of the amount which it says it is owed by the applicant. It is not difficult to see why it has taken this course of action. If it had made demand for the full amount it would have been met by the argument there was an issue between the parties as to part of the debt which was to be resolved by Le Miere J. Even if the summary judgment application was resolved in the respondent's favour there was a prospect of an appeal such that proceeding on the statutory demand was difficult. All the while, on the respondent's case, there was an amount about which there was no genuine dispute.
When this matter came on for hearing counsel for the plaintiff raised a point which had not been raised in the original submissions. Counsel submitted it was not open to the respondent to issue a statutory demand for part of a debt. It was submitted this was a jurisdictional question and although the issue had not been raised in the affidavit in support of the application it was nonetheless a ground upon which the statutory demand should be set aside.
This submission rested squarely on the decision of Blue J in the Supreme Court of South Australia in Candetti Constructions Pty Ltd v M & I Samaras (No 1) Pty Ltd [2011] SASC 165. The facts of the case can be summarised in this way. Candetti Constructions was a head contractor in certain construction projects and Samaras was a sub‑contractor. Samaras lodged progress claims with Candetti for an amount of $13,291,583.80. Candetti paid $11,833,648.26. It was Samaras' position during discussions Candetti admitted it owed Samaras $12,141,800. It was therefore said there could be no dispute Candetti was indebted to Samaras in an amount of $308,151. It was for this amount the statutory demand was issued.
In an affidavit in support of the application to set aside the demand a director of Candetti said a without prejudice offer (with a denial of liability) had been made to pay Samaras $308,151. When this offer was not accepted it was withdrawn. The affidavit went on to dispute that Candetti was indebted to Samaras at all. Offsetting claims were also raised.
The case came before Blue J as an appeal from a master. The master had found the affidavit of Samaras was not evidence which could be relied on as an admission of an undisputed debt in an amount of $308,151. This finding was not challenged on appeal. The argument that was put was set out by his Honour in this way:
Samaras argued that, while the principal debt on its case was $1,457,936, it was entitled to choose, and did choose, to demand an undissected portion only of it, namely $308,151 ('the Subsidiary Amount'). The coincidence of the subsidiary amount with the Admitted Amount had no logical effect on the characterisation of the amount demanded in paragraph 10. Nor, Samaras argued, did it need to disclose how it had made its selection of a portion only of the Principal Amount.
On Samaras' case, the Principal Amount of $1,457,935 is and was a single indivisible debt, as opposed to a total of separate discrete debts [35] ‑ [36].
His Honour then formulated the two questions he had to answer. His Honour said:
1.As a matter of construction, do the Demand and the Supporting Affidavit, and in particular paragraph 10 of the affidavit, identify and demand an undissected portion of the Principal Amount independently of the Admitted Amount in paragraph 7?
2.As a matter of law, is Samaras able to demand such an undissected portion under s 459E? [37]
It is not entirely clear what his Honour meant by the phrase 'undissected portion'. Neither counsel was familiar with the expression and neither am I. Counsels' research had not thrown up any other use of the phrase. Perhaps the reference is to a part of a greater debt which is not itself a discrete amount.
His Honour then dealt with the first question and determined, on the facts, Candetti had established a genuine dispute and the demand ought be set aside. His Honour then went on to deal with the question of whether a demand was permissible for a part of a debt. I will quote in full what his Honour had to say:
In case I am wrong on the first issue, I turn to the second issue, being the construction of s 459E.
For reasons which follow, s 459E does not countenance a demand for an undissected portion of a debt.
This is not a situation in which a separately identified part of a debt is the subject of a demand, or where a 'debt' is in reality a sum of two or more identified debts. In the latter case, the position is quite different. In the former case, the position may or may not be different: it is unnecessary to decide.
As to textual considerations:
1.s 459E(1)(a) provides that 'a person may serve on a company a demand relating to ... a single debt that the company owes to the person';
2.s 459E(2)(e) requires that 'the demand ... must specify the debt and its amount';
3.s 459E(2)(c) requires that 'the demand must require the company to pay the amount of the debt';
and hence s 459E does not refer to or explicitly contemplate a demand for an undissected portion of a debt as opposed to the debt itself.
As to purposive considerations:
1.if Samaras' contention were correct, it would follow that, in every case in which such a demand were served, it would be incumbent upon the company to establish a genuine dispute about the existence of the entire debt, even though the demand (and the deposition that there was no genuine dispute) was confined to a partial amount of that debt;
2.if Samaras' contention were correct, such a statutory demand would comprise a de facto demand for the higher amount even though the statutory prerequisites (demand for that amount, deposition that it is due and payable and deposition that there is no genuine dispute about it) had not been met;
3.the statutory demand procedure enacted by Part 5.4 Divisions 2 and 3 of the Act is intended to be simple, expedient and efficient.
Considering both the text and purpose of s459E, I conclude that s 459E does not permit a statutory demand for an undissected portion only of a debt [47] ‑ [52].
It was the applicant's position in this case I ought follow the decision of Blue J. If I did the demand would be set aside. The applicant was unable to point to any other decision of any Australian court which had come to the same conclusion. Nonetheless, counsel made the perfectly valid point this decision dealt with a national scheme under the Corporations Act 2001 (Cth) and in an area which attracts so much litigation a decision on point ought generally be followed.
Counsel for the respondent made some attempt to distinguish Candetti on the facts. In my view, no such distinction can be drawn. The analysis provided by Blue J in the passages I have quoted is clear and cogent. It is not dependent on the facts of the case. It is a statement of general principle with wide application.
There is one decision which was referred to by counsel for the respondent and which, while not directly on point, is worthy of mention. It is the decision of Gray J in Accordent Investment Pty Ltd v RMBL Investments Ltd [2009] SASC 144. RMBL Investments Ltd claimed Accordent was indebted to it under a loan agreement. While it alleged Accordent was indebted for both the principal and the interest, in the statutory demand RMBL claimed only the principal. Accordent claimed the demand was bad as it claimed only part of an alleged single debt. It was said that RMBL could not leave to one side to pursue separately its other claims for interest and consequential matters. Accordent contended that the verifying affidavit evidence that the whole of the debt was not demanded.
In the event, his Honour concluded the principal and the interest, as a matter of construction of the loan agreements, were two separate debts. He therefore concluded RMBL could properly demand repayment of the principal. In the course of his reasons, his Honour said:
In the present proceeding, RMBL was aware that Accordent disputed interest and other charges. It was said that knowledge of this dispute led RMBL to issue a statutory demand for what it claimed was the indisputable principal sum of the loans. Had interest and costs been claimed in the demand the verifying affidavit would have had to attest to there being no genuine dispute as to that element of the debt. The deponent could not have so sworn because of his awareness of Accordent's dispute in relation to these matters [34].
In my view, the Accordent Investments decision does not assist the respondent.
Although not strictly relevant to this case, it is worth noting there is a difference of judicial opinion as to whether or not a party who claims to be owed multiple debts is bound to issue one demand for all of the debts or whether it is possible to issue a demand for one or other of the debts while leaving some of them to one side.
Cases favouring the former position include Sentinel Financial Management Pty Ltd v Entercorp Finance Pty Ltd (1996) 15 ACLC 201 (Mahoney SM) and Hooker Cockram Ltd v Minesco Pty Ltd (2001) 3 VR 466 (Warren J). The opposite view was taken by Chesterman J in Cooloola Dairys Pty Ltd v National Foods Milk Ltd [2005] 1 Qd R 12. Of course, this difference of opinion is not directly relevant to the question here under consideration.
It is worth bearing in mind the nature of the statutory demand procedure. The party who claims a company is indebted to it and who says there is no genuine dispute about the debt can issue the demand. A company served with a demand has three options. It can pay the amount demanded. It can seek to have the demand set aside on the basis there is a genuine dispute between the parties, or the company has an offsetting claim greater than the amount demanded, or the company can do nothing. If the application to set aside the demand is unsuccessful or if the company does nothing a presumption of insolvency arises. The party making the demand then has a choice - it can apply to wind up the company or it can do nothing. If an application to wind up is made and the presumption of insolvency is not rebutted by the company then it would be wound up. All this is nothing more than the practical manifestation of the principle that a company which cannot pay its debts as and when they fall due is insolvent. Insolvent companies should be wound up. That is a basic principle of the law of corporate insolvency.
Looked at in this way it does not really matter whether the demand has been made for the whole of an outstanding debt or part of it. If a company cannot pay part of a debt, that part not being disputed, it is presumed to be insolvent. So long as the amount demanded is more than $2,000 (the statutory minimum) a presumption arises. In my view, it is to unnecessarily complicate what is a simple procedure not to allow a party to claim anything other than the full amount of the debt.
There are also practical difficulties about that approach. In this case for instance, it is difficult to see how the supporting affidavit could possibly have attested to there being no dispute as to the entire debt. Perhaps it could have been done - after all the respondent has argued before Le Miere J it is entitled to judgment for the full amount. But any affidavit would have to in some way acknowledge the existence of a dispute. So a party in the position of the respondent would never be able to serve a statutory demand despite the fact a portion of the debt was not in dispute and despite the fact the inability of the applicant to pay that debt may mean it was insolvent and liable to be wound up.
The position can be made even more stark by adapting the facts in Accordent. If, on its proper construction, the loan agreements between the parties in that case had meant there was only one debt including principal and interest, the lender would not have been able to issue a statutory demand even though it was aware the dispute was as to interest and not as to principal. There is no justification for such a fetter on the statutory demand procedure.
In my view, it is open to construe s 459E(1)(a) as allowing a party to serve a statutory demand for part of a single debt. This section refers to 'a demand relating to a single debt'. That would be sufficiently wide to allow a demand for part of a single debt. It would do no violence to the wording of the section and would allow for a practical outcome in a case such as the present.
Having said that, the approach to the section taken by Blue J is clearly open. With respect to his Honour, his reasoning is clear and logical and the conclusion he reaches is in no way at odds with what the section says. While I may prefer a different interpretation of the section, this is one of those cases where, it seems to me, there are two answers both of which are correct. It is a question of which of the two is to be preferred. Justice Blue's decision was handed down in October 2011. It has therefore not had the opportunity to gain wide currency. Nonetheless, it represents the current law on this question. If I take a different view the issue will remain in dispute until the matter is put right by a higher court. As the High Court has warned, inconsistency in a national scheme is to be avoided if possible.
On balance I have determined I should follow the decision of Blue J. While I would have determined this issue differently had there been no authority on point, I am not satisfied his Honour's decision is so clearly wrong it ought not be followed. As I have indicated, the decision is open and the interpretation his Honour favours is not obviously inconsistent with the wording of the section. His Honour's views should prevail.
On that basis then I would set aside the statutory demand. I will hear the parties as to costs.