Hornet Aviation Pty Ltd v Ansett International Air Freight

[1994] FCA 1068

HORNET AVIATION PTY LTD v. ANSETT INTERNATIONAL AIR FREIGHT A DIVISION OF
ANSETT TRANSPORT INDUSTRIES (OPERATIONS) PTY LTD
No. TG3005 of 1994
FED No. 1068/94
Number of pages - 9
Corporations Law

COURT

IN THE FEDERAL COURT OF AUSTRALIA
TASMANIA DISTRICT REGISTRY
GENERAL DIVISION
NORTHROP J

CATCHWORDS

Corporations Law - Statutory demand - setting aside - whether genuine dispute - whether offsetting claim

Corporations Law s 459E, s 459G, s 459H, s 459J, s 459N, Regulation 1.04 Acts Interpretation Act 1901 (Cth) s 25C

HEARING

HOBART
#DATE 6:12:1994
#ADD 17:3:1995

Counsel for the Applicant: Mr M.B. Hunniford

Solicitors for the Applicant: Hunnifords

Counsel for the Respondent: Mr M. Aldridge

Solicitors for the Respondent: Page Seager

JUDGE1

NORTHROP J This is a case where the purpose behind the legislation is clear even though the wording of the provisions give rise to difficulty. Confusion and differences of opinion have been expressed in different Courts. This gives rise to great problems for those in the commercial area who have to deal with this type of problem. I am referring to the provisions of Part 5.4 of the Corporations Law, "Winding up in Insolvency", provisions inserted into the Corporations Law by Act No. 210 of 1992 and which came into operation on 23 June 1993. Since then there have been a large number of cases dealing with aspects of the provisions. I do not propose to refer to all those authorities, or even many of them, but it is helpful to refer to maybe three or four of those cases. A recent one is by Lockhart J in Chadwick Industries South Coast Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37, where his Honour, among other things, refers to a number of the earlier decisions including a decision of Young J of the Supreme Court of New South Wales in Jerrison Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (1994) 13 ACSR 455 and a decision of Thomas J of the Supreme Court of Queensland in re Morris Catering Australia Pty Ltd (1993) 11 ACSR 601. I refer to a judgment that I gave on 9 February 1994 in the matter of Greenwood Manor Pty Ltd v Woodlock (1994) 48 FCR 229 and I should refer also to the judgment of the Supreme Court of Victoria, Mybore Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362, a judgment of Hayne J.

1. In the present case the respondent to the application served the statutory demand as provided for in Part 5.4 of the Corporations Law on the applicant, Hornet Aviation Pty Limited. The demand was served on 1 September 1994 and was served at the same time as an affidavit sworn by Christopher John Norman was served. The affidavit and the application were in purported conformity with section 459E of the Corporations Law which allows for a demand to be made in relation to a single debt that is due and payable or two or more debts. The demand, if it relates to a single debt, must specify the debt and its amount and if it relates to two or more debts must specify the total of the amounts of the debts and must require the company on whom it is served to pay or do certain other things. It must be in writing, and it must be in the prescribed form, if any, and must be signed by or on behalf of the creditor. This legislation is in a form which is said to be in plain English but in many cases the use of the phrase "plain English" is a misconception. The word "must" here seems to be used in the sense of "it shall be" in a required form, absolute, compare section 25C Acts Interpretation Act 1901. But at the same time there are provisions in the Corporations Law which suggest that is not the case. For present purposes reference can be made to subsection 459J of the Corporations Law which provides:
   

"(2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect."

1. Looking at section 459E it would appear that the form of a demand must be in the prescribed form. Immediately there is contradiction between these two requirements, but this, I think, is a prerogative of the Legislature. The practitioners, litigants and the Courts must do their best in the face of so called plain English.

2. I mention those facts because there are a number of what appear to be defects in the statutory demand. The regulations prescribe the form of such a demand and this is made clear by a reference to Regulation 1.04, which provides;
   

"A form must be completed in accordance with the directions and instructions specified in the form."

1. Again the use of the word "must". Regulations also provide for the form which, for relevant purposes, is form 509H. The prescribed form which was used in this case has appended to it what are said to be notes which include a note that the form must be signed by the creditor or the creditor's solicitor, it may be signed on behalf of a partnership by a partner and on behalf of a corporation by a director or by the secretary or by an executive officer of the corporation. Another note states that the amount of the debt, or if there is more than one debt, the total of the amounts of the debts must exceed the statutory minimum of $2000. So, despite the fact that it must be signed by a certain person, it may be signed by somebody else. But nevertheless, in this case the defects which are said to arise in the statutory demand are in paragraph 2 where the date of the affidavit verifying the amount due and payable by the company is not inserted. It states that the affidavit of Christopher John Norman is dated " - August 1994". At the time that demand was in fact served there was also served the affidavit. In those circumstances it cannot be said that the absence of that date is a defect which caused or could cause substantial injustice to the company.

2. Reference has been made to section 459J. Subsection (1) provides:
   

"(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."

I have already referred to subsection (2).

1. Insofar as the first defect is concerned, and I have regard to the definition of defect contained in the dictionary contained in the Corporations Law, the failure to put in the date of the affidavit of itself does not cause any substantial injustice. It being accepted, correctly in my view, that the injustice must be an injustice caused to the company receiving the demand and is not to be treated as a punishment on the person giving the demand for being lax in not complying with the form of the demand.

2. It is next said that the form is signed by Christopher John Norman in his capacity as credit controller, and the corporation's name is "Ansett International Air Freight, a division of Ansett Transport Industries Operations Pty Ltd". That company has since changed its name but nothing turns on that. The material before the Court shows that Mr Norman is the credit controller and has very wide powers as an officer of, for present purposes, the respondent to the present application. In my view, even despite the definition contained in the dictionary provision of the Corporations Law, Mr Norman is an executive officer within the meaning of the note to the form 509H, and the mere fact that the form does not say "signed for and on behalf of" the creditor is not a defect which in my opinion has caused any injustice to the debtor company.

3. In addition, it appears that the name given by the creditor does have within it certain defects. The name given is, "Ansett International Air Freight, a division of Ansett Transport Industries Operation Pty Ltd, ACN 004209410". That is a title that was used by the creditor in all its dealings with the company. Although it is confusing in that it appears that Ansett International Air Freight is, in reality, a business name registered by the company, Ansett Transport Industries Operations Pty Ltd, this of itself has not caused any injustice to the applicant debtor company because at all times it has treated that person as being the person with whom it was dealing. It was the person who received moneys paid by the debtor company for freight charges in relation to services to be provided by the Ansett Transport Industries Operations Pty Ltd.

4. It is argued that here there have been so many defects that cumulatively they should be regarded as giving rise to a case where substantial injustice has been caused to the company. In my opinion there is no such basis for any finding to that effect. As will be indicated in a moment there had been a series of dealings between the parties to the present application. There had been no uncertainty as to who was dealing with whom. The objections taken as to the defects are all of a technical character and in my opinion neither individually nor collectively are sufficient to give rise to a substantial injustice being caused to the applicant, the debtor company. Therefore I do not set aside the statutory demand based upon section 459J of the Corporations Law. At the same time one should observe that a company of the nature and standing of what used to be called Ansett Transport Industries Operations Pty Ltd should achieve a higher standard than that illustrated in this case. This is, if anything, a criticism of the solicitors for that company also. A legal practitioner acting for a company of the kind of the respondent should ensure that the least it does is to get the names of the parties correct to avoid arguments of the type which have arisen in this case. This is apart altogether from other cases where the misnaming of a company in a statutory demand could give rise to a defect justifying the setting aside of that statutory demand.

5. Having found that the demand itself is in compliance with section 459E of the Corporations Law, it becomes necessary to determine the present application. Under section 459G of the Corporations Law a company which has received such a statutory demand may apply to the Court for an order setting aside that statutory demand. Subsection 459G(2) provides:
   

"(2) An application may only be made within 21 days after the demand is so served."

1. One would have expected that the words "may only" mean "must" in this case, as with the words "only if" in subsection 459G(3) which provides:
   

"(3) An application is made in accordance with this section only if, within those 21 days:

(a) an affidavit supporting the application is filed with the Court; and

(b) a copy of the application and a copy of the supporting affidavit, are served on the person who served the demand on the company."

1. By way of comment, questions could arise - they have not arisen in this case - where, the application is served without a supporting affidavit, or the company does not comply with the requirements of section 459G or, which is probably more important, if the affidavit in support of the application does not disclose any matters which are going to be mentioned hereafter. In these circumstances, has there been sufficient compliance with subsection (3) to have the effect by implication of extending the time for compliance with the statutory demand? In this regard, reference may be made to the provisions of subsection 41(7) of the Bankruptcy Act 1966 which, in many respects, is a similar type of provision to that contained in 459G of the Corporations Law. That subsection provides in substance that if within the time specified in the bankruptcy notice a certain type of affidavit is filed, the mere filing of that affidavit has the effect of extending the time for compliance with the bankruptcy notice if a Court has not had the opportunity to determine whether the claims made are justified or not. It has been held in a number of cases that the affidavits showing whether the ground has been made out must be sufficient to give rise to an inference that there is such a cross demand available and that if there is no such sufficient material in that first affidavit or affidavits, there has been no automatic extension of the time for compliance with the bankruptcy notice, in which case the act of bankruptcy has been committed. As a matter of interest cases on this are summarised in a judgment I gave in the matter of re Doherty on 8 October 1993, VN 1166 of 1993. This is a matter which might need to be considered in more detail some time in proceedings under the Corporations Law and section 459G. In the present case, the affidavit filed by the company, with its application, does contain a number of defects. Other affidavits have been filed outside the 21 day period. I propose to deal with the question on the basis of all affidavits which have been filed in this case, no objection being taken to the possible defect just mentioned.

2. Section 549H is the crucial section. This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
   

"(a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;

(b) that the company has an offsetting claim."

I will leave until later the question of the offsetting claim.

1. The statutory demand in this case refers to an amount of $47,348.79 being the total of the amounts of the debts described in the schedule. The schedule to the demand sets out the number and date of a number of invoices showing the amount of the debt in relation to each invoice. The total amount of those invoices, less amounts paid by the company to the creditor, show a balance outstanding of $47,348.79. That is the amount which was demanded to be paid, secured or compounded.

2. The invoices arose in circumstances where it is not entirely clear what cause of action the Ansett Group would have if they sued on the claim. It appears that Hornet, the present applicant, entered into an arrangement with Ansett whereby Hornet would act as a freight forwarder in relation to customers in Tasmania seeking to air freight goods overseas. I do not propose to go into the detail of what the terms of the arrangement were but, in substance, the customers paid the amount of the freight to be charged to Hornet. Hornet then retained from that amount the commission it was entitled to and was required to pay the balance of the amount so received to Ansett to pay it for the services Ansett then provided in air freighting those goods from Tasmania to overseas. The invoices in the statutory demand were a separate set of documents provided by Ansett for the purposes of showing the amount to be paid by Hornet to Ansett after deduction of the commission that could be retained by Hornet. There are a large number of invoices so referred to dating from 11 September 1992 through to 23 August 1993. Difficulties arose between Ansett and Hornet. Negotiations took place about the payment of the arrears in that it appears that Hornet was not forwarding on the total amount of the moneys received by it from customers. Details of these negotiations are contained in the affidavit of Barry Stuart Freeman, who had dealings with Hornet. In this regard, I refer in particular to exhibits F to K inclusive to his affidavit sworn 23 November 1994.

3. From the whole of this material, I am prepared to accept that Hornet did admit it owed a sum of money of the order of $51,581.95 and did agree to pay off some of those amounts and did in fact pay off some of those amounts in the period from 19 May 1993 through to 24 September 1993, being a date after which the arrangement between the parties had been terminated and the blank waybills provided by Ansett to Hornet had been returned to Ansett as an illustration of the fact that the arrangement had been brought to an end.

4. The affidavit filed on behalf of the applicant does dispute some of those invoices but in a manner which is most confusing and difficult to reconcile. The details are set out in an annexure to the affidavit of Mr Beckerath sworn on 20 September 1994 where two columns are set out which suggest the amounts of disputed items and the amounts to be credited. I find it impossible, looking at those figures, to determine just what is owing, what is not disputed, but I am prepared for present purposes to accept, without finally deciding, that an amount of $10,483.98 is disputed and there may be a dispute as to that amount, but even allowing for that there is still an amount owing on the figures by the company to Ansett of some $36,864.81.

5. This is not a type of procedure where the Court is required to go through in detail and determine whether a claim is to be successful or not or the exact amount of the claim. If there are any defects in the amount stated in the statutory demand, that of itself is not sufficient to render the demand invalid. In this regard again, comparison with a bankruptcy notice can be made. For present purposes, even that figure of $36,864.81, is well above the $2000 prescribed minimum and, on any view, that amount, at least, is the amount owing. I treat that figure as the amount owing for the purposes of calculations to be made, if necessary, later in these reasons.

6. The fact that the amount has been reduced, in my opinion, does not justify a dismissal or setting aside of the statutory demand because of the defect in the statutory demand. This is a case where the present applicant, the debtor company, should have kept its own records of its dealings with the customers of Ansett and it would have been very simple for the company to have produced its records showing what it had received and what it had forwarded on. In the light of the very detailed and clear material given on behalf of Ansett, I accept the Ansett figures but reduce it to the lower amount because of the fact that what the Court must find is that there is a genuine dispute between the company and the respondent about the existence or amount of a debt. Even assuming that there is a genuine dispute about the amount of the debt, even accepting the applicant's figures, there still is an amount owing of $36,864.81. This is a figure which is not binding on the creditor. If the company is wound up, the creditor will be able to prove its debts in the normal way where a company is wound up. In any event, I have grave doubts whether there is a genuine dispute between the company and the respondent in this case. The dispute is on a peripheral matter only but I do not need to pursue that any further and, in view of the authorities I have already referred to, this is an area which has been the subject of a number of decisions in different Courts.

7. Taking the figure of $36,864 as the amount which has been admitted as the debt, section 459H then sets out a method by which any offsetting claim is to be calculated. In this regard, definitions are contained in subsection (5) and the formula is in subsection (2). The use of the phrase "admitted amount" can be misleading in that this is an amount which the Court must determine even though it is not admitted by either party or any party. It is an amount which the Court calculates as the amount owing by the company to the creditor. If there is an offsetting total, the admitted total means the admitted amount of the debt or the total of respective admitted amounts of the debts less the offsetting total, which means, if the Court is satisfied that the company has only one offsetting claim, the amount of that claim, or if the Court is satisfied that the company has two or more offsetting claims, the total of the amounts of those claims, otherwise a nil amount. The offsetting claim is defined in subsection (5) to mean:
   

"a genuine claim that the company has against the respondent by way of counterclaim, setoff or cross demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates); ... "

1. The words used in this subsection are very similar to those appearing in paragraph 40(1)(g) and subsection 41(7) of the Bankruptcy Act.

2. In the present claim the company claims it has a counterclaim or set off based on either or both of breach of contract between it and Ansett and a contravention by Ansett of section 52 of the Trade Practices Act and also the provisions of the Fair Trading Act. The evidence in support of such a claim for damages under common law or under the Trade Practices Act is meagre to say the least. This is a case where, for quite some time now, the company has known of the demand. It has not taken any action to enforce the demand in a court. It is interesting to note that in this case Ansett at one stage did commence proceedings in the County Court at Melbourne seeking judgment for the amount claimed in the statutory demand. Hornet entered an appearance, denied the amount and applied to have the application in the County Court dismissed because of lack of jurisdiction. It succeeded on that basis. So one can assume that Hornet at least knew of the legal proceedings and the fact that it could, if it so desired, commence proceedings for damages under various headings. It has not done so. This is a matter which is to be contrasted with the position described by Lockhart J in the case I referred to earlier in these reasons where, during an adjournment, the company there concerned did commence proceedings in the District Court of New South Wales. That was a factor considered by Lockhart J in finding in favour of the company in that case. But here no such claim has been commenced in another court or in this Court even though there has been ample time to do so and even though I can accept that instructions may have been given to take such action. This goes to the question of whether there is a genuine claim by the company against Ansett under subsection 459H(5). In my opinion, such a claim is not a genuine claim. I do not accept that this has been put up on the basis of a genuine claim but I am of the view that it is action taken by Hornet as a means of trying to delay payment of an amount which, on any view, is admitted up an amount of over $30,000 and which has not been paid.

3. In this regard, it is important also to keep in mind that there is a degree of public interest involved where corporations are allowed to continue their activities when insolvent. As stated by Lockhart J, it is not desirable, in the public interest, that companies which are in fact insolvent should continue to operate in the commercial area. I am not persuaded that evidence as to the insolvency of a company is relevant in a consideration of the application of section 459H of the Act, where insolvency is the very thing which is deemed to occur if there has been a non-compliance with the statutory demand. This suggests that the fact of insolvency is not relevant. However, I do rely upon the fact that no action has been commenced by the company as an indication that the claim being made by it is not a genuine claim. This conclusion is apart altogether from the lack of material to support the claim.

4. This is sufficient to dispose of the matter but, in addition, I should indicate that the material does not enable the Court to form a view as to the amount of any offsetting claim. It is realised that in many cases it is difficult to give an estimation of the amount of such a claim for damages. In the present case the managing director of Hornet has indicated that the amount of the claim would be over $100,000 but that is a mere assertion and is not substantiated in any way at all. In the absence of any detailed explanation as to how that amount is calculated, the Court is unable to form any view as to the amount of the offsetting claim. In similar circumstances, Young J assessed a claim at $1. In the present case, if there were such a claim I would come to the same conclusion and assess the amount at $1. The effect of that is that this is not greater than the amount of the admitted total within the meaning of the Act.

5. In these circumstances, the Court concludes that the company has no offsetting claim within the meaning of the provisions of subsection 459H(1) of the Corporations Law, nor is there any offsetting total sufficient to reduce the amount of the debt otherwise owing to less than the $2000. Accordingly, in all the circumstances of this case, the application is dismissed.

6. I propose to make an order for costs in the form proposed by counsel for the respondent. Counsel for the applicant has referred to section 459N of the Corporations Law which provides that:
   

"Where, on an application under section 459G, the Court sets aside the demand it may order the person who served the demand, to pay the company's costs in relation to the application."

1. That provision is to be read in the light of the general power of the Federal Court conferred by subsection 43(1) of the Federal Court of Australia Act namely,:
   

"(1) The Court or a Judge has jurisdiction to award costs in all proceedings before the Court ... other than proceedings in respect of which any other Act provides that costs shall not be awarded."

1. It is argued on behalf of the applicant that section 459N has so provided thus depriving the Federal Court of its power to award costs as conferred by section 43 of the Federal Court Act. In my opinion, that is not so. Section 459N confers a special power to award costs in cases where the substantive issue between the parties has not been determined in an application of the kind before the Court. The substantive issue normally would otherwise still have to be determined in properly commenced legal proceedings and, in my opinion, section 459N cannot be read as containing an implied prohibition preventing the Court awarding costs under subsection 43(1) of the Federal Court of Australia Act.

Accordingly, the Court makes the following orders:

(1) the application be dismissed;

(2) in the event that the applicant is wound up in an application relying on the present demand, the respondent's costs of this application form part of its costs in that winding up application but that otherwise the applicant pay the respondent's costs to be taxed or as agreed.