JJ Armstrong Pty Ltd v Hamptee Pty Ltd
[2017] VSC 427
•26 July 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2017 00113
| JJ ARMSTRONG PTY LTD (ACN 075 084 687) | Plaintiff |
| v | |
| HAMPTEE PTY LTD (ACN 613 621 408) | Defendant |
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JUDGE: | Gardiner AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 21 June 2017 |
DATE OF JUDGMENT: | 26 July 2017 |
CASE MAY BE CITED AS: | JJ Armstrong Pty Ltd v Hamptee Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2017] VSC 427 |
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CORPORATIONS – Application to set aside statutory demand under sections 459G and 459J of Corporations Act (2001) (Cth) by reason of alleged genuine disputes and offsetting claim – Debt the subject of demand allegedly assigned to defendant prior to service of demand – Plaintiff not given any notice of the assignment prior to service of demand and demand and accompanying affidavit made no reference to alleged assignment – Demand set aside for ’some other reason’ pursuant to s 459J – Condor Asset Management v Excelsior Eastern Ltd (2005) 56 ACSR 223 applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A J Purton | Jeremy Johnson &Associates |
| For the Defendant | Mr D P Lorbeer | Amini Lawyers |
HIS HONOUR:
On 3 January 2017, the defendant (‘Hamptee’) served a statutory demand under s 459E of the Corporations Act 2001 (Cth) (‘the Act’) on the plaintiff (‘JJ Armstrong’) (‘the demand’).
By originating process filed on 17 January 2017,.JJ Armstrong made application to set aside the demand pursuant to ss 459G and 459J of the Act
JJ Armstrong relies on affidavits of Ben Newbold sworn 17 January 2017 and 16 June 2017, together with an affidavit of John Newbold sworn 20 June 2017. Hamptee relies on the affidavit of Arif Sakhayi affirmed 5 April 2017.
JJ Armstrong contends the demand should be set aside on the following grounds:
(a) it contains a defect causing substantial injustice;
(b) there is a genuine dispute as to:
(i) whether JJ Armstrong owes anything to Hamptee at all given that it had no dealings with that company;
(ii) whether JJ Armstrong is required to pay anything in connection with the invoices referred to in the demand in light of the quality and amount of the work performed; and
(c) JJ Armstrong has an offsetting claim arising from rectification works that were necessary to be carried out.
The grounds in paragraphs 4(a) and (b)(i) are closely related and involve consideration of an alleged assignment of the debts claimed in the demand by a business conducted by Arif Sakhayi to Hamptee, a company in which his wife is the sole director.
For the reasons which follow, I consider the demand should be set aside under s 459J of the Act, making it unnecessary to consider whether JJ Armstrong has a genuine dispute as provided by ground (b)(ii) or an offsetting claim under ground (c).
The demand claims that JJ Armstrong owed Hamptee $76,000. The schedule to the demand identifies the debts as follows:
Description of Debt
Amount
Monies owed pursuant to Invoice 1566 dated 21 September 2016
$46,200 (inclusive of GST)
Monies owed pursuant to Invoice 1572 dated 26 October 2016
$29,800 (inclusive of GST)
TOTAL:
$76,000 (inclusive of GST)
The demand was accompanied by an affidavit of the director of Hamptee, Fatima Sakhai, affirmed 19 December 2016. The affidavit is in conventional form and adheres to Form 7 to the Supreme Court (Corporations) Rules 2013.
JJ Armstrong is a building and construction company and was involved in the construction of 14 apartments in Altona North (‘Altona project’), and at the St George Jacobite Syrian Orthodox Church at Heatherton (‘Syrian Church project’).
Mr Sakhayi operates a painting business under the name Hi 5 Painting, ABN 29 776 835 591 (‘Hi 5’). On 19 July 2016, Mr Sakhayi provided a quotation on Hi 5’s letterhead for painting work at the Altona project for $66,000, including GST. This quotation was accepted by JJ Armstrong.
On 5 September 2016, Mr Sakhayi provided a quotation on Hi 5’s letterhead for painting work at the Syrian Church project for $38,500, including GST. The quotation was accepted by JJ Armstrong.
On 30 September 2016, Mr Sakhayi provided a further quotation on Hi 5’s letterhead for additional painting work at the Syrian Church project for $7,700, including GST. The further quotation was accepted by JJ Armstrong.
Hi 5 performed some of the work that was contracted to be done on the Altona project and the Syrian Church project. Hi 5 then issued six invoices on its letterhead to JJ Armstrong as follows:
Date
Invoice No
Project
Amount
23/8/2016
1561[1]
Altona
$16,500
10/9/2016
1565[2]
Syrian Church
$15,400
21/9/2016
1566[3]
Syrian Church
$46,200
30/9/2016
1567[4]
Altona
$18,700
19/10/2016
1570[5]
Syrian Church
$1,100
26/10/2016
1572[6]
Altona
$29,800
[1]Exhibit BN-7 to the First Ben Newbold affidavit.
[2]Exhibit BN-12 to the First Ben Newbold affidavit.
[3]Page 22 of exhibit BN-2 to the First Ben Newbold affidavit.
[4]Exhibit BN-9 to the First Ben Newbold affidavit.
[5]Exhibit BN-15 to the First Ben Newbold affidavit.
[6]Page 23 of exhibit BN-2 to the First Ben Newbold affidavit.
On 20 September 2016, JJ Armstrong paid Invoice No 1561.
Hi 5 ceased work at the Syrian Church project in early October 2016. Mr Newbold contends in his first affidavit that there is a dispute as to whether Hi 5 had completed the works at the time it stopped work on the Syrian Church project.
On 1 December 2016, JJ Armstrong paid $12,000 to Hi 5. On 9 December 2016, Hi 5 was removed from the Altona project and Mr Newbold contends there is a dispute as to the circumstances surrounding Hi 5’s removal and the amount of work completed by Hi 5 at the time of its removal.
On 3 January 2007, JJ Armstrong was served with the statutory demand. The invoices mentioned in the schedule are those referred to in paragraph 13 above and are annexed to the demand.
The first, Invoice 1566, is dated 21 September 2016. At the top of the invoice, in prominent letters, are the words ‘Hi 5 Painting’, with an accompanying logo. On the right-hand side, Hi 5’s address together with a mobile telephone number and website address, appear. At the foot of the invoice the following appears:
All rights applicable under Building and Construction Industry Security of Payment Act 2002
Account details:
Account name: Hamptee Pty Ltd
BSB: 083 186
Account No.: 579153
Thank you for your business with us. ABN: 29 776 835 591 [email protected]
The second invoice, Invoice 1572, is dated 26 October 2016 and is in identical format to the first invoice.
In his first affidavit, Mr Newbold exhibits an extract on the records of the Business Names Register maintained by ASIC in relation to the name ‘Hi 5 Painting ABN 44 885234 896’. The proprietor of that name is identified as ‘The Trustee for the Sakhayi Family Trust.’ In his affidavit filed in opposition to the application, Mr Sakhayi states that he is the owner of the business.
In his first affidavit, Mr Newbold states that JJ Armstrong agrees that it did engage the services of Hi 5 but it had no dealings whatsoever with Hamptee. He states that to the extent that any money is owed under the invoices that are attached to the statutory demand, which is disputed, that money is owed to Hi 5.
The $46,200 claimed by Hamptee in connection with Invoice No 1566 relates to the work performed by Hi 5 in connection with the Syrian Church project. The amounts claimed in Invoice 1565 and Invoice 1570 are included in Invoice 1566, and no separate amount is sought from JJ Armstrong in connection with those invoices.
The $29,800 claimed in the demand regarding Invoice 1572 relates to work performed by Hi 5 in connection with the Altona project. The sum of $29,800 is apparently calculated by reference to Mr Sakhayi’s estimate that Hi 5 had completed 90 per cent of the work at the Altona project when it was removed from the Altona project.
The first issue which arises is whether, at the date of service of the demand, JJ Armstrong was indebted to Hamptee. This involves consideration of whether there has been an effective assignment of the debts owed by Hi 5 to Hamptee.
A person may serve a demand under s 459E of the Act if the debt is owed to the person as assignee.[7] Section 134 of the Property Law Act 1958 (Vic) provides that there are three conditions that must be met for a legal assignment to be effective:
[7]Section 459E(4) of the Act.
(a) the assignment must be in writing and signed by the assignor;
(b) the assignment must be absolute; and
(c) express notice in writing must be given to the debtor.
In Bennell v Netlink Australia Pty Ltd,[8] Austin J held that notice of assignment can be given in the statutory demand itself. Mr Purton, counsel for JJ Armstrong, contended however that if the statutory demand itself is to constitute notice of assignment, it is incumbent on the assignee to describe the debt in such a way as to enable the company receiving the demand to satisfy itself that there had been a valid assignment and the failure to do so is a defect productive of ‘substantial injustice’ within the meaning of s 459J(1)(a). In support of that proposition, he relied on the decision of Barrett J (as he then was) in Condor Asset Management Limited v Excelsior Eastern Limited.[9]
[8](2002) 42 ACSR 680 at [41] (‘Bennell’).
[9](2005) 56 ACSR 223 (‘Condor’).
In his affidavit in opposition to the application, Mr Sakhayi states that he owned the painting business trading as Hi 5. Late in 2016, he transferred the business to Hamptee. Hamptee’s sole director and shareholder is his wife. He deposes that, nothing has changed in the day to day running of the business and he is still the point of contact between customers and the business. He states that as part of the transfer he ‘assigned the debts then owing to me (as the owner of Hi 5) to Hamptee, including any debts owed by JJ Armstrong’. I observe at this point that this is the only evidence adduced by Hamptee in respect of the assignment. Mr Sakhayi does not state whether the assignment of debt was evidenced in writing, the date upon which it is said to have occurred or whether he gave notice to JJ Armstrong of the assignment.
In his affidavit of 16 June 2017, Mr Newbold states that JJ Armstrong has received no notice of any assignment of debt from Hi 5 to Hamptee.
The demand and the accompanying affidavit make no mention of any assignment by Hi 5 to Hamptee. The only reference to Hamptee in the demand, which is at the foot of the invoices, is the direction that the debts the subject of the invoices be paid into an account in the name of Hamptee. That direction does not, in my view, constitute notice of the assignment of the debts to JJ Armstrong, and is merely a direction by Hi 5 as to the account into which payments should be made.
In Bennell[10] Austin J had to consider, among other issues, the validity of a statutory demand where the creditor had taken an assignment of the debt the subject of the demand. His Honour considered whether the requirement, in s 12 of the Conveyancing Act 1919 (NSW)[11] for express written notice to the debtor for a valid assignment, was satisfied by reference to the assignment in the statutory demand itself. In the circumstances of that case, Barrett J held that it was satisfied and held that it did not matter that the very instrument constituting written notice was also a statutory demand for payment of the debt that became due at law to the assignee only when notice of the assignment was given. His Honour held the demand simultaneously completed the assignment at law and constituted a demand for payment by the true creditor, the assignee. His Honour stated:[12]
41.As at 22 April 2002, Ms Vlaski’s judgment debt had not been set aside. It was capable of being assigned under s 12 of the Conveyancing Act 1919 (NSW). The instrument of assignment of debt dated 22 April 2002, signed by Ms Vlaski and the plaintiff [the assignor] complied with the requirements of s 12. It was an absolute assignment in writing under the hand of the assignor and it did not purport to be by way of charge only. Section 12 requires, for a valid assignment at law, that express notice in writing be given to the debtor. It is not necessary for the notice to be given by the assignor. In the present case, express notice in writing was given by the plaintiff to the defendant when the statutory demand was served. Paragraph 2 of the statutory demand said that the amount claimed was due and payable by the company due to a judgment in favour of Ms Vlaski which was assigned to the plaintiff on 22 April 2002. It is clear, in my opinion, that the statutory demand satisfied the express notice requirement of s 12.
42.The only point open to doubt, in my opinion, is whether an instrument which constitutes express notice completing an assignment under s 12 can be, at the same time, a statutory demand for payment of the debt which becomes due at law to the assignee only when that express notice is given. Master Bredmeyer appears to have given an affirmative answer in Clearance Nominees Pty Ltd v Discount Acceptance Corp Pty Ltd (1997) 25 ACSR 531 at 533. I respectfully agree. Section 459E(4) says that a person may make a demand relating to a debt even if the debt is owed to the person as assignee. That subsection begs the question whether all of the steps necessary to produce the consequence that the debt is owed to the assignee must be taken before the statutory demand is made.
43.In my opinion, however, the correct analysis is that the same instrument may constitute express notice of the assignment for the purposes of s 12 and also a valid statutory demand for the purposes of s 459E. The assignment from Ms Vlaski to the plaintiff was effective in equity, being for valuable consideration, on 22 April 2002 when it was made. Thereafter Ms Vlaski was under an equitable obligation to account to the plaintiff for any payment of the debt that she might have received. The plaintiff was the creditor in equity. The statutory demand made the position clear to the defendant both in its capacity as the debtor whose debt had been assigned, and in its capacity as a debtor subject to a statutory demand for payment. It informed the defendant that its creditor had become the plaintiff. It required payment to the plaintiff. The instrument simultaneously completed the assignment at law and constituted a demand for payment by the true creditor, the assignee. Nothing in the Conveyancing Act or the Corporations Act requires that the notice of assignment and statutory demand be separate documents, and there is no reason of public policy for insisting that this be so.
44.My conclusion is that the assignment of the debt was valid, express notice having been validly given by the same instrument that served as a statutory demand under s 459E.
[10](2002) 42 ACSR 680.
[11]Section12 is very similar in its terms to s 134 of Property Law Act 1958 (Vic).
[12]At [41].
Counsel for Hamptee, Mr Lorbeer contended that the appearance of Hamptee’s details at the foot of the invoices put Armstrong on notice that when it received the demand it should have sought out Mr Sakhayi and ascertained the position in regard to the assignment of the debts. I am not persuaded by that submission. A company receiving a statutory demand has a limited time in which to react to it and if so advised, apply to set it aside. I do not consider that there was any obligation for JJ Armstrong to have conducted enquiries of Mr Sakhayi and the director of Hamptee, Mr Sakhayi’s wife, as to what the legal position was in regard to the debts and why the demand from Hamptee should be paid to it rather than Mr Sakhayi.
In Bennell there was express reference in the demand of the assignment in writing of the subject debt and the assignee otherwise met all the requirements of the legislation for an effective assignment.[13] In this instance, however, the assignment is not mentioned on the face of the demand or the accompanying affidavit. Further, there is no evidence at all of the assignment being in writing, what date it occurred, whether it was absolute or not, and that it did not purport to be by way of charge only. In my view, there was no evidence to establish that there had even been an assignment in equity which could be perfected by express notice in writing being provided to JJ Armstrong.
[13]Above n 10, at [41].
I consider that the position is made even more clear by an application of the analysis of Barrett J in Condor,[14] another case in which the creditor was an alleged assignee of the debt the subject of the demand. The demand in Condor had asserted that the company owed the creditor certain moneys ‘as assignee of GDK Financial Solutions Trust.’ The schedule to the demand stated: ‘Short terms (sic) loans advanced by the trustee of the GDK Financial Solutions Trust who have assigned the debts owing to Excelsior Eastern Limited.’
[14](2005) 56 ACSR 223.
Barrett J, after referring to the creditors’ submission that a statutory demand may itself constitute notice of assignment for the purpose of s 12 of the Conveyancing Act 1919 (NSW), so as to perfect an assignment at law of a legal chose in action and referring to Bennell, comprehensively surveyed the general principles applying to assignments of debts in the context of statutory demands stating:
[30] The debts upon which the defendant relied in formulating the statutory demand were represented in the demand to be debts assigned to the defendant by another person. It was submitted on behalf of the defendant that a statutory demand may itself constitute notice of assignment for the purposes of s 12 of the Conveyancing Act 1919 (NSW) so as to perfect an assignment at law of a legal chose in action. Reference was made to Clearance Nominees Pty Ltd v Discount Acceptance Corp Pty Ltd(1997) 25 ACSR 531 and Bennell v Netlink Australia Pty Ltd(2002) 42 ACSR 680; see also Re Small & Shattell (Sales) Pty Ltd(1992) 7 ACSR 99.
[31] While this may well be so (and it is clear, having regard to s 459E(4), that what s 80(1) of the Companies Act 1862 (UK) and later legislation called a “creditor by assignment” may take advantage of the statutory demand procedure), there is a question whether an unsupported assertion in the demand of the status of creditor by assignment is sufficient to make the demand a complying statutory demand. Take the case where X is an acknowledged and undisputed creditor of a company in the sum of $10,000 for goods sold and delivered by X to the company on 31 January. If that company receives a statutory demand in which Y is named as creditor and the description of the debt refers to $10,000 for goods sold and delivered by X to the company on 31 January and to subsequent assignment of the debt by X to Y, does a presumption of insolvency arise if the company, never having heard of Y, having had no relevant communication from X and being mistrustful of the bald assertion of assignee status by the stranger Y, fails to pay $10,000 to Y within 21 days after service of the demand?
[32] It is said that, in a situation of equitable assignment only, each of the assignor and the assignee of the debt is a “creditor” within s 459E: Rohan Trading Co Pty Ltd v Glengor Pastoral Co Pty Ltd[2003] NSWSC 1265 referring to Re Steel Wing Co Ltd [1921] 1 Ch 349. Alternatively, it may be that there can only ever be one creditor in respect of a particular debt, as suggested by Young CJ in Eq in Reale Bros Pty Ltd v Reale (2003) 179 FLR 427 at 435 on the basis of the decision of Hodgson J in Manzo v 555/255 Pitt St Pty Ltd(1990) 21 NSWLR 1 at 8. Perhaps each proposition is correct, in that the right of action on the part of the assignor will alone be recognised in the eyes of the common law while that of the assignee will be recognised by equity as paramount, but neither common law nor equity will countenance double recovery, with the result that only one claimant will ultimately be permitted to recover as against the debtor.
[33] Speaking of the position of someone who had granted an option to one person and later received a purported notice of exercise from another person who claimed to be the assignee of the first, Lord Denning MR said, in Warner Bros Records Inc v Rollgreen Ltd [1976] QB 430 at 442:
The grantor cannot be expected to act on a letter (purporting to exercise the option) which comes out of the blue from someone or other of which he knows nothing. He must be told that it comes from an assignee who has taken an assignment.
[34] This does not mean that an equitable assignment is incomplete or imperfect in the absence of notice to the obligor. What it does mean is that, in the absence of full legal assignment under s 12 of the Conveyancing Act, the assignee cannot maintain a debt action in a court of common law in his own name. To sue at law, he must enlist (or, with the aid of equity, compel) the assistance of the assignor: see the discussion at (2000) 74 ALJ 287. Where that assistance is not willingly given by the assignor, the first task of the equitable assignee is to make a case in a court of equity justifying an order that the assignor lend his name to an action at law against the debtor. It has been said that this is really no more than “a formality:” National Mutual Life Nominees Ltd v National Capital Development Commission(1975) 6 ACTR 1 at 8 per Blackburn J. This is no doubt so once the all-important matter of the assignment itself has been proved.
[35] In the context of a statutory demand issued by an assignee of a debt, it is reasonable to think that the requirements under s 459E(2), including the requirement arising from the “Description of debt” instruction in form 509H, will not be satisfied unless it can be seen, when the demand is served, that circumstances warranting such an order of a court of equity exist in relation to a debt upon which the person serving the demand relies as a creditor by assignment. In other words, a self-professing assignee cannot be regarded as having satisfied the content requirements of s 459E(2) unless the statutory demand is framed in terms enabling the company to see the matters that would cause a court to order that the assignor’s name be used in a debt recovery action brought by the equitable assignee. If, as has been suggested, the statutory demand can operate as notice which causes a merely equitable assignment to become a legal assignment under s 12 of the Conveyancing Act, it does not follow as some form of corollary that the demand need not contain, in the way I have stated, information sufficient to show the status of the issuer as an assignee. Where the statutory demand represents the first intimation to the debtor regarding the assignment, the content I have described must, I think, be included.
[36] The position will, of course, be different where the company upon which the statutory demand is served already knows of the assignment. The cases make it clear that the content of a statutory demand will be measured against the “substantial injustice” criterion in s 459J(1)(a) by reference to the company’s pre-existing knowledge of relevant matters. I have already referred, in that connection, to the Topfelt case. A company is, for example, presumed to have knowledge of dealings in which it has engaged, with the result that there is no need for the creditor formulating a statutory demand to provide notice of such dealings. But where the existence of the debt on which the creditor bases the statutory demand depends, so far as the status of the debt as a debt owing to that creditor is concerned, on matters of which the company has no knowledge and cannot reasonably be expected to receive knowledge in the ordinary course of events, it becomes incumbent upon the creditor to show the missing particulars on which its claim depends.
[37] The statutory demand in the present case contained no more than a bald assertion that the unnamed “trustee of the GDK Financial Solutions Trust” had assigned the debts to the defendant. The plaintiff was provided with no means whatsoever of satisfying itself of the validity of that assertion. It was left in a position where, if it complied with the demand, it might, for all it knew, have remained liable to the supposed assignor (assuming that it was indebted to that supposed assignor).
[38] The failure to include in the description of the debt in the statutory demand material from which the plaintiff could satisfy itself that there had been an assignment as alleged was, in my opinion, another “defect” in the demand in terms of the s 9 definition of “defect.” And because that defect left the plaintiff in a position where it could not see whether it could, with safety, comply with the demand, it was a defect productive of “substantial injustice” as referred to in s 459J(1)(a).
As Barrett J observes at [36], unless the company receiving the demand is privy to information which is sufficient to show the status of the issuer as an assignee and where the demand represents the first time that the company is said to be made aware of the assignment, such detail must be included. Here, Hamptee cannot point to any knowledge on JJ Armstrong’s part of the assignment, and in fact the evidence is that JJ Armstrong did not become aware of the alleged assignment until after the service of the demand which was itself silent on the subject. Here there is not , as there was in Condor, even a bald assertion that the debts had been assigned to Hamptee. The demand and accompanying affidavit in this case were bereft of any information whatsoever that there had been an assignment. Like the situation in Condor, JJ Armstrong was left in a position where it could not see whether it could safely comply with the demand by paying the creditor identified in the demand.
I agree with Barrett J’s approach in Condor that it was a defect of ‘substantial injustice’ as referred to in s 459J(1)(a) of the Act. For that reason, I would set the demand aside.
For that reason, I do not consider it necessary to consider the other grounds on which JJ Armstrong relies, that is, whether there is a genuine dispute and an offsetting claim in respect of the demand.
I will order that the statutory demand dated 19 December 2016 and served on JJ Armstrong by Hamptee be set aside pursuant to s 459J(1)(a) of the Act.
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