Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd

[1994] FCA 235

KALAMUNDA MEAT WHOLESALERS PTY LTD v. REG RUSSELL AND SONS PTY LTD
No. WAG3001 of 1994
FED No. 235/94
Number of pages - 8
Corporations Law
(1994) 13 ACSR 525
(1994) 12 ACLC 391
(1994) 51 FCR 446

COURT

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
HILL J

CATCHWORDS

Corporations Law - application to set aside statutory demand on basis dispute of debt and existence of offsetting claim - whether serious question of offsetting claim or genuine dispute of debt to be tried - insufficient evidence; document not in prescribed form - whether document a "statutory demand" - no substantial injustice caused leaving demand on foot - whether omission of "notes" constituted a "defect". Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1994) 120 ALR 173; applied.

Re Morris Catering (Australia) Pty Limited (1993) 11 ACLC 919; followed.

Topfelt Pty Ltd v State Bank of New South Wales Ltd (1994) 120 ALR 155; (1994) 12 ACLC 15; followed.

Corporations Law Ch.5 Pt.5.4 Div.2: ss.459H(1)(a) and (b), 459J(1)(a) and (b), (2).

"statutory demand"

"defect"

"purport"

HEARING

PERTH, 30 March 1994
#DATE 4:5:1994, SYDNEY

Solicitors for the Applicant: Knott Gunning

Solicitors for the Respondents: Phillips Fox

ORDER

The Court Orders That:

1. Application be dismissed.

2. Respondent's costs of the application be paid by the applicant.

Note: Settlement and entry of orders is dealt with in Order 36 of the

Federal Court Rules.

JUDGE1

HILL J Kalamunda Meat Wholesalers Pty Ltd ("Kalamunda") applies to the Court to set aside a statutory demand for payment of the sum of $11,007.40 served upon it by Reg Russell and Sons Pty Ltd ("Russell"), the respondent to the application. Kalamunda relies variously upon ss.459H(1)(a), 459H(1)(b), 459J(1)(a) and 459J(1)(b) of the Corporations Law.

1. In its affidavit which accompanied the application, Kalamunda referred only to ss.459H(1)(a) and 459H(1)(b), saying that it disputed the amount of the debt claimed and further that it had an offsetting claim relating to an alleged failure by Russell to give credit for certain sheepskins.

2. At the hearing Kalamunda sought to rely on two additional matters not raised in its affidavit. It sought to argue first that the so-called statutory demand served upon it did not constitute a "statutory demand" within the meaning of s.459E in that it was not in the prescribed form. Second, it sought to argue that the making of the demand amounted to an abuse of process as having been made for an improper purpose. The first of these two matters involved merely a legal argument and I gave leave to Kalamunda to raise it, giving to counsel for Russell the opportunity of making subsequent written submissions in the event that he was taken by surprise by the argument being raised at the last moment. I refused, however, leave to counsel for Kalamunda to argue the question of abuse of process since the issue of whether the demand was made for an improper purpose potentially involved matters of fact and as Russell had no notice that the matter was to be raised until virtually the last moment, it was too late to permit that matter now to be raised.

3. The claim by Kalamunda, as originally formulated, required it to satisfy me either that there was a genuine dispute between Russell and itself over the existence or amount of the debt referred to in the demand, or that it had an offsetting claim. If it succeeded in satisfying me and I was of the view that the "substantiated amount" calculated in accordance with s.459H(2) was less than the statutory minimum, then I would be obliged, by force of s.459H(3), to set aside the demand.

4. The only evidence filed in the matter was an affidavit of a Mr George Johnson, a director of Kalamunda. That affidavit refers to the two invoices which together make up the sum claimed and deposes that requests have been made of Russell to provide particulars of various matters in those invoices and that those particulars have not been provided. Otherwise the deponent says he believes that the demand should be set aside because Kalamunda disputes the amount of the debt and has an offsetting claim.

5. In Re Morris Catering (Australia) Pty Limited (1993) 11 ACLC 919, Thomas J stated (at 922), in a passage quoted with approval by Beazley J in Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1994) 120 ALR 173 at 188:
   

"There is little doubt that Div 3 is intended to be a complete code which prescribes a formula that requires the court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the court will examine the merits or settle the dispute. The specified limits of the court's examination are the ascertainment of whether there is a 'genuine dispute' and whether there is a 'genuine claim'. It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.

The essential task is relatively simple - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it)."

1. Thus my task is to identify whether there is a dispute as to the amount of the claimed indebtedness and whether that dispute is a genuine one. As to the suggested offsetting claim, I take the position to be that which was adopted by Beazley J in Scanhill (at 189), namely that I have to be satisfied that there is a serious question to be tried that the Kalamunda has an offsetting claim. On the evidence before me, it is just not possible to be satisfied of either of these matters. All I know is that particulars have been sought but not yet supplied. That is hardly sufficient to satisfy me that there is a dispute, let alone whether that dispute is genuine. Nor can I be satisfied that Kalamunda has a genuine offsetting claim. I would accordingly not set the demand aside under s.459H(3).

2. The document, which the applicants claimed not to be a statutory demand, bore at its top in bold type the words:
   

"CORPORATIONS LAW CREDITORS STATUTORY DEMAND FOR PAYMENT OF DEBT"

1. Paragraphs 1. to 6. followed the form prescribed, Form 509H. Missing, however, were the notes 1. to 4. which appear in the printed version of Form 509H immediately following the schedule.

2. It is this omission which founds the submission that the notice, in the present case, is not in truth a statutory demand and so it is said should be set aside under s.459J(b) of the Corporations Law. It may be noted that no reliance is placed upon s.459J(1)(a), it being conceded that no substantial injustice on the facts of the present case was caused by the omission of the notes.

3. The omitted notes read as follows:
   

"1. 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 an executive officer of the corporation.

2. 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 $2,000.

3. Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that:

(a) verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and

(b) complies with the rules.

4. A person may make a demand relating to a debt that is owed to the person as assignee."

1. Each of the first three notes was in fact complied with. The form was signed by the creditor, being a corporation, by a director. The total amount of the debt claimed exceeded the statutory minimum of $2000. As the debt claimed was not a judgment debt, the demand was accompanied by an affidavit verifying that the total amounts of the debts were due and payable and it was not suggested that the affidavit other than complied with the rules. Finally, note 4 was inapplicable as the debt was owed to Russell, other than in its capacity as assignee.

2. It is necessary to turn to the relevant statutory provisions to be found in Ch 5 of the Corporations Law.

3. Chapter 5, Pt 5.4, Div 2 provides for the service on a company of a demand for payment of either a single debt or two or more debts which, together, total the statutory minimum of $2000. Section 459E(2) provides what the demand is to specify. For relevant purposes the demand must be in writing (para.(d)) and be in the prescribed form (para.(e)). The serving of a statutory demand has serious consequences for the company on which the demand is served. Failure to comply with a statutory demand, still in force by the end of the period set for compliance with it, acts as a presumption of insolvency of the company grounding an order that the company be wound up.

4. A company may apply for an order setting aside a statutory demand: s.459G(1). That application for such an order must be made within 21 days after the demand is served. The expression "statutory demand" is defined in s.9 of the Corporations Law as meaning:
   

"(a) a document that is, or purports to be, a demand served under s.459E; or

(b) such a document as varied by an order under subsection 459H(4)."

1. It would follow that there would be no jurisdiction in the Court to set aside a demand that was not within the meaning of the expression a "statutory demand" in s.9. Such a demand would have no force and effect. Failure to comply with it could not lead to an order winding up the addressee.

2. Section 459G(1) is in general terms. It is, however, given content by s.459J which reads as follows:
   

"(1) On an application under section 456G, 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."

1. As I have already indicated, a demand must be set aside if the case is one falling within s.459H(3), that is to say, where, because of a genuine dispute concerning the debt or an offsetting claim, the ultimate result is that the amount, if any, apparently owing to the person making the demand is less than the statutory minimum.

2. The history of the provisions of the Corporations Law relating to statutory demands is dealt with in the judgment of Lockhart J in Topfelt Pty Ltd v State Bank of New South Wales Ltd (1994) 120 ALR 155 at 160 ff. As his Honour points out, the Corporate Law Reform Bill 1992, which subsequently became the Corporate Law Reform Act (No 210 of 1992) and introduced the present provisions of Part 5.4 of the Corporations Law, implemented many of the recommendations of the Harmer Report (Australian Law Reform Commission Report on its "General Insolvency Inquiry" (Report No 45)). The Explanatory Memorandum which accompanied the Bill stated relevantly:
   

"686. The Harmer Report proposed that a demand may be set aside if the court is satisfied that: * there is a substantial dispute as to whether the debt is owing; * the company appears to have a counter claim which may exceed the amount of the debt; or

* the demand ought to be set aside on other grounds.

687. This last general power would enable the court to take account of matters such as improper or invalid service and mistakes or misstatements in the notice of demand, in circumstances where this would severely prejudice any party.

688. The provisions in relation to the setting aside of a statutory demand are intended to be a complete code for the resolution of disputes involving statutory demands, and to do so on the basis of the commercial justice of the matter, rather than on the basis of technical deficiencies. In particular it is intended to remove the present difficulties which are experienced where difficulties in estimating the extent of the debt may lead to an invalidating of the statutory demand on the basis of a minor overstatement of the amount due."

1. The Second Reading Speech by the then Attorney-General made the following point:
   

"Companies will no longer be able to resist statutory demands on purely technical grounds such as a minor misstatement of the quantity of a debt. Demands will be able to be set aside only where injustice would otherwise be caused."

1. As a matter of construction, I think that paras.(a) and (b) of s.459J(1) should be read so as to be mutually exclusive. Such a construction would, but for the terms of s.459J(2), be clearly correct. But notwithstanding the reference in s.459J(2) to sub-sec.(1), not merely sub-sec.(1)(a), I am of the view that the provisions of s.459J(1)(b) relate only to cases where there is a reason other than the existence of a defect in the demand. Put in another way, if the case is one where a defect in the demand is alleged, a notice could only be set aside if the case is one where because of the defect substantial injustice would be caused unless the demand was set aside. Such a construction accords with what is said in the Second Reading Speech and Explanatory Memorandum to which I have referred. This question of construction appears not to have been argued in Topfelt, nor considered by Lockhart J in that case. Although the reference by his Honour to s.459J(1)(b) (at 171) might suggest that his Honour took a different view from that which I have suggested, the case before his Honour was not one of a mere defect falling within s.459J(2).

2. Thus, although s.459E(2) requires a demand to be in the prescribed form, a departure from that prescribed form, which is capable of being described as a "defect", would not require the demand to be set aside absent a showing that substantial injustice would be caused if the demand were not set aside.

3. The expression "defect" is defined in relation to a statutory demand in s.9 as including:
   

"(a) an irregularity; and

(b) a misstatement of an amount or total; and

(c) a misdescription of a debt or other matter; and

(d) a misdescription of a person or entity;".

1. The definition is an inclusive definition so that that which would be a "defect" in the ordinary acceptation of that term would be a defect for the purposes of the Corporations Law. In Topfelt, Lockhart J commented on the meaning of the word "defect" as follows (at 166):
   

"According to its ordinary usage a 'defect' means a lack or absence of something necessary or essential for completeness; a shortcoming or deficiency; an imperfection. A defect according to ordinary understanding is not necessarily something which is of a minor nature, it may be either major or minor. The word 'defect' has been considered by judgments of courts in a variety of contexts: see, for example, Tate v Latham and Son (1897) 1 QB 502 at 506-7 per Bruce J ('defect in the condition'); Dawson v African Consolidated Land and Trading Co (1898) 1 Ch 6 ('defect in appointment'); Sanderson v National Coal Board (1961) 2 QB 244 ('patent defect'); Metcalf v Great Boulder Proprietary Gold Mines Ltd (1906) 3 CLR 543 ('defect in condition'); Hampson v Clyne (1967) 86 WN (Pt 1) (NSW) 321; Re Gagliardi; Ex parte Mount (1984) 57 ALR 718 ('defect' as failure to sign and file a certificate)."

1. Topfelt was concerned with a quite different problem. In that case the defect was said to be an error in the description of the debt and its amount. It was in this context that his Honour commented that the Corporations Law made no distinction between large and minor defects. However, in the course of his Honour's judgment his Honour said (at 167):
   

"There may, however, be cases where deficiencies in the form of demands are so fundamental that the demands are incapable of assuming the description of statutory demands within the meaning of the Corporations Law. This is a question to be decided in future cases. The demand in the present case is not, for reasons mentioned later, a demand of this kind."

1. His Honour later discussed the interrelationship of ss.467A and 459S of the Corporations Law in the context of the Court's power to dismiss an application to wind up a company because of a defect in a statutory demand. His Honour then said (at 168):
   

"Assume, for example, a statutory demand that fails to follow critical parts of the prescribed form by not informing the company that the consequence of failing to comply with the demand is that the creditor may rely upon that failure as a ground for an application to wind up the company; or a demand may fail to inform the company that it may apply under s.459G to set the demand aside. The company may wish to lead evidence before the court, that it assumed the document was simply a demand for payment, but it had no idea of the consequences under the Corporations Law of failure to comply with it. It would be odd indeed if the Court could not take this evidence into account in deciding whether to exercise its discretion to order the winding up of the company. That may be a case (I do not say that it is or is not) of a demand that is so deficient as to be incapable of answering the description of a statutory demand within the meaning of the Corporations Law."

1. Two questions arise for decision. The first is whether the demand in the present case is a "statutory demand" within the meaning of the definition in s.9. The second, which need be answered only if the first question be answered in the affirmative, is whether the omission of the notes constitutes a defect. If both of these questions be answered in the affirmative, then it seems to me to follow, the present not being admittedly a case where injustice would be caused by leaving the demand on foot but nevertheless a case covered only with what s.459J(2) would term a "mere defect", that the application must be dismissed.

1. The word "purport" is defined relevantly in the Macquarie Dictionary, 2nd Rev as:
   

"1. to profess or claim: 'a document purporting to be official'. 2. to convey to the mind as the meaning or thing intended; express; imply".

1. In some contexts the word may merely mean "has the effect of": cf Joseph v Joseph (1966) 3 All ER 486. However, in the present context, in my view, it has its more usual meaning of "profess" or "claim". On its face, the document professes to be a statutory demand made under the Corporations Law. It does not seem to me that the fact that it omits the notes in question alters that. It continues to profess to be a statutory demand, albeit not in precisely the prescribed form. Accordingly I would answer the first question in the affirmative. I would not accept an argument that there is a distinction to be drawn between the notes to the form and the balance of it.

2. I see no reason why the omission of the notes is not able to be classified as a "defect". If that which professed to be a statutory demand omitted one word, no question would have arisen. The mere fact that a number of words are omitted does not, in my view, make any difference. The omission of those words is a defect in the ordinary sense of the word and thus a defect for the purposes of s.9. To adapt the words used by Lockhart J, the omission of the notes is "a lack or absence of something necessary or essential for completeness".

3. I accept that a question of degree is involved. There might come a time when there is an omission of so many words that, rather than seeing the matter as one involving a defect, the correct answer would be that the notice was not one which purported to be a statutory demand at all. That, however, is not the present case.

4. I should say that, had I been of the view that the demand was not one which purported to be a statutory demand, I would have been unable to give the applicant the relief it sought. The Court's power to set aside demands is a power which relates only to statutory demands, that is to say, demands which purport to be statutory demands. The Court has no power to set aside a demand which does not purport to be a statutory demand. Such a document would have no legal force or effect under the Corporations Law.

5. Accordingly I would dismiss the application and order the applicant to pay the respondent's costs of it.