Nemo Nominees Pty Ltd v Avel Pty Ltd No. Scgrg-99-422 Judgment No. S297

NEMO NOMINEES PTY LTD -V- AVEL PTY LTD

[1999] SASC 297

JUDGE BURLEY. The plaintiff has applied, pursuant to Section 459G of the Corporations Law, for an order setting aside a statutory demand dated 12 March 1999 served upon it by the defendant.
At the hearing of the summons, Mr Strawbridge appeared on behalf of the plaintiff and Mr Wilkinson on behalf of the defendant.
A copy of the demand is exhibited to the affidavit of Mr Simon Durack sworn on 10 June 1999 and filed in opposition to the plaintiff’s application. The demand is for the sum of $39,871.61 which is said, to be the “balance of outstanding monies due under a Deed of Guarantee and Indemnity dated 8 April 1997 whereby the company [the plaintiff] guaranteed to the creditor [the defendant] the payment of certain monies owing to the creditor by Rivarko Pty Ltd”.
The plaintiff filed two affidavits in support of the application, the first within the relevant 21 day period and the second outside that 21 day period. The relevant parts of the first affidavit are as follows:-
“2..... The debt claimed set out in the creditors statutory demand for payment of debt, which I first saw on 22 March 1999, is the subject of a genuine dispute.
3...... The defendant has never supplied Nemo Nominees Pty Ltd with accounts and reconciliations of a loan account in favour of Nemo Nominees in the books and records of Rivarko Pty Ltd, in respect of which the defendant asserts that Nemo Nominees is liable to it by virtue of a deed of guarantee and indemnity. It is my belief that when the accounts are properly prepared, it will be the fact that the plaintiff will not be liable to the defendant at all.
4...... The plaintiff has sought, but has never been offered the opportunity, of perusing the books and records of Rivarko Pty Ltd because those records are held by the defendant in its premises in Western Australia. I have sought production of those books and records so that my accountant, the accountant of Nemo Nominees Pty Ltd, may have the opportunity of perusing them. They have not been produced.
5...... Nemo Nominees is not liable to pay the defendant any moneys pursuant to the guarantee and indemnity.
6...... I say that Simon Durack knew, at the time of swearing his affidavit, that there was and is a genuine dispute about the existence and amount of the debt to which the demand relates.”

Most of the affidavit consists of unsubstantiated assertions. However, one ground of opposition is raised, namely that the plaintiff has not had the opportunity by reference to the books and records of Rivarko Pty Ltd, to check whether the amount claimed in the notice of demand is correct. Contrary to Mr Schmidt’s assertion, there has been a partial accounting to the plaintiff in respect of monies owing under the guarantee by letter dated 22 September 1997 from the defendant’s solicitors to the plaintiff. A copy of the letter is Exhibit “AS2” to the affidavit of Mr Schmidt sworn on 19 May 1999.
Before turning to the content of that letter, it is appropriate to refer to the affidavit of Mr Durack sworn on 10 June 1999 and filed by the defendant in opposition to the plaintiff’s application. Mr Durack is the company secretary of the defendant company. It is evident that the plaintiff denies some of the factual assertions made in Mr Durack’s affidavit but the general background of dealings between the parties is not in dispute. In June 1996 the defendant and a company called Banton Adelaide Pty Ltd (a company controlled by Mr Schmidt) agreed to operate a joint venture through Rivarko Pty Ltd, the shares of which were to be owned equally by the defendant and Banton Adelaide Pty Ltd. At that time Banton conducted the business “The Circuit Sports Cafe Adelaide” at East Terrace, Adelaide. Rivarko was to acquire the business and redevelop the premises which would be known as “The Racketeers Club”. The defendant and Banton provided $150,000 each by way of capital in Rivarko. It was agreed that they would provide further necessary cash by way of loan accounts. Banton was unable to provide further funds by way of loan account and so it was agreed that the defendant would provide the necessary funds by either advancing monies to Rivarko or paying accounts of Rivarko as required from time to time. In return the plaintiff (another company owned and controlled by Schmidt) would guarantee repayment to the defendant of 50 per cent of the funds so provided by the defendant. A guarantee and indemnity agreement was entered into and security was given by Nemo by way of a fixed charge over certain units in a unit trust owned by the plaintiff.
In his affidavit Mr Durack said that the defendant advanced sums totalling $529,929, the details of which are set out in a schedule exhibited to his affidavit and marked “SFD4”.
In about October 1997, Rivarko sold the business. The net proceeds of sale, as appears from Exhibit “SFD5”, were just in excess of $300,000. Rivarko paid $300,000 to the defendant in reduction of the indebtedness between Rivarko and the defendant. If “SFD4” is correct, the net indebtedness between the defendant and Rivarko then amounted to $229,929. It is apparent that in about September 1997 the plaintiff took steps to sell the units in the unit trust which was the subject of the debenture and this proposed sale was the subject of the letter of 22 September 1997 previously referred to. The relevant parts of the letter are as follows:-
“We understand that settlement of the sale of your units in the Semaphore Palais Unit Trust is scheduled for next Monday 29 September 1997.
Accordingly, we have prepared and forwarded to Avel Pty Ltd for signing an ASC Form 312 releasing the registered charge over Nemo Nominees Pty Ltd’s unit holding in the Semaphore Palais Unit Trust.
We enclose a copy of our client’s letter to us dated 18 September 1997 outlining the monies due to our client by Rivarko Pty Ltd which is specified as $565,449.69 in confirmed debts together with a further $40,000.00 by way of a contingency fund for unknown debts giving rise to a total indebtedness of $605,449.69.
We understand that under your joint venture agreement with our client you are responsible for 50% of that debt namely $302,724.84 together with interest (which our client has calculated on the basis of 9% per annum and on a simple interest basis only) at $12,825.41 giving rise to a total indebtedness of $315,550.25 and it is that sum which our client requires to be paid to it next Monday by way of a bank cheque drawn in favour of Avel Pty Ltd.
Would you please confirm that you accept our client’s calculations and advise us of the proposed time and location of settlement so that we may attend to exchange the duly signed ASC Form 312 for the abovementioned bank cheque.”
There was no response to that letter but settlement in respect of the sale of the units in the unit trust took place and the mortgage debenture was duly discharged.
The defendant’s solicitors enclosed with their letter of 22 September 1997 a schedule of payments made by the defendant on behalf of Rivarko Pty Ltd. Actual payments amounted to $508,379.40. There was reference to a further $50,070.29 in respect of creditors yet to be paid and a further contingency sum of $40,000.00, making a total of $606,449.69. Mr Wilkinson contended that there had been, by the letter of 22 September 1997 and the enclosures with it, an explanation to the defendant of the amount due under the guarantee.
It is common ground that the proceeds of sale of the units in the unit trust amounted to $61,428 and this sum was paid to the defendant in exchange for the discharge of the mortgage debenture.
The schedule of payments accompanying the letter of 22 September 1997 is to be compared with a schedule of payments exhibited to Mr Durack’s affidavit and marked “SFD4”. That shows the payments which the defendant says that it actually made and it is the same as the schedule attached to the letter of 22 September 1997 in respect of payments up to September 1997. Thereafter differences occur but mainly in relation to the allowance for creditors not yet paid and for the contingency amount, each of which was set out in the earlier schedule. It is apparent that not all of the creditors listed in the earlier schedule were required to be paid by the defendant. According to Mr Durack, by the time of the preparation of “SFD4” the indebtedness between the defendant and Rivarko had crystallised so that the total amount was $529,929.05. From this sum had to be deducted the $61,428.00 paid to the defendant for the discharge of the mortgage debenture and the sum of $300,000.00 paid by Rivarko to the defendant in reduction of the indebtedness between those two companies This left a sum of $53,536.00 which was half of the amount outstanding by Rivarko to the defendant.
Before proceeding further I should mention the status of the second affidavit of Mr Schmidt. Objection was taken to it being read on the application because it was filed outside the 21 day period. Mr Wilkinson relied on D & S Group of Companies Pty Ltd v O’Connor Investments Pty Ltd (1997) 15 ACLC 1794. In that case it was held by Perry J that if an affidavit filed after the 21 day period raised a ground for setting aside the statutory demand not identified in the original affidavit, it could not be read on the application. I admitted the affidavit de bene esse, indicating that I would rule on its admissibility after I had reserved by decision.
The second affidavit contains evidence which may be divided into three categories: first, new facts alleged which may be taken as related to the ground for setting aside raised in the first affidavit; second, new facts which do not relate to the ground originally raised; and, third, a response to matters raised in the affidavit of Mr Durack filed in opposition to the application. There is an overlap between all of these three categories. In following the decision in D & S Group of Companies Pty Ltd, it seems to me that the whole of the second affidavit ought to be rejected because most, if not all, of the information contained therein could and should have been set out in Mr Schmidt’s initial affidavit. The clear purpose of the relevant provisions of the Corporations Law relating to the service of statutory demands and applications to set them aside require that an effective application for the setting aside of the statutory demand be made within 21 days of service of the statutory demand. If the alleged debtor is permitted to supplement the original affidavit, which in this case contains very little relevant information, the purpose of those provisions will be subverted. This is what has occurred on the application before me and it should not be permitted. I therefore rule that the second affidavit of Mr Schmidt may not be read on the application.
The ground for setting aside the statutory demand which may be extracted from Mr Schmidt’s first affidavit is that the issue and service of the statutory demand constituted a threat of an abuse of process of the Court because the demand had not been preceded by an explanation to the plaintiff of how the sum referred to in the demand was calculated.
The plaintiff relied upon a number of cases, including Vanguard Insurance Co Ltd v Darley Trading Pty Ltd (1981) 1 A&NZIC 77311. That case involved a claim under an insurance policy in respect of the theft of a motor vehicle. The owner of the motor vehicle demanded immediate payment from the insurer under the terms of the policy but the insurer responded that it would not, in accordance with its usual procedures, pay out under the policy until after the expiration of a period of 90 days to allow for the fact that the vehicle might be recovered. The defendant then served a notice under Section 222 of the Companies Act 1961 (NSW). The insurer, as plaintiff, sought an injunction in the Supreme Court prohibiting the defendant from issuing a winding up summons. Needham J said at 77315:
“In my opinion, regardless of the validity of the notice under sec. 222, this procedure adopted by the defendant company constituted a threat of an abuse of the process of the Court. It is not a proper use of the procedures under the Companies Act to attempt to blackmail public solvent companies into paying sums claimed by a creditor when there is no denial by the company of its indebtness [sic] to the creditor, but there is in the company liable a right to satisfy itself within a reasonable time that the amount is due to the person who claims that the company owes it the money. If this procedure were valid then no company could rest upon its rights to ensure that claims against it were valid. Every company faced with a claim under a policy would have to pay the sum demanded and then determine afterwards whether it was properly paid or not. Plainly it would be in some difficulty in obtaining repayment even if the creditor were a person of substance.”
Reliance was also placed on Pacific Communication Rentals Pty Ltd v Walker (1994) 12 ACLC 5, a decision of Brownie J of the New South Wales Supreme Court. In that case the defendant, who was an accountant, was an officer and employee of the plaintiff. He tendered his resignation to be immediately effective and indicated that he would bring the plaintiff’s books up to date and return them the following week. In the following week he demanded certain monies from the plaintiff for wages, allowances and expenses. That was refused and the defendant thereupon served a statutory demand. The plaintiff applied for an injunction to restrain the defendant from commencing winding up proceedings. The case involved the question of whether or not it remained open to the plaintiff to obtain injunctive relief when, under the then provisions of the Corporations Law, an application could be made to set aside the statutory demand. It was held that it was open to the plaintiff to apply for injunctive relief. His Honour said at 7:
“In this case, what the defendant did on 7 October seems to me, on the evidence, to be an abuse of process, or an attempted abuse of process: he must have known, had he thought about it, that the plaintiff would need to have access to its financial records, to check the accuracy of the claim made that day, but he deprived the plaintiff of the opportunity to do that by keeping those records away from the plaintiff, and he did that only by making an indefensible claim to have a lien over those records.”
Mr Strawbridge also referred to House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 14 ACLC 1536. That case involved an application to have the winding up summons dismissed because, it was alleged, it constituted an abuse of process. I do not think that the matters dealt with by Brownie J in that case assist in the resolution of this matter.
In response Mr Wilkinson referred me to Moyall Investments Services Pty Ltd v White (1993) 12 ACSR 320 and Kalamunda Meat Wholesalers Pty Ltd v Russell and Sons Pty Ltd (1994) 13 ACSR 525.
In Moyall Investments Services Pty Ltd, Ryan J dealt with an application to set aside a statutory demand. The applicant was one of three companies carrying on business together as providers of accounting and financial services. All three companies had common directors and shareholders and were administered from the one premises. The liquidator of one of the three, Moyall Pty Ltd (In Liquidation) served a statutory demand on the applicant seeking payment of $70,630, being outstanding fees due to the company in liquidation for the provision of accounting services to the applicant. The applicant applied to set aside the statutory demand asserting that the accounts rendered by the defendant did not accurately reflect the amount owed and that the claim was for services which were excessive. It was held by Ryan J that on an application under Section 459G of the Law, it is not the role of the Court to adjudicate the dispute nor assess its merits. It is sufficient that a genuine dispute be identified. The applicant bears the onus of establishing that such a dispute exists and during the course of his judgment his Honour referred to the decision of Hayne J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362, where his Honour dealt with an application under Section 459G of the Law. Ryan J set out the following passage from that judgment:
“First, any application to set aside a statutory demand must be made very quickly: it must be made within 21 days. Second, the statute contemplates a summary procedure, the only outcome of which will be an order affecting the statutory demand, not any order or judgment declaring a debt to be owing or not to be owing or ordering payment of any money sum. Third, the only significance that the statutory demand has is that if there is failure to comply with it then the company is deemed to be insolvent. Thus the demand is no more than a precursor to an application for winding up in insolvency. Fourth, an application for winding up in insolvency must be determined within 6 months (unless the court is satisfied that special circumstances justify an extension of that time) (s 459R). Fifth, on the hearing of the application to wind up, the company may not oppose the application on grounds that it might have taken in any application to set aside the demand, unless those grounds are material to proving that the company is solvent.
These matters, taken in combination, suggest that at least in most cases it is not expected that the court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute.”
Later in his judgment Ryan J said:
“Now, after Moyall has been placed in liquidation, the applicant seeks to revisit the books of account in order to establish an error in the entries which had been recorded in relation to MIS [the applicant]. No explanation has been provided as to how the alleged error in the accounts arose; it is merely asserted that upon review there should now be a recalculation. In the present case the question of whether a dispute exists falls to be considered by reference to the circumstances which existed at the time when the accounts were struck. Nothing that has happened since, other than the opportunity for an afterthought prompted no doubt by the appointment of Mr White as liquidator, was relied on by the applicant as creating a dispute which did not earlier exist. There is no evidence to suggest that had the directors or shareholders turned their minds to the accounts any conflict would have been identified between MIS and Moyall.”
Adopting the approach taken by Hayne J in Mibor Investments Pty Ltd and following the reasoning of Ryan J in Moyall Investments Services Pty Ltd, it seems to me that where an applicant to set aside a statutory demand contends that a genuine dispute exists because first, the demand was not preceded by information setting out how the debt was calculated and by an assertion that the debt has not been correctly calculated, both of these matters must be established by the applicant who seeks to have the statutory demand set aside. In this case there has been a partial explanation of how the debt is arrived at by the content of the letter of 22 September 1997 and the schedule accompanying that letter. I am prepared to assume for the purposes of this application that no more detailed accounting was provided to the plaintiff by the defendant prior to the issue of the statutory demand. However, a more detailed accounting has now been provided by the affidavit of Mr Durack and there is no evidence before me which suggests that that accounting is other than correct. In those circumstances I cannot be satisfied that the debt is genuinely disputed.

Such an approach is also consistent with what was said by Hill J in Kalamunda Meat Wholesalers Pty Ltd. In that case it was alleged that the creditor had failed to answer the applicant’s request for particulars of the debt. It was held that that by itself could not lead to the conclusion that the debt was genuinely disputed. His Honour said (at 527):
“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 ... I have to be satisfied that there is a serious question to be tried that 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. It 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).”
In my view the cases relied upon by the plaintiff do not support the contention that a genuine dispute has arisen where details of how the debt is made up are not provided before the statutory demand is served. The case of Vanguard Insurance Co Ltd is factually distinguishable from the facts of the case before me in that it dealt with the special situation which applied between an insurer and an insured. In Pacific Communication Rentals Pty Ltd Brownie J came to the conclusion that in the circumstances of that case, the debtor should have been afforded an opportunity to check its own records before being put in a position where it had to respond to a claim to recover the alleged indebtedness. I do not think that the plaintiff in this case is in the same position as the debtor found himself in that case. By September 1997 the plaintiff had been informed of the bulk of the indebtedness between the defendant and Rivarko. There was no evidence of any dealings between the parties since September 1997 until the statutory demand was served. In particular, there was no evidence that during that period the plaintiff joined issue with the defendant as to the amounts advanced by the defendant to Rivarko in respect of which the plaintiff was bound by the guarantee to pay the equivalent of half of those advances. It is also clear that Mr Schmidt participated in the sale of the Rivarko business. There is no evidence before me that Rivarko, once it sold the business did other than discharge its liability to the defendant to the extent of $300,000. In addition it was not suggested by Mr Strawbridge that the payment of $61,428 to the defendant in exchange for the discharge of the mortgage debenture when the units in the unit trust were sold was carried out other than in accordance with the intentions of Mr Schmidt.
In light of those matters there is no justification for forming the view either that the service of a statutory demand was an abuse of process or an attempted abuse of process or that the absence of an up-to-date accounting in respect of how the debt was calculated gave rise to a genuine dispute.
In arriving at these conclusions I have also taken into account Mr Strawbridge’s submission that there was no demand made for payment of monies due under the guarantee prior to service of the statutory demand. He referred to Clause 3 of the Guarantee, a copy of which is “SFD2” to the affidavit of Mr Durack. That clause says:-
“3..... The GuarantorHEREBY UNCONDITIONALLY GUARANTEES the due and punctual payment by the Debtor of one half of the monies due as and when such monies or any such monies are demanded or otherwise become due and not paid by the Debtor to the Creditor.”
It is not clear from that clause whether the demand is to be directed at the guarantor or the primary debtor. Whatever the correct construction is, Clause 5 of the guarantee provides:-
“5..... The Creditor shall be at liberty to regard the Guarantor in all respects as principal debtor but shall be obliged to initiate action first against the Debtor or under any security or other guarantee held by the Creditor provided that having initiated such action notwithstanding the status of such action the Creditor may pursue the Guarantor hereunder.”
If Clauses 3 and 5 are read together, that indicates to me that any demand is to be made of the debtor rather than the guarantor. However, any alleged genuine dispute based on the provisions of the guarantee as pursued by Mr Strawbridge overlooks Clause 8 of the guarantee document. That clause provides:-
“8..... The Guarantor shall indemnify the Creditor and agrees at all times hereafter to keep the Creditor indemnified from and against one half of the moneys due by the Debtor to the Creditor.”
In dealing with the provisions of the guarantee I do not embark upon an investigation of the merits of the case of either party except to the extent that the submissions of the plaintiff, in arguing that there is a genuine dispute, raises those provisions. They then need to be considered to see only whether or not a genuine dispute has been demonstrated.
For the above reasons I have come to the conclusion that the applicant has failed to demonstrate any genuine dispute and for that reason the application to set aside the statutory demand must be dismissed.

[1999] SASC 297

23 July 1999