Orpin Pty Ltd v Laver Pty Ltd

[1998] TASSC 20

20/1998

PARTIES:  ORPIN PTY LTD (ACN 006 070 515)
  v
  LAVER PTY LTD (ACN 009 558 258)

TITLE OF COURT:  SUPREME COURT OF TASMANIA
JURISDICTION:  ORIGINAL
FILE NO/S:  M361/1997
DELIVERED:  17 March 1998
HEARING DATE/S:  3 February 1998
JUDGMENT OF:  Wright J

CATCHWORDS:

Corporations - Companies - External administration - Winding up - Statutory demands - Application to set aside statutory demand - Whether debt "due and payable" - Whether genuine dispute as to existence of debt.

Corporations Law, ss459E, 459G, 459H, 459J.

Aust Dig Corporations [212]

REPRESENTATION:

Counsel:
             Applicant:  J Cousland
             Respondent:  S P Estcourt
Solicitors:
             Applicant:  Piggott Wood & Baker
             Respondent:  Toomey Maning & Co

Judgment category classification:
Court Computer Code:  
Judgment ID Number:  20/1998
Number of pages:  8

Serial No 20/1998
File No M361/1997

ORPIN PTY LTD (ACN 006 070 515) v
LAVER PTY LTD (ACN 009 558 258)

REASONS FOR JUDGMENT  WRIGHT J

17 March 1998

This is an application pursuant to the Corporations Law, s459G to set aside a "purported" statutory demand dated 4 December 1997. The demand, which was served upon the applicant by the respondent, was in the following form:

"CREDITOR'S STATUTORY DEMAND

FOR PAYMENT OF DEBT

To ORPIN PTY LTD (ACN 006 070 515) of 83 Main Road, Moonah, Tasmania

1    The company owes Laver Pty Ltd (ACN 009 558 258) of 70 Browns Road, Kingston Tasmania ('the creditor') the amount of Five hundred and seventy three thousand one hundred and twenty one dollars ($573,121.00) being the amount of the debt described in the Schedule.

2    Attached is the affidavit of John Cornelis Dingemanse dated 4 December 1997 verifying that the amount is due and payable by the company.

3    The creditor requires the company, within 21 days after service on the company of this demand:

(a)to pay to the creditor the amount of the debt; or

(b)to secure or compound for the amount of the debt to the creditors reasonable satisfaction.

4    The creditor may rely on a failure to comply with this demand within the period for compliance set out in subsection 459F(2) as grounds for an application to a court having jurisdiction under the corporations Law for the winding up of the company.

5 Section 459G of the Corporations Law provides that a company served with a demand may apply to a court having jurisdiction under the Corporations Law for an order setting the demand aside. An application must be made within 21 days after the demand is served and, within the same period:

(a)an affidavit supporting the application must be filed with the court; and

(b)a copy of the application and a copy of the affidavit must be served on the person who served the demand.

6    The address of the creditor for service of copies of any application and affidavit is c/- Toomey Maning & Co, Barristers and Solicitors, 30 Davey Street, Hobart, Tasmania.

SCHEDULE

Description of the debt  Amount of the debt

Balance sum under the Building Works Contract dated 7 December 1995 for execution and completion of certain works in respect of the project known as The Old Woolstore Development $573,121.00

Dated:  4 December 1997

Signed:

Print name:      John Cornelis Dingemanse        Capacity:         Managing Director

Corporation Name:       Laver Pty Ltd (ACN 009 558 258)"

The demand was supported by an affidavit by John Cornelis Dingemanse containing the following material:

"1   By an agreement (the Agreement) dated 7 December 1995 the debtor company agreed to pay in the manner provided in the Agreement the creditor for the execution and completion of certain building works in respect of the project known as The Old Woolstore Development.

2    By a letter dated 3 July 1997 from the debtor company to the creditor (a copy of which I annexed hereto and marked with the letter 'A') the debtor company acknowledged that the amount of One million two hundred thousand dollars ($1,200,000.00) was due and payable under the Agreement to the creditor before money was paid to the creditor from proceeds from settlements of the sales of apartments (the Sales Proceeds).

3    Up until today's date the amount received by the creditor from the Sales Proceeds totals Six hundred and twenty six thousand eight hundred and seventy nine dollars ($626,879.00) made up as follows-

Unit No	Date Received	Amount Received
101	13 June 1997	$     68,983.00
102	2 July 1997	61,093.00
103	9 September 1997	119,779.00
108	12 September 1997	59,254.00
109	19 September 1997	68,983.00
111	20 October 1997	68,983.00
202	2 July 1997	30,090.00
211	5 June 1997	77,750.00
312	5 June 1997	71,964.00
$  626,879.00

leaving the amount of Five hundred and seventy three thousand one hundred and twenty one dollars ($573,121.00) due and payable."

Annexure "A" to the affidavit was in the following terms:

"3 July 1997

Mr J Dingemanse
C/- Laver Pty Ltd
70 Browns Road

KINGSTON   TAS   7050     

Dear John

I have revisited the quantum of the outstanding amount before settlements of the apartments commenced and confirm that our agreement was and is that $1.2 million is outstanding.  Comprised in this amount is a figure for prolongation, acceleration and interest.

Best wishes

Yours sincerely

DON NEIL
DIRECTOR"

It was conceded by the applicant that this letter constitutes a clear acknowledgement that a sum of $1.2 million was owed by the applicant to the respondent.  It will be noted, however, that the document is silent as to how and when the nominated sum is to be paid.  In an affidavit sworn by Donald Alfred Neil on 24 December 1997 in support of the present application, the deponent disputed that the balance sum claimed by the respondent was "due and payable" at the date upon which the demand was issued and served.  In Re Elgar Heights Pty Ltd (No 1) (1985) 3 ACLC 671, Ormiston J expressed the view that the words "then due" in relation to a debt "require that the debt should not only be immediately payable but should be presently recoverable by action".

The Corporations Law, s459E(1) provides that a statutory demand may be served upon a company in respect of debts which are "due and payable" and s459G et seq deal with the procedure to be followed by any such company which seeks to avoid the potential consequences of failure to comply with the demand by having it set aside by the Court.  The Corporations Law, s459H deals with the way in which the Court is to resolve any dispute between the claiming creditor and the debtor company in circumstances where part only of the debt is admitted or the debtor company has an offsetting claim, and s459J deals with circumstances in which the statutory demand may be set aside. In effect, it is provided that if a "defect" in the demand will cause substantial injustice to the debtor, the demand may be set aside but in other circumstances a mere defect is not to bring about such a result. It also provides that a demand may be set aside if there is "some other reason" for doing so.

In Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 14 ACLC 1095 at 1099, Bryson J observed that:

"The inclusion with debts which were due of a claim for payment of debts which at the date of the Statutory Demand had not fallen due is in my opinion a defect in the Demand within the general meaning of 'defect'."

In the case before Bryson J, the statutory demand included claims for debts which were due and payable with debts which were not.  He therefore approached the matter before him by separating the two categories of debt and deciding whether or not to allow the demand to stand in respect of those debts which were admittedly due and payable or whether to set the demand aside in its entirety on the basis that substantial injustice would be caused unless this course were to be followed.  In approaching such questions the Court's role is analogous to that which it has when dealing with a creditor's application for summary judgment under the Rules of Court, O15 (see Rohalo Pharmaceutical Pty Ltd v R P Scherer SPA (1995) 13 ACLC 94).

It seems to me that if a statutory demand seeks payment of a sum of money as a debt and no part of the sum claimed is actually payable at the time at which the demand is made, the demand is more than "defective" in the sense in which that term is used in the legislation.  The demand must be a nullity and consequently void if it does not meet the statutory criterion of being a demand in respect of a debt which is "due and payable".  In such circumstances an order setting aside the demand in toto would be the only appropriate course, irrespective of the power conferred upon the court to make an order setting the demand aside for "some other reason" as provided in s459J(1)(b).

It seems to me that if a statutory demand seeks payment of a sum which is not then due and payable, it does not comply with s459E and is unenforceable. Alternatively it would obviously cause substantial injustice if the claimant were permitted to enforce any part of such a demand. It plainly must be set aside. If some part of the alleged debt is due and payable but the balance is genuinely disputed, the Court must determine the substantiated amount under s459H and, if no substantial justice will result, the statutory demand will remain in force in relation to the substantiated sum.

As Thomas J said in Re Morris Catering (Australia) Pty Limited (1993) 11 ACLC 919 at 922:

"Broadly speaking the Court is required to examine the claim, assess the undisputed parts of the debt that has been demanded, and deduct from it any offsetting claims of the debtor company.  If the result is $2,000 or more, the Court has a discretion to vary the demand and to declare the varied demand to have had effect from the time when the original demand was served.  It is possible to discern an intention that a company should pay the undisputed part of a demanded debt even if the demand may have been excessive, but that it should not be placed under pressure of being wound up with respect to any part of the debt that is genuinely disputed, or where there is any genuine contra-claim, whether or not it arises out of the same transaction as the debt to which the demand relates.  The courts are now required to play a part in ascertaining the level of disputed entitlement.
...

There is little doubt that Division 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)."

In Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37, after referring to Thomas J's judgment in re Morris Catering (Australia) Pty Limited (supra) and other reported decisions dealing with the same issue, Lockhart J said at 39:

"Certainly the court will not examine the merits of the dispute other than to see if there is in fact a genuine dispute.  The notion of a 'genuine dispute' in this context suggests to me that the court must be satisfied that there is a dispute that is not plainly vexatious or frivolous.  It must be satisfied that there is a claim that may have some substance.  On the other hand the court must be careful, because if all an applicant has to do is to assert both a claim and some basis for it, without more, it would mean in almost every case that the court would set aside statutory demands where application is made to that effect.  Plainly that is not what the legislature intended by introducing this new regime."

The nature and extent of the material which may be necessary to establish the existence of a genuine dispute was considered by Young J in John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716 at 718 where he said:

"There may be cases, and indeed it may be the majority of cases, where the court will look not only to an assertion of a dispute, but some sort of material short of proof which backs up the claim that is made that the amount is disputed.  It is clear that what is required in all cases is something between mere assertion and the proof that would be necessary in a court of law.  Something more than mere assertion is required because if that were not so then anyone could merely say it did not owe a debt.  

On the other hand, if proof of a claim was required then one would be doing the very thing that one is not to do, and that is to try this sort of dispute in the Companies Court.  What more than assertion is required is something that may differ from case to case.  In Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 13 ACSR 787; 12 ACLC 490 I indicated that so long as the claim is not fictitious or merely colourable and is genuinely believed to exist one can ordinarily take that as sufficient. That is something more than mere assertion. Even if the proposition in Jesseron (No 2) goes too far, as Mr Hutley submits, it would seem to me that in a sizeable construction case, where the contemporaneous correspondence between the parties shows that there is a disputing of the figures, then one can say, without looking at the figures, or without looking at the evidence that backs up the figures, that there is a genuine dispute between the company and the respondent about the amount of the debt.  A similar thing can be said about any offsetting claim."

See also First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939.

The respondent relied upon an affidavit by its managing director, John Cornelis Dingemanse, sworn 29 January 1998.  This affidavit contained a plethora of largely irrelevant material concerning the business and contractual relationship between the parties which, rather than clarifying the basis of the respondent's claim, tended to obscure it.  Neither Mr Neil nor Mr Dingemanse were cross-examined on their respective affidavits so there was no real opportunity to gain a better understanding of some of the dealings which had taken place between them.

All that can be said with certainty is that in December 1995 the applicant embarked upon a building development project known as The Old Woolstore Development in lower Macquarie Street, Hobart.  The respondent was to be the principal building contractor.  As the development proceeded, due no doubt to a stagnant real estate market or other factors, the units which were being constructed became difficult to sell.

In April 1997 after various disputes had arisen between the parties, the respondent wrote to the applicant in the following terms:

"3 April, 1997

Mr Don Neil
Manager Director
Orpin Pty Ltd
t/as Garrard Developments
8th Floor, 65 Murray Street

HOBART  TAS  7000

Dear Mr Neil

Re:     The Old Woolstore Redevelopment

As a result of the meeting held at our office on 3 April 1997 at which various means of paying Laver were canvassed, Laver proposes the following:

(a)  Orpin is to on or before the dates set out below pay to Laver the amount set alongside each date.

21 April 1997	$210,000.00
6 May 1997	$575,000.00
27 May 1997	$435,000.00

(b)  As security for these payments (subject to the consent of all of the first, second and third mortgages being obtained by Orpin) Orpin shall deliver to Laver the unencumbered Certificates of Title, together with an executed first mortgage with Laver as mortgagee in respect of each title, such that the total valuation of the units to which the titles relate is no less than $2,000,000.00.

(c)  The consent of the three mortgagees is to be advised in writing to Laver by no later than 12 noon on Tuesday 8 April 1997.

(d)  As the payments are received Laver shall return to Orpin such titles, together with a discharge or mortgage in respect of each such title, so that the amount then outstanding for payment to Laver shall be no more than two-thirds of the then total valuation of the units over which Laver holds mortgages.

(e)  On the amount secured from time to time by the mortgages Laver shall be entitled to receive interest at the rate of 10% nett from and including 1 April 1997.

(f)  Upon receipt by Laver of all of these payments (inclusive of interest)

(i)Laver shall provide to Orpin a bank guarantee in the amount of $195,000.00 as security for meeting any of its obligations under the defects liability provision in the Building Contract and

(ii)Laver and Orpin shall execute a deed of mutual release in respect of each other's obligations arising out of or in connection with the Building Contract.

If Orpin agrees to this proposal, would you please indicate its acceptance by signing and returning the attached copy of this letter.

Yours faithfully

LAVER PTY LTD

John Dingemanse
General Manager"

On 19 June 1997 this letter was followed by another in the following terms:

"19 June, 1997  LAVER

70 Browns Road
Kingston Tasmania 7050
PO Box 146
Kingston Tasmania 7051
Telephone: [phone]
Facsimile: [phone]
International Tel: [phone]

Mr Don Neil
Managing Director
Orpin Pty Ltd
8th Floor, 65 Murray Street

HOBART   7000

Dear Mr Neil

The Old Woolstore Redevelopment

I refer to our recent discussions concerning this matter.

I confirm that Orpin Pty Ltd acknowledges that, before the proceeds of any settlements had been paid to Laver Pty Ltd, Orpin Pty Ltd was indebted to Laver Pty Ltd in the Sum of $1.2M in respect of the Old Woolstore Redevelopment.

Laver Pty Ltd and Orpin Pty Ltd have agreed that the sum of $1.2M is to be paid from the first 15 settlements of unit sales.

Laver Pty Ltd intends to provide a copy of this letter to Tasmanian Trustees as an authority from Orpin Pty Ltd to Tasmanian Trustees to apply the proceeds of the first 15 settlements as indicated in this letter.  I confirm that you have agreed that this letter should be so used.

Please sign this letter where indicated on behalf of Orpin Pty Ltd to indicate your company's agreement with the terms set out in this letter.

Yours faithfully

LAVER PTY LTD

John Dingemanse
Managing Director

................................

Signed by DON NEIL for and on behalf of

ORPIN PTY LTD"

The applicant company responded to this letter as follows:

"20 June, 1997

Mr J Dingemanse
Managing Director
Laver Pty Ltd
70 Browns Road

KINGSTON   TAS   7050

Dear John

RE:  THE OLD WOOLSTORE

Thank you for your letter of 19th June.  I have subsequently had discussions with Scott Badilly and ask you to acknowledge that our debt to you is not via Tasmanian Trustees Limited but we have asked them to act as an 'honest broker' in distribution of the funds from the settlement so that you can be assured that the funds will come direct to you.  We ask that you lift the caveat each time that a settlement is due so that these matters can progress.

We also acknowledge that the debt may well be in excess of $1.1 million and have asked the architects Forward Viney Woollan to give us an update on the final figure; we also understand that we agreed to an amount in lieu of acceleration, in lieu of prolongation and in lieu of us having any further claims on you and vice versa.  This was before you sought to repudiate the contract.

We stand by our commitment to pay you out in full but we advise that Tasmanian Trustees Limited are not the company which is in debt to you; it is in fact ourselves.  We are fully conscious of our position and advise that our company is able to meet its obligations to you, as we are settling unconditional agreements.

Please ask Scott to sent a statement to Forward Viney Woollan (copy to me) so that we can all agree the final amount or agree that it was rounded off.

Best Wishes

Yours sincerely

DON NEIL
DIRECTOR"

Following this the applicant sent to the respondent the letter of 3 July 1997 which was annexed to the affidavit in support of the statutory demand and which has already been reproduced above.

Counsel for the respondent submitted that there was no evidence of a concluded agreement between the parties providing for payment of the acknowledged debt of $1.2 million by instalments and, even if there was such agreement, it was not supported by good consideration and therefore could not stand in the way of the legitimate claim made by the statutory demand.

I cannot accept either of these submissions.  The criticisms made of the applicant's affidavit in support of the present application, which were made by counsel for the respondent, can equally be made of the respondent's affidavit in support of the statutory demand.  I am not satisfied that that affidavit discloses that there was any debt then "due and payable" by the applicant to the respondent.  In itself that is a sufficient reason to set the statutory demand aside.  But it is also appropriate to observe that such additional material as has been placed before me for the purpose of the present application tends to support the conclusion that the negotiations between the parties as a consequence of which the sum of $1.2 million was agreed as the quantum of the applicant's liability to the respondent, also implicitly agreed that such sum was to be payable from the proceeds of unit sales at unspecified future dates.  Up to and including the date of the statutory demand, it appears that the applicant had made instalment payments in accordance with this agreement.  The whole course of dealing between the parties suggests that the agreement, both as to the capital sum of $1.2 million and its method of payment, was a compromise arrangement entered into for the mutual benefit of both parties and did not simply consist of a gratuitous indulgence extended by the respondent to an impecunious debtor in respect of a pre-existing overdue debt.

I would therefore regard this as a case where there is a genuine dispute as to whether or not the debt is presently due and payable and, furthermore, I am also satisfied that a substantial injustice would be occasioned to the applicant if the statutory demand were not set aside.

In my opinion, the application should be granted and the statutory demand dated 9 December 1997 should be set aside.

I so order.