Quantum Filtration Medium Pty Ltd v McCourt - [2003] WASC 31

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: QUANTUM FILTRATION MEDIUM PTY LTD -v- McCOURT [2003] WASC 31

CORAM: MASTER SANDERSON

HEARD: 25 FEBRUARY 2003

DELIVERED : 6 MARCH 2003

FILE NO/S: COR 29 of 2003

MATTER :Section 459G of the Corporations Law of Western Australia

BETWEEN: QUANTUM FILTRATION MEDIUM PTY LTD (ACN 099 362 026)
Plaintiff
AND
DANIEL PATRICK McCOURT
Defendant

Catchwords:

Corporations Act - Application to set aside statutory demand on grounds of a defect in the demand - Turns on own facts

Legislation:

Corporations Act, s 459G, s 459J(1)

Result:

Demand set aside

Category: B

Representation:

Counsel:

Plaintiff: Mr B D Duckham
Defendant: Mr K L Christensen

Solicitors:

Plaintiff: B W Duckham & Co
Defendant: Tottle Christensen

Case(s) referred to in judgment(s):

Eastern Metropolitan Regional Council v Four Seasons Constructions Pty Ltd [2001] WASCA 299; (2002) 20 ACLC 352.
Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 14 ACLC 1095.

Case(s) also cited:

Australian Information Technology Pty Ltd v Prior Art Pty Ltd (1959) 16 ACSR 342
Grey Winter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) FCR 452
Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 368
Re Leac Engineering Pty Ltd (1991) 10 ACSR 357
Spencer Construction v G & M Aldridge Pty Ltd (1997) 76 FCR 452

MASTER SANDERSON: This is the plaintiff's application to set aside a statutory demand. The application is made under s 459G of the Corporations Law. It was the plaintiff's case that it was entitled to an order setting aside the demand pursuant to s 459J(1) because there was a defect in the demand and also under s 459H(1)(a) that there was a genuine dispute about the debt.
It is convenient to deal first with s 459J. The section is in the following terms:
"(1)On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
(a)because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b)there is some other reason why the demand should be set aside.
(2)Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect."
A copy of the statutory demand and the accompanying affidavit is to be found as exhibit "MRC1" to the affidavit of Marten Ralph Currie sworn 31 January 2003 and filed in support of the application. The plaintiff's complaint relates to the affidavit accompanying the statutory demand. Leaving out the heading and the jurat, matters about which there is no complaint, I will quote the affidavit in full. It reads as follows:
"I, DANIEL PATRICK McCOURT of 1 Milbrook Road, Yallingup in the State of Western Australia, Businessman, being duly sworn make oath and say as follows:
1.I am the Creditor herein.
2.The debt of $18,000 referred to in the statutory demand is due and payable by the Debtor.
3.I believe there is no genuine dispute about the existence or amount of the debt."
The plaintiff says that this affidavit does not comply with the requirements of O 81G r 31 and Form 7 of the Corporations Rules. Because of the defect in the demand the plaintiff says a substantial injustice will be caused unless the demand is set aside. In making this submission counsel relies squarely on the decision of the Full Court of this Court in Eastern Metropolitan Regional Council v Four Seasons Constructions Pty Ltd [2001] WASCA 299; (2002) 20 ACLC 352. Before dealing with that case I should outline the requirements of r 31 and how the defendant's affidavit differed from Form 7.
Rule 31 is in the following terms:
"For the purposes of section 459E(3) of the Law, the affidavit accompanying a statutory demand relating to a debt, or debts, owed by a company must -
(a)be in accordance with Form 7 and state the matters mentioned in that form;
(b)be made by the creditor or by a person with the authority of the creditor or creditors; and
(c)not state a proceeding number, or refer to a Court proceeding, in any heading or title to the affidavit."
Form 7 requires the deponent to the affidavit accompanying a statutory demand to deal with a number of matters. Paragraph 1 of Form 7 requires the deponent to state:
(1)his or her relationship to the creditor;
(2)the amount of the debt;
(3)the name of the debtor company;
(4)the nature of the debt or debts, ensuring that the amount stated corresponds with the description of the debt to be given in the proposed statutory demand.
Paragraph 2 of Form 7 requires the deponent, if he or she is not the creditor, to state the facts entitling the deponent to make the affidavit. For present purposes this paragraph is not relevant.
Paragraph 3 requires the deponent to state the source of the deponent's knowledge of the matters stated in the affidavit in relation to the debt. This is a matter of some importance and I will deal with the requirements of this paragraph further below.
Paragraph 4 requires the deponent to state that the amounts of the debts referred to in par 1 of the affidavit is due and payable by the debtor company.
Paragraph 5 requires the deponent to state that he or she believes that there is no genuine dispute about the existence or the amount of the debt.
The fact that r 31 is expressed in mandatory terms - the affidavit "must" be in accordance with Form 7 and state the matters mentioned in that form. There is no mystery as to why that should be so. A party serving a statutory demand is setting in chain a process which may eventually lead to the winding up of a corporation. As part of that process, there will arise a presumption of insolvency if there is no compliance with the demand and no application is made within 21 days to set it aside. If a company is to be presumed insolvent based upon the service of a statutory demand, it is incumbent upon a deponent swearing an affidavit verifying that demand to ensure that the debt is in fact owed and that there is no genuine dispute in relation to that debt. If a deponent is to comply with the requirements of the Rules, he or she must make proper enquiry. They must establish the amount of the debt, the circumstances in which it arose and they must satisfy themselves that there is no genuine dispute. That is the safeguard a court requires when a party seeks to avail themselves of the statutory demand regime. The requirements of the Rules are both sensible and reasonable and designed to ensure that a statutory demand is not issued in a cavalier fashion, or without due care and attention. In Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 14 ACLC 1095, Bryson J considered the requirements of the New South Wales Supreme Court Rules and the Federal Court Rules in relation to an affidavit verifying a statutory demand and the inter‑relationship of these Rules with s 459J. Her Honour said (at 1105):
"I see a clear distinction between a defect in a demand as a ground for setting aside the demand, and a defect in an affidavit purportedly verifying the demand as a ground for setting aside the demand. An affidavit which is incorrect has a different and higher order of importance to a demand which is incorrect. There are some deficiencies in procedure which the Court should not allow to be successful, whether or not they have any high practical significance in terms of the justice between the parties in the instant case. Echoing expressions of Senior Master Mahoney in Scandon at ACLC page 1260 - 1261 it seems to me that the opportunity ought to exist for the Court to register clearly and appropriately the importance of the requirement of verification of demands. I cannot see the requirement of verification and the responsibilities in relation to it which fall both on the officer swearing the verification and on the creditor as no more than another form to fill in, errors in which the debtor can have put right on application to the Court."
The Eastern Metropolitancase is a decision along similar lines. The Court held that a mere statement to the effect that, to the knowledge of the deponent, a debt was due and payable without reference to any source from which that knowledge was derived, was not sufficient. Miller J put the position as follows (at [31]):
"The appellant argues that the Master was wrong to conclude that the affidavit provided no indication as to how the deponent was aware that the debt was due and payable. Counsel for the appellant points out that the deponent is the Chief Executive Officer of the appellant who has deposed to the fact that he is authorised to make the affidavit and to his knowledge, the debt is due and payable by the respondent to the appellant and payable pursuant to an agreement made on 2 December 1997 relating to the Red Hill Land Fill Facility. This, counsel submits, is substantial compliance with the requirements of O 81G r 31. However, I do not agree. I consider the Master to have correctly concluded that the deponent to the affidavit failed to indicate how he was aware that the debt was due and payable. That is a very important matter in the scheme of statutory demands and it would be quite unfair to their recipients not to insist upon observance of it. What is contained within the affidavit is a mere statement that, to the knowledge of the deponent, the amount is due and payable. No reference is made to any source from which that knowledge is derived."
That is the position in this case. Mr McCourt says that he is the creditor. He does not give any explanation as to the nature of the debt or how it arose. In other words, the deponent has not complied with the requirements of par 1 of Form 7. Nor has he complied with the requirements of par 3 of Form 7. There is no indication of the basis upon which he says the $18,000 is owing. It is not clear whether he has checked his records, whether he was personally responsible for paying over the funds - nothing at all is said about the basis of his belief. That being so, there must be some doubt as to whether or not he has properly turned his mind to the issue of whether there is a genuine dispute about the existence of the debt. In other words, there must be some question about the veracity of what is said in par 3 of Mr McCourt's affidavit.
The question then is whether substantial injustice will be caused unless the demand is set aside - in other words, are the requirements of s 459J(1)(a) satisfied. In my view they are. A substantial injustice is rendered when a demand is served with an affidavit which fails to comply with the Rules. It is not just a matter of a slip or a clerical error. It is a matter of the deponent not complying with the requirements of the regime. That, in my view, results in a substantial injustice to a party who receives a statutory demand.
In my view, the demand ought be set aside under s 459J(1)(a). The defendant ought pay the plaintiff's costs of the application, including any reserved costs.