Tablecloths.com.au Pty Ltd v Forbes (Aust) Pty Ltd

[2005] NSWSC 1343

CITATION:	Tablecloths.com.au Pty Ltd v Forbes (Aust) Pty Ltd [2005] NSWSC 1343
HEARING DATE(S):	16 December 2005
JUDGMENT DATE :	16 December 2005
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	Statutory demand set aside.

CATCHWORDS:	CORPORATIONS – STATUTORY DEMAND – DEFECT – Whether misdescription of basis of alleged debt in statutory demand caused substantial injustice. - DISPUTE – Whether genuine dispute demonstrated.
LEGISLATION CITED:	Corporations Act 2001 (Cth) – s.9, s.459G, s.459J
CASES CITED:	Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 21 ACSR 581
PARTIES:	Tablecloths.com.au Pty Ltd – Plaintiff Forbes (Aust) Pty Ltd - Defendant
FILE NUMBER(S):	SC 4934/05
COUNSEL:	A. Cheshire – Plaintiff R. Tregenza – Defendant
SOLICITORS:	Morgan Lewis Attorneys – Plaintiff Owen Hodge Lawyers – Defendant

LOWER COURT JURISDICTION:

Ex tempore

1 This is an application under s.459G of the Corporations Act 2001 (Cth) to set aside a statutory demand dated 22 August 2005 served on the Plaintiff on or about that day. The Plaintiff alleges that there is a genuine dispute as to the existence of the whole debt. 2 There is no dispute that the Plaintiff's Originating Process and the affidavit in support has been served within time. 3 The statutory demand claims payment of an amount of $134,190, being "balance outstanding of judgment obtained in the Magistrate Court (Civil Division) of South Australia" . Mr Tregenza of Counsel, who appears for the Defendant, now informs the Court that, as far as he is aware, there is no such judgment of the South Australian Court. 4 The debt is founded upon a contract dated 16 February 2005 between the Plaintiff and the Defendant whereby the Defendant agreed to supply a boiler to the Plaintiff. The total contract price, including GST, shown in the contract is $143,000. Mr Tregenza informs the Court that he is not able to say on what basis the amount shown in the statutory demand, namely $134,190, is calculated. There is no invoice in evidence from the Defendant to the Plaintiff claiming that amount or, indeed, any amount. 5 The Plaintiff says that the debt alleged by the Defendant, upon whatever basis it is claimed to be owing, is in fact not owing. It says that shortly after the boiler was installed, it began to malfunction and there were various defects. It says that the debt is not owing unless and until the boiler is put into proper condition to perform the functions for which it is required. 6 The complaints of the Plaintiff are set out in certain correspondence to which I will come shortly. The first question, however, is whether the statutory demand contains a defect which should occasion the setting aside of the demand by reason that the defect will cause substantial injustice within the meaning and scope of CA s.459J. “Defect” for the purposes of that section is defined 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.”
7    Mr Tregenza submits that although the statutory demand contains a defect in that it misdescribes the nature of the debt claimed, nevertheless the defect has not caused substantial injustice because the Plaintiff knows exactly the basis of the Defendant's claim and has disputed the claim in its affidavits in support of this application. 8    It is pertinent to note that when the Plaintiff’s director, Mr Skettos, swore in a second affidavit that the Plaintiff had not received any invoices for the boiler, objection was taken by Mr Tregenza on the basis that that ground of opposition to the debt had not appeared in his first affidavit, which was filed within time. I gather that the objection was that the inclusion of that statement in Mr Skettos' affidavit offended against what has now come to be known as the Graywinter principle ( Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 21 ACSR 581). 9 It may well be that the statement that the Plaintiff had not received any invoices for the boiler is a ground of opposition which does not sufficiently appear within Mr Skettos' first affidavit. However, the statutory demand which the Plaintiff was opposing did not rely upon any invoices but upon an alleged judgment debt. The Plaintiff, in its first affidavit, disputed the debt on the basis that it was aware of no such proceedings in the South Australian Court and would move to set aside the judgment debt. 10 If the statutory demand had referred to the basis of the Defendant's claim as being, not a judgment debt, but some invoice or demand setting out the amount now said to be owing, the Plaintiff may have been able to deal specifically with that demand or invoice. However, the Plaintiff is precluded from raising absence of demand by reason of the erroneous reference to the basis of the Defendant's claim as being a judgment debt. 11 If a ground of dispute, being the absence of any invoice or demand for the claimed amount, is excluded from the Plaintiff's case now by operation of the Graywinter principle, in my opinion it would be an injustice for the Defendant to rely upon its misdescription of the debt in the statutory demand in order to take advantage of that exclusion. I am not satisfied that substantial injustice would not be caused by the defect in the notice of demand, as I have described. 12 However, I would not rely upon a defect within the meaning of s.459J as the principal ground upon which the Defendant's statutory demand is to be set aside. As Mr Tregenza says, whether or not there is a defect in the statutory demand, the Plaintiff did realise what the subject matter of dispute was when the demand was served and did deal with the substance of the dispute. The question is whether the Plaintiff has demonstrated sufficiently that there is a genuine dispute as to the existence of the debt. 13 In my opinion, the Plaintiff has demonstrated the existence of a genuine dispute. It is true that the affidavit of Mr Skettos in support of the Originating Process is somewhat brief. He does not elaborate in any detail in the affidavit itself the various grounds of complaint about the operation of the boiler. However, the affidavit annexes correspondence between the parties which, in my view, sufficiently demonstrates what the Plaintiff's complaint has been since soon after the installation of the machine. 14 In a letter dated 15 August 2005, the Plaintiff sets out eleven points of complaint. In conclusion, the Plaintiff says that it is not satisfied with the boiler and wishes to appoint an independent expert to assess the construction of the boiler to ensure that it meets with specifications. The Plaintiff says that its satisfaction with the operation of the machine is a major concern to it and a complaint is made that previous communications between the Plaintiff and the Defendant with regard to the performance of the machine have not produced any satisfaction for the Plaintiff. 15 The Plaintiff sent a further letter on 22 August 2005 complaining about the lack of a response from the Defendant to its complaints about the machine. I should note that the chain of correspondence from the Plaintiff to the Defendant complaining about the working of the machine goes back to 16 June 2005, as far as the evidence presently shows, and that the Defendant has on a number of occasions responded, noting concerns with the product on delivery and offering rectification. 16 It appears from the correspondence between the parties that the Defendant has acknowledged some concerns. The Plaintiff is dissatisfied with the Defendant's response. The Plaintiff has stated repeatedly that it is not satisfied with the performance of the machine. It is in that circumstance that the statutory demand was issued claiming an amount of $134,190. In this regard it is pertinent to note that on 3 August 2005 the Defendant sent a facsimile to the Plaintiff claiming an amount of $128,700 remaining as outstanding for the supply of the machine. 17 Mr Tregenza points to a certificate of inspection procured by the Defendant and dated 13 July 2005 as evidence of the fact that the boiler was in all respects satisfactory. However, I note that the certificate is as to the state of the machine on 13 July 2005 and that the correspondence from the Plaintiff to the Defendant complaining about the performance occurs not only before, but after that date as well. Clearly, the certificate of inspection is a document which the Plaintiff would wish to challenge on a trial of the Defendant's action for debt. 18 When the statutory demand was served, the Plaintiff's solicitors wrote to the Defendant's solicitors on 1 September 2005 advising of the existence of the dispute and summarising the essence of that dispute as a contention by the Plaintiff that the balance of the contract price for the boiler would only be payable,
“… upon commission of the boiler and that has not yet occurred due to a number of faults and defects that your client has to date failed to rectify.”
19    While Mr Tregenza takes exception to the use of the words "commission of the boiler" in that letter as a legitimate cause of complaint, I think that the letter fairly summarises the essence of the dispute between the parties as it had emerged from the correspondence between them. The Plaintiff's solicitors’ letter requires that the statutory demand be withdrawn, failing which proceedings would be commenced under s.459G. 20 It seems to me that the existence of a dispute has been demonstrated with sufficient particularity. The issue is whether or not the machine operates in accordance with its specifications and whether or not the Defendant has taken steps to rectifying such defects as there are, if there be any, so that it is entitled to full payment of the balance of the contract price. 21 Principally upon the basis that a genuine dispute has been demonstrated, I order that the statutory demand served by the Defendant be set aside. 22 The Plaintiff seeks costs of this application on an indemnity basis. 23 In the usual course, when a genuine dispute is demonstrated by a plaintiff so that a statutory demand is set aside, costs are not awarded on the indemnity basis. This is because the alleged creditor, when met with the contention that there is a dispute as to the debt, is entitled to avail itself of the statutory machinery for the resolution of the matter. The creditor may serve a statutory demand and put the alleged debtor to the test of proving to the Court's satisfaction with sufficient particularity that the dispute which the alleged debtor says exists is, indeed, a genuine one. Accordingly, if no more than that appears at the end of the day and what has happened is that the Plaintiff has succeeded in proving that the dispute is a genuine one, costs will follow the event but the Defendant is not penalised by an indemnity costs order for invoking the machinery which the Corporations Act has provided to secure payment of debts not genuinely disputed. As I say, that is the usual course of events. 24 There must be something more appearing in the conduct of the case before the Court will order indemnity costs against an unsuccessful defendant in an application under s.459G. In the present case, Mr Cheshire, who appears for the Plaintiff, says that something additional is indeed present, namely, the erroneous assertion by the Defendant in the statutory demand that the basis for the alleged debt was a judgment obtained in the South Australian Magistrate's Court. 25 Mr Tregenza, on the other hand, says that whether or not the statutory demand was erroneous in its description as to the basis of the debt, the Plaintiff realised the substance of the claim against it and met that substance in its affidavits by giving particulars as to the dispute concerning the sales contract. 26 It appears to me that a considerable amount of the Plaintiff's effort in dealing with this matter has been concerned with the establishment of whether or not there was a judgment debt. I accept that the Plaintiff made inquiries from the Defendant seeking particulars of the alleged judgment and that those enquiries were not satisfied until today. 27 The Plaintiff has prepared a case largely to contend with the allegation that the statutory demand is founded upon a judgment debt. Those costs and expenses have been unnecessarily incurred in the light of the concession which Mr Tregenza made this morning. 28 This seems to me to be a case that goes beyond the usual circumstances, such as to require an indemnity costs order. There is something gravely wrong in an alleged creditor serving a statutory demand on the basis of an asserted judgment debt and then, when inquiry is made about the existence of the judgment, failing to concede at the earliest opportunity that there is no judgment and that the statutory demand is wrong. The Defendant should have answered directly the Plaintiff's inquiries at the earliest opportunity and should have faced whatever consequences flowed therefrom, instead of reserving its position to make a concession on the morning of the hearing. I think that unnecessary costs have been incurred by reason of the Defendant's conduct and I think that in all the circumstances an indemnity costs order is the appropriate order to make. 29 The order of the Court is that the statutory demand served by the Defendant dated 22 August 2005 is set aside. The Defendant will pay the Plaintiff's costs of the application on an indemnity basis.

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