Vehicle Wash Systems Pty Ltd v Mark VII Equipment Inc

[1997] FCA 1473

FEDERAL COURT OF AUSTRALIA

CORPORATIONS - application to set aside statutory demand - whether obligation to pay amount in foreign currency is a debt - whether a demand can be stated in a foreign currency - whether a demand must nominate a place for payment - whether an overstatement of a debt is a defect in a demand - whether a defective verifying affidavit will result in a demand being set aside - genuine dispute

Corporations Law ss 459E, 459G, 459H(1)(a), 459J(1)(a), (b), 459J(2)
Corporations Regulations 1.03(1)
Federal Court Rules O71 r36AB

B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433 mentioned
Bando Trading Co Ltd v Registrar of Textiles [1975] VR 353 mentioned
Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24 mentioned
Bryant v Foot [1868] 3 QB 497 mentioned
Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 applied
Delta Beta Pty Ltd v Vissers (1996) 20 ACSR 583 mentioned
In re Dynamics Corporation of America (in liquidation) [1976] 1 WLR 757 mentioned
In re London & Paris Banking Corporation (1874) 19 Eq 444 mentioned
In re Pen-y-van Colliery Company (1877) 6 Ch D 477 mentioned
In re Richardson [1920] SASR 25 mentioned
International Factors (Singapore) Pty Ltd v Speedy Tyres Pty Ltd [1991] 5 ACSR 250 distinguished
Jarpab Pty Ltd v Winter (1994) 14 ACSR 255 mentioned
Jolly v Mainka (1933) 49 CLR 242 considered
JSW Parts Pty Ltd v Dacaro Pty Ltd (unreported, Finkelstein J, 11 August 1997) applied
Marrache v Ashton [1943] AC 311 mentioned
Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ASCR 362 applied
Miliangos v Frank (Textiles) Ltd [1976] AC 443 discussed
Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746 discussed
Re Ikin & Ors; Ex parte Same & Lamborghini Tractors of Australia Pty Ltd [1985] 4 FCR 582 applied
Re North Bucks Furniture Depositories Ltd [1939] 2 All ER 549 mentioned
Re Community Development Pty Ltd [1969] Qd R 1 mentioned
Re United Club and Hotel Co (1899) 60 LT 665 mentioned
Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 147 ALR 44 applied
The Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 20 ACSR 108 mentioned
Tomlinson v First Pennsylvania Banking and Trust Co [1961] AC 1007 mentioned
Topfelt Pty Ltd v State Bank of NSW Ltd (1993) 47 FCR 226 applied
Vishipco Line & Ors v The Chase Manhattan Bank N.A. (1985) 754 F 2d 452 considered

VEHICLE WASH SYSTEMS PTY LTD v MARK VII EQUIPMENT INC
VG 3083 of 1997

FINKELSTEIN J
MELBOURNE
19 DECEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 3083 of 1997

BETWEEN:             VEHICLE WASH SYSTEMS PTY LTD
  Applicant

AND:  MARK VII EQUIPMENT INC.
  Respondent

JUDGE:	FINKELSTEIN J
DATE OF ORDER:	19 DECEMBER 1997
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The application be dismissed.

2. The applicant to pay the respondent’s costs of the application.

Note: Settlement and entry of orders are dealt with in Order 36 of the Federal Court Rules

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 3083 of 1997

BETWEEN:	VEHICLE WASH SYSTEMS PTY LTD Applicant
AND:	MARK VII EQUIPMENT INC Respondent
JUDGE:	FINKELSTEIN J
DATE:	19 DECEMBER 1997
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

HIS HONOUR: This is an application to set aside a statutory demand served by the respondent (Mark VII) on the applicant (Vehicle Wash) on 7 March 1997.  If the demand is not set aside Mark VII will be entitled to move to have Vehicle Wash wound up in insolvency and rely on the demand to establish that insolvency.

More often than not little that is of interest is raised by this type of application.  No substantive controversy is resolved by the Court although matters of practice and procedure are sometimes settled.  However, this case does involve one or two points which are of some importance.

The first enactment regulating the winding-up of companies was 7 & 8 Vict. c 111 which came into force on 5 September 1844.  Its long title was “An Act for facilitating the winding-up of the Affairs of Joint Stock Companies unable to meet their pecuniary Engagements”.  The principal purpose of the enactment was to enable a creditor to petition to wind up a joint stock company although it also provided for the voluntary winding-up of a company in insolvency. There were three circumstances in which a creditor could petition for the court to wind up a company.  They were the non-payment of a judgment recovered for a debt or money demand (s 5), the failure to comply with an order of a court of equity to pay a sum of money (s 6), and, in the case where the creditor had sued out a writ of summons seeking to recover a debt, where the company did not within one month of the service of the summons pay, secure or compound that debt (s 7).  By the time of 25 & 26 Vict. c 89 (the Companies Act 1862) a company could be wound up whenever it was unable to pay its debts (s 79) on the petition of a creditor, a contributory or by the company itself (s 82).  The 1862 Act set out circumstances in which a company would be deemed unable to pay its debts: see s 80.  One circumstance was where a creditor to whom the company was indebted, at law or in equity, in a sum exceeding £50, had served a demand for the payment of that debt and the company had failed to pay or to secure or compound that debt to the reasonable satisfaction of the creditor.  This demand soon came to be called a “statutory notice”: see eg. In re London & Paris Banking Corporation (1874) 19 Eq 444. 

The 1862 Act did not define the creditor who could petition to wind up a company.  The early cases limited the class to a person to whom the company owed a debt in law or in equity provided the debt was presently payable.  Thus a person could not petition to wind up a company if he was owed a future debt or if he was a prospective or contingent creditor:  see Palmer’s Company Precedents (8th ed) at 51-52; Re United Club and Hotel Co (1899) 60 LT 665. Further a person who had a claim for unliquidated damages was not regarded as a creditor who could petition to wind up a company: In re Pen-y-van Colliery Company (1877) 6 Ch D 477. Later the meaning of creditor was extended to include any person who had a right to prove in the winding up of a company: Re North Bucks Furniture Depositories Ltd [1939] 2 All ER 549 at 551; Re Community Development Pty Ltd [1969] Qd R 1 at 6; Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24 at 33; but compare The Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 20 ACSR 108 at 117-119. However, such a creditor was required to provide actual proof that the company was insolvent, the statutory notice procedure only being available to a person to whom the company owed a debt.

The Australian colonies and then the Australian states modelled their respective Companies Acts on the English statute and each contained a provision permitting a creditor to petition to wind up a company on the basis that it was unable to pay its debts:  see for example s 132(1) of the Companies Act 1874 (NSW).  The Australian statutes also provided for the service of a statutory notice as a means of establishing that a company was unable to pay its debts. This remained the position until the amendments to the Corporations Law brought about by the Corporate Law Reform Act 1992 which came into effect on 23 June 1993.  One of the changes that was effected by that Act was the repeal of the statutory notice provisions and their replacement with a new procedure to establish the insolvency of a company. Now a creditor can serve a statutory demand on a company in respect of a debt owed to the creditor:
s 459E(1). The demand must specify the debt that is due to the creditor and require the company to pay, secure or compound that debt within 21 days: s 459E(2). If the demand is not complied with within the period for compliance (as to which see s 459F(2)) the company will be presumed to be insolvent (s 459C(2)(a)) and may be wound up on an application by the creditor under s 459B (see s 459A) unless the statutory demand is set aside in an application under s 459G.

The grounds upon which a statutory demand may be set aside are as follows:  if there is a genuine dispute about the existence of the debt (s 459H(1)(a)); if the company has an offsetting claim (as defined) s 459H(1)(b)); if there is a defect in the demand and substantial injustice will be caused if the demand is not set aside (s 459J(1)(a)); if there is some other reason why the demand should be set aside (s 459J(1)(b)).

Mark VII is a company established in Colorado in the United States of America.  It manufactures equipment for use in car washes.  Headly Pty Ltd (Headly) is one of a number of companies controlled by one John Ould.  In February 1995 Mark VII entered into an agreement with Headly in pursuance of which Headly was entitled to purchase and distribute products manufactured by Mark VII.  In mid 1995 Mr Ould reorganised the activities conducted by the companies under his control.  On 7 August 1995, in a letter written on Vehicle Wash letterhead, Mr Ould informed Mark VII of this reorganisation.  He wrote that “[i]n order to broaden the scope of our group’s activities to include the full range of vehicle washing systems including tunnel bar commercial wash business and the services listed in the margin, we have restructured the group.  Vehicle Wash Systems P/L will now carry on the sales operations of Mark VII Equipment Australia.”  In an accompanying letter, also on Vehicle Wash letterhead, Mr Ould explained the manner in which Vehicle Wash had been organised so as to distribute Mark VII equipment.  The letter mentioned the staff that had been employed by Vehicle Wash one of whom was Stuart Barragh, the General Sales Manager.

Subsequent to this correspondence orders for the purchase of Mark VII equipment were placed in the following way.  A facsimile transmission was sent to Mark VII describing the goods that were to be purchased.  The transmission was on the letterhead of Vehicle Wash or Mark VII Equipment Australia which appears to be a trading name.  Most transmissions were sent by Mr Barragh and some were sent by Marshall McDonald.  An “Official Order” form was sent with each transmission.  The order form was headed “Car Wash Services Pty Ltd” and described that company as “ATF Vortex Unit Trust T/as Mark VII Equipment Australia”.  The order form either listed the goods that were to be purchased or referred to the goods that were set out in the facsimile transmission.  Car Wash Services Pty Ltd (Car Wash) is another company that was under the control of Mr Ould.  The manner in which Mark VII accepted an order was by despatching the goods to Vehicle Wash in Australia.  It then raised an invoice for the goods in the name of Vehicle Wash and posted that invoice to Vehicle Wash.  The price of the goods was expressed in US dollars.

Between June 1995 and May 1996 Mark VII delivered to Vehicle Wash goods to the value of US$72,370.61 but received no payment for those goods.  The debt due to Mark VII was the subject of correspondence between Vehicle Wash and Mark VII.  For example, on 26 February 1996 Mr Ould, on Vehicle Wash letterhead, wrote to Mark VII requesting that Mark VII allow certain credits to be offset against the total amount of the debt:  The letter described the credits that were sought and continued “as soon as we finalise some of these old legacies we will be back to trading terms, in the interim I would thank you for your support and remind you that in the past out account was substantially in credit, to your advantage”.  Again, on 20 July 1996 Mr Ould wrote to Mark VII on Vehicle Wash letterhead.  In that letter he referred to future orders for goods that he intended to place with Mark VII and then turned to the outstanding debt.  In relation to this Mr Ould wrote “we agree with you (and always have) that we owe you approximately $40,000 for parts supplied after allowing for the warranty, freight and water damage claims.”  He then set out a proposal for the repayment of the debt, the details of which are immaterial.  Then in another letter dated 25 July 1996 Mr Ould wrote “[l]et us both forget this unfortunate misunderstanding and press on to our mutual goals of jointly making Mark VII Equipment number one in Australia through the efforts of yourselves and Vehicle Wash Systems P/L.”

Despite the assertion that payment for the goods would be made Mark VII did not receive any payment. Accordingly, on 7 March 1997 Mark VII served on Vehicle Wash what purports to be a statutory demand under s 459E(1). By that demand Mark VII alleges that Vehicle Wash is indebted to it in “the amount of USD36,943.38 being the total of the amounts described in the schedule” to the demand. In the schedule it is stated that Vehicle Wash is indebted to Mark VII in the sum of USD72,370.61 for spare parts ordered between 29 June 1995 to 10 May 1996 less USD35.427.23 being the costs incurred by Vehicle Wash as a result of damage incurred to parts and equipment during transit and which Vehicle Wash alleges should be deducted from the debts.

Vehicle Wash applies to have this demand set aside.  It relies on each available ground for the setting aside of a statutory demand other than that it has an offsetting claim.  Before I deal with these grounds there is one aspect of the demand to which attention should be drawn.  It arises from the apparently undisputed fact that the obligation to pay for the goods sold by Mark VII is an obligation that must be satisfied by a payment in US dollars.  There is nothing unusual about the assumption of an obligation to pay a sum of money in a foreign currency.  No doubt such obligations are assumed every day.  However, a question that arises is whether a person who is owed an amount in a foreign currency is able to make use of the statutory demand procedure.

Section 459E permits a statutory demand to be served in relation to “a single debt” or “two or more debts” and provides that the demand must require the company to pay the amount of the debt or the total amounts of the debts, or to secure or compound for that amount or total to the creditor’s reasonable satisfaction. The demand served by Mark VII proceeds on the assumption that an obligation to pay a sum of money in a foreign currency is an obligation to pay a debt. But that assumption is not necessarily correct. In Australia it has been held that an obligation to pay an amount in a foreign currency does not create a debt. The principle was stated by Dixon J in Jolly v Mainka (1933) 49 CLR 242 at 260 as follows:

“But, if the obligation undertaken was to pay or deliver foreign money or coins in use as money, not being lawful money of the kingdom, no debt was created.  An action for their recovery lay, but it was necessary to bring it in the detinet and not in the debet and detinet;  that is, it was in the nature of detinue and not of debt proper.  Further, it appears to have been considered that the obligation could not be discharged except according to its tenor”.

In other words, an action for a failure to pay a sum of money due in a foreign currency is an action for damages for breach of contract for the failure to pay that currency: see also Bando Trading Co Ltd v Registrar of Textiles [1975] VR 353; Marrache v Ashton [1943] AC 311 at 317; Tomlinson v First Pennsylvania Banking and Trust Co [1961] AC 1007 at 1044, 1051-2 and 1069. In the United States it has been said that in an action “brought to recover sums expressed in foreign money the obligation - whether characterized as an unpaid debt or a breach of contract - is treated as a promise to deliver a commodity”: see Vishipco Line & Ors v The Chase Manhattan Bank N.A. (1985) 754 F 2d 452, a decision of the United States Court of Appeals for the Second Circuit.

The position may now be different in the United Kingdom.  In 1976 the House of Lords handed down its decision in Miliangos v Frank (Textiles) Ltd [1976] AC 443. In that case the House of Lords decided, contrary to earlier authority, than an English court was entitled to give judgment for a sum of money expressed in a foreign currency at least in the case where the proper law of the contract which gave rise to the obligation to pay the foreign currency was that of the foreign country. Lord Wilberforce who delivered the leading speech based his decision on the proposition that the court had power to order delivery in specie whenever damages were an inadequate remedy and an order for the delivery in specie of foreign currency could be made: [1976] AC at 463. The other members of the House, apart from Lord Simon who was in dissent, also accepted that a judgment could be given in a foreign currency substantially for the reasons given by Lord Wilberforce. Miliangos has been taken to have decided that an action to recover a judgment in a foreign denomination is an action in debt: see Mann, “The Legal Aspects of Money” (5th ed) at 196-199. This is not what the House of Lords decided in my opinion. On the contrary, all that was decided, and all that needed to be decided, was that the court had a procedure available under which orders could be made for payment of foreign currency claims in the foreign currency. A finding that there exists a procedure for the entry of a judgment in a foreign sum does not alter the character of the claim that is made. More particularly it does not convert the claim into one of debt.

One day it will be necessary to reconsider the nature of a cause of action for the recovery of foreign currency in the light of modern international commerce.  There is much to be said in favour of the view that where a foreign currency functions as money an action for its recovery should be regarded as an action in debt.  In this case the parties have proceeded on the assumption that a debt is owed to Mark VII and in that circumstance it is appropriate for me to proceed on the same basis.

I now turn to the grounds that were relied upon by the applicant. The first is that the statutory demand is defective. This is the ground provided for by s 459J(1)(a) but it should be noted that before a demand can be set aside on the basis that it contains a defect it is also necessary to establish that substantial injustice will be caused unless the demand is set aside: s 459J(2).

There are a number of alleged defects in the demand.  Some are worthy of more attention than others.  The first alleged defect is that the debt specified in the demand is expressed in a currency that is not identified.  That is to say the amount of the debt is said to be “the amount of USD36,943.38” and that does not describe any particular currency.  I reject this contention.  Where the context is the specification of an amount of money, the use of the letters “USD” before the amount is a clear statement that the amount is being specified in US currency;  that is “USD” means United States dollars.  It is a common enough method of describing that currency.

In any event, even if it be true that the letters “USD” would not generally be understood as meaning United States dollars there is no suggestion that any officer of Vehicle Wash did not understand what it meant.  If there had any doubt about the meaning of the letters “USD” I would have expected an officer of Vehicle Wash to swear an affidavit to that effect and there was no such affidavit.  It follows that even if the demand is defective by describing the amount of the debt as “USD” rather than “US$” no injustice will be caused if the demand is not set aside. 

The second alleged defect is that the demand does not specify a place for the payment of the amount claimed to be due. It is true that the demand does not state that payment may be made to Mark VII at any particular place although the address of Mark VII is given. But the failure to state that the payment of the claimed amount is to be made to Mark VII at a stated address is not deficiency in the demand. There is no requirement imposed by the Corporations Law or by the regulations made thereunder that the demand must specify a place for the payment of the claimed debt. The contract that gives rise to the obligation to make the payment or the law that governs that contract will no doubt specify where the payment must be made. But the demand itself need not do so.

Next it is said that the demand is deficient for the reason that the debt is expressed in US dollars whereas the Corporations Law and the regulations require the amount to be expressed in Australian currency.

It is necessary to consider the provisions of the Corporations Law and the regulations to see if this is a defect in the demand. Section 459E(2)(a) requires a statutory demand to specify the debt that is said to be due to the creditor and its amount and s 459E(2)(e) provides that the demand must be in the prescribed form if there is one. Regulation 1.03(1) of the Corporations Regulations prescribes forms to be used for certain provisions of the Corporations Law and one is form 509H which is to be used as the form for a statutory demand. By that form one of the matters that the creditor must state is “the amount of $[insert amount], being the amount of the debt described in the Schedule”.  There is no doubt that the statutory form assumes that the debt will be specified in Australian currency. 

In Re Ikin & Ors; Ex parte Same & Lamborghini Tractors of Australia Pty Ltd [1985] 4 FCR 582 Pincus J considered the same issue in the case of a bankruptcy notice that required the debtor to pay a US dollar amount. In deciding that the bankruptcy notice was deficient
Pincus J said at 583: “One would ordinarily presume that references to dollars in Australian statutes are to Australian dollars, just as references to ‘pounds’ in an English statute were taken to mean English pounds in Asiatic Steam Navigation Co v The Commonwealth”.  Further, in England it has been held that a pound sign in the prescribed form for a proof of debt indicated that the proof must be in a sterling sum: see In re Dynamics Corporation of America (in liquidation) [1976] 1 WLR 757.

I do not regard the decision in International Factors (Singapore) Pty Ltd v Speedy Tyres Pty Ltd [1991] 5 ACSR 250 to be to a contrary effect. The question that arose in that case was whether a statutory notice served under s 364(2) of the Companies (Tasmania) Code should be expressed in Australian currency. Cox J held that it need not be and distinguished Re Ikin on the basis that it was concerned with a bankruptcy notice where the prescribed form required the debt to be specified in Australian currency.  As Cox J pointed out, there was no prescribed form for a statutory notice, and the Companies Code did not provide, expressly or by necessary implication, that the amount of the debt specified in the demand was required to be stated in Australian currency.  I agree with Cox J that the decision in Re Ikin did not govern the case of a statutory notice.  But for the very reason that Cox J held that Re Ikin did not apply to a statutory notice the decision should be held to apply to a statutory demand where the prescribed form does require the debt to be expressed in Australian currency. 

It follows that there is a deficiency in the statutory demand.  But as I have indicated it will only be set aside if substantial injustice will be caused unless it is set aside.  Vehicle Wash says that it will suffer an injustice because it cannot determine from the demand what amount it is required to pay to Mark VII.  It is asserted that Vehicle Wash must convert the US dollar amount to Australian currency in order to discharge the obligation to Mark VII and it is not clear from the demand what the applicable rate of conversion is, there being a number of possible exchange rates available. 

In some circumstances a statutory demand will be set aside if it does not contain sufficient information to permit a calculation of the amount due Delta Beta Pty Ltd v Vissers (1996) 20 ACSR 583 is an example of such a case. There the defect in the demand was that it did not identify the individual components of an alleged debt and the applicant was not able to verify the amount claimed to be due and owing from its own records. Here however the assertion by Vehicle Wash that it will be caused an injustice proceeds on a false premise namely that it is required to convert the US dollar amount into Australian currency in order to discharge its obligation (if any) to Mark VII. The premise is false because no such conversion is required. The facts that are before the Court show that if Vehicle Wash does owe Mark VII the amount in question that amount is to be paid in US dollars. No question of conversion arises and no injustice will result from stating the debt in US dollars.

The fourth alleged defect is that the demand does not indicate that the amount claimed in the demand is the statutory minimum in respect of which a demand may be served. Section 459E only permits a demand to be served in relation to a single debt whose amount is at least the statutory minimum or in relation to two or more debts whose amounts total at least the statutory minimum. The statutory minimum is defined in s 9 to be $2,000.

I do not agree that the failure of a demand to state that the amount claimed is more than $2,000 is a deficiency in the demand.  It must be accepted that the legislation requires the demand to specify a debt in Australian currency and if that requirement is observed it will be plain to the company on whom the demand is served whether at least the statutory minimum is being claimed.  If the demand is expressed in a foreign currency and that deficiency does not result in the demand being set aside, then the failure to specify that the amount claimed is at least the statutory minimum is not an additional defect.  The reason is that there is no requirement for a demand to state that at least the statutory minimum is being claimed.  See Topfelt Pty Ltd v State Bank of NSW Ltd (1993) 47 FCR 226 at 237 where Lockhart J explained that a “defect” means a lack or absence of something necessary or essential for completeness; a shortcoming or deficiency; an imperfection.

If I am wrong in my conclusion that a demand is not defective when it fails to state that the amount claimed is at least the statutory minimum I have no doubt that no injustice will be caused if the demand is not set aside by reason of this defect.  Common knowledge would inform Vehicle Wash that the amount claimed, when converted to Australian currency, exceeds $2,000 by a very significant margin.  A court would take judicial notice of the fact that this is so: see generally G. D. Nokes, “The Limits of Judicial Notice” (1958) 74 LQR 59.  Reference might also be made to Bryant v Foot [1868] 3 QB 497 and In re Richardson [1920] SASR 25 as examples of cases where courts have taken judicial notice of a movement in the value of money and an increase in the cost of living. If a court can take notice of the fact that “USD36,943.38” is more than $2,000 so can Vehicle Wash.

The final defect that is relied upon is that the demand seeks the payment of a series of debts, being the debts set out in the schedule to the demand, and it appears, prima facie at least, that six of those debts may not be payable.

In some circumstances the inclusion in a demand of debts which are not due for payment is a defect which would justify the demand being set aside.  In Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746 Bryson J considered such a situation and said that it produced a defect in the demand that led to injustice. His Honour explained the nature of the injustice in the following way (at 751):

“They [the companies the subject of the demand] were placed under a need to apply to set aside the demands and they were under that need whether or not they paid the parts of the sums demanded which in fact were due, as they would be exposed to the risk of winding up proceedings unless they succeeded in having the demand set aside.  An injustice is constituted by the service of a statutory demand in these circumstances.  It is not simply that at the date of the demand significant sums demanded were still to fall due;  that might be an injustice of itself, but I will leave that on one side.  Significant sums were not to fall due until after the time available for an application to set aside the demands, so that the plaintiffs were put under improper pressure to pay monies which were not due or incur the burden of commencing litigation to set aside the demands.”

I do not regard Bryson J as deciding that in every case where an excessive debt is claimed this will necessarily result in a substantial injustice to the company on whom the notice is served.  For example, if a company is in a position to make a partial payment of the amount which it concedes to be due, that amount can be paid leaving the company to dispute the balance of the claim, if necessary, by seeking to set aside the demand.  This is not an unjust consequence:  see Jarpab Pty Ltd v Winter (1994) 14 ACSR 255 at 259. Moreover this is not a case, as was Portrait Express, where the demand includes amounts that are not due for payment.  All that can be said of the six disputed amounts is that they may not be payable.  Unless it is clearly established that those amounts are not payable it cannot be said that there is a defect in the demand.

There is one other deficiency upon which Vehicle Wash relies to set aside the demand.  It is not concerned with the demand itself but it is alleged that the affidavit verifying the demand is defective and for that reason the demand should be set aside by the Court pursuant to s 459J (1)(b). 

Section 459E(3) provides that unless the debt which is specified in the demand is a judgment debt, the demand must be accompanied by an affidavit which verifies the debt and which complies with the rules of the appropriate court. Here the demand was accompanied by an affidavit which verified the debt but it is said that the affidavit is defective in that it does not comply with the Federal Court Rules. Those rules (O 71 r 36AB) provide for the form of an affidavit in support of a statutory demand. The affidavit did not comply with that form but purported to be an affidavit which complies with the rules of the Supreme Court of Victoria. By O 71 r 36AB(2) if an affidavit verifying a statutory demand conforms with the rules of the Supreme Court of the State in which the registered office of the company to be served is situated (in this case Victoria) the affidavit is taken to be an affidavit which complies with the rules. Vehicle Wash contends that the affidavit does not comply with the rules of the Supreme Court of Victoria. The manner in which it is said that the affidavit does not comply with those rules is that, contrary to O 43.01(7), the affidavit does not state the capacity in which the person before whom the affidavit was sworn had authority to take the affidavit.

The verifying affidavit was sworn before a person in the State of Colorado.  That person signed the affidavit and it is conceded that the affidavit does not state the capacity in which that person was authorised to take the affidavit.  During the course of the hearing I gave leave to Mark VII to file an affidavit to establish that authority.  In pursuance of that leave an affidavit sworn by Amy B McAfee has been filed.  In that affidavit Ms McAfee deposes that she is a Notary Public in the State of Colorado with power to take affidavits and the verifying affidavit was sworn before her.

The importance of a verifying affidavit that complies with the rules should not be underestimated.  Its purpose is to ensure, so far as may be possible, that a company is not served with a demand that has no foundation.  Thus, in a case where an affidavit was sworn by a person not authorised by the rules to do so, being a person who would not have sufficient knowledge of the facts to be able to verify the existence of the debt, the statutory demand was set aside: see B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433. But not every deficiency in an affidavit will lead to that result. There may be technical deficiencies of a type that will not lead to the conclusion that the purpose for the affidavit is defeated. So, where there is substantial compliance with the form of an affidavit a demand should not be set aside. It will only be set aside if there is some sound or positive reason for doing so: see Portrait Express, supra at 757.  It has now been shown that the verifying affidavit was sworn before a notary public with authority to take affidavits.  The failure to state that authority in the affidavit is not a deficiency of substance.  The demand will not be set aside on this ground.

The final ground upon which Vehicle Wash applies to have the demand set aside is that there exists a genuine dispute about the existence of the debt to which the demand relates:  see
s 459H(1)(a).

In deciding whether there is a genuine dispute the court is not required to determine the merits of that dispute: Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ASCR 362 at 367.  What must be shown is that the dispute is not vexatious or frivolous, that is, that it has some substance: Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 at 39. In JSW Parts Pty Ltd v Dacaro Pty Ltd (unreported 11 August 1997), I said that to demonstrate that a dispute is genuine will, in the ordinary case, require evidence to show that the dispute is based on reasonable or substantial grounds.  In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 147 ALR 44 the Full Court said that a genuine dispute will exist if the dispute is bona fide and the grounds for alleging the existence of the dispute are real and not spurious, hypothetical, illusory or misconceived. Has Vehicle Wash has shown that there is a genuine dispute in accordance with any of these formulations?

Vehicle Wash says that is not indebted to Mark VII in the amount claimed because Vehicle Wash did not place the orders for the goods that were delivered to it by Mark VII.  It is said that those orders were placed by Car Wash and that is the company that is indebted to Mark VII.  In this connection I should refer to two affidavits sworn by Mr Ould.  In his first affidavit Mr Ould asserts that all of the orders for the goods had been placed by Car Wash and not by Vehicle Wash.  This was evidenced by the fact that each facsimile transmission that placed an order included the order form bearing the Car Wash name.  He deposed “I have no knowledge of the applicant having ordered spare parts from the respondent, whether between 29 June 1995 to 10 May 1996, or otherwise.  I have no knowledge of any agreement between the applicant and the respondent requiring the respondent to supply spare parts to the applicant”.  In his second affidavit Mr Ould deposed that Mr McDonald who had placed some of the orders had not been authorised to use the letterhead of Vehicle Wash.  However he made no mention of the authority, or lack of authority, of Mr Barragh who had placed most of the orders.

Notwithstanding the assertion by Mr Ould that Vehicle Wash did not order any goods from Mark VII all of the objective material leads to the conclusion that it did.  That material is as follows.  Vehicle Wash was nominated to be the company that would purchase the goods.  That is the meaning that should be given to the two letters of 7 August 1995.  The facsimile transmissions placing the orders were sent by employees of Vehicle Wash.  The transmissions themselves indicated that Vehicle Wash was the purchasing company.  Mark VII dispatched the goods to Vehicle Wash and the invoices were directed to that company.  No complaint has ever been made that the invoices had incorrectly nominated Vehicle Wash as the purchaser.  It is likely that the shipping documents named Vehicle Wash as the consignee.  I can only infer this to have been the case because none of the shipping documents were tendered in evidence but it is a reasonable assumption to make.  This evidence shows that the intention of the parties, as manifested by their conduct, was that Vehicle Wash was the contracting party.  The subsequent conduct of the parties also confirms this conclusion.  Here I have in mind the correspondence between Mr Ould and Mark VII concerning the outstanding debt. That correspondence proceeds on the assumption (partly implicit and partly explicit) that Vehicle Wash was the contracting party.  Although that correspondence cannot change the nature of the arrangements that had been entered into at an earlier time I refer to it as confirmation of the conclusion that I have reached.  If, at the time that correspondence was written, Mr Ould was genuinely of the belief that Car Wash had purchased the goods from Mark VII that would have been mentioned somewhere. I regard the order forms as a distraction.  The circumstances in which those order forms were sent to Mark VII do not alter the fact that it was the common intention of the parties that Vehicle Wash was the person placing the orders for the goods.  Thus there is no genuine dispute about the existence of the debt owed to Mark VII.  The assertion by Vehicle Wash that such a dispute exists has no substance.  It is not based on reasonable or substantial grounds.

It follows that the application will be dismissed with costs.

I certify that this and the preceding fourteen (14) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein

Associate:

Dated:            19 December 1997

Counsel for the Applicant:	T Di Lallo
Solicitor for the Applicant:	Holding Redlich
Counsel for the Respondent:	TJ McLean
Solicitor for the Respondent:	Corrs Chambers Westgarth
Date of Hearing:	8-9 September 1997
Date of Judgment:	19 December 1997