Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund [1996] FCA 822

CATCHWORDS

CORPORATIONS - Statutory demand - Setting aside - Supporting affidavit - Whether condition of jurisdiction - Minimum requirements of affidavit.

David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265

Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 47 FCR 451

71 Paisley Street Footscray Pty Ltd v Vineyards Estate Pty Ltd (unreported 18 August 1995)

John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250

The Hire Works Pty Ltd v Elexpo Pty Ltd (1995) 19 ACSR 114

Re Louisbridge Pty Ltd [1994] 2 Qd R 144

Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362

GRAYWINTER PROPERTIES PTY LTD (ACN 051 373 570) v GAS & FUEL CORPORATION SUPERANNUATION FUND (ACN 004 295 345) VG 3439 of 1996

COURT: Sundberg J

PLACE: Melbourne

DATE: 17 September 1996

IN THE FEDERAL COURT OF AUSTRALIA )

VICTORIA DISTRICT REGISTRY ) No VG 3439 of 1996

GENERAL DIVISION )

BETWEEN: GRAYWINTER PROPERTIES PTY LTD

(ACN 051 373 570)

Applicant

AND: GAS & FUEL CORPORATION SUPERANNUATION FUND

(ACN 004 295 345)

Respondent

COURT: Sundberg J

DATE: 17 September 1996

PLACE: Melbourne

MINUTES OF ORDER

1. The Court declares that the application filed on 15 August 1996 and the affidavit of Garrick Lewis Gray sworn 15 August 1996 together constitute an application for the purposes of s 459G of the Corporations Law.

2. The Court orders that the applicant be at liberty to file a further affidavit or further affidavits in support of its application.

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

IN THE FEDERAL COURT OF AUSTRALIA )

VICTORIA DISTRICT REGISTRY ) No VG 3439 of 1996

GENERAL DIVISION )

BETWEEN: GRAYWINTER PROPERTIES PTY LTD

(ACN 051 373 570)

Applicant

AND: GAS & FUEL CORPORATION SUPERANNUATION FUND

(ACN 004 295 345)

Respondent

COURT: Sundberg J

DATE: 17 September 1996

PLACE: Melbourne

REASONS FOR JUDGMENT

SUNDBERG J:

Application to set aside statutory demand

On 26 July 1996 the respondent served on the applicant a statutory demand under s 459E of the Corporations Law. The demand asserted that the applicant owed the respondent $127,500, being the amount of a judgment debt, and required the applicant within twenty-one days to pay the amount or secure or compound for the debt to the respondent's reasonable satisfaction.

On 15 August 1996 the applicant filed an application to set aside the statutory demand and an affidavit sworn by Garrick Lewis Gray purporting to be "in support of" the application. It is a short affidavit and I will set it out in full. It reads:

1. I am a director of the abovementioned Applicant and am duly authorised to make this affidavit on its behalf. I depose positively to the matters set forth herein from my own personal knowledge, save where otherwise indicated.

2. Now produced and shown to me and marked with the letters "GLG1" is a true copy of the statutory demand together with the accompanying affidavit.

3. The Respondent agreed to a compromise, a terms payment and to forbear to sue in relation to the alleged debt, which is disputed. I verily believe judgment was entered erroneously and have given instructions for an application to be made to set aside the judgment.

4. I verily believe that a genuine dispute exists between the Applicant and the Respondent as to the alleged liability and I therefore respectfully request that this Honourable Court set aside the statutory demand.

The legislation

Section 459G(1) enables a company to apply for an order setting aside a statutory demand served on it under s 459E. Sub-sections (2) and (3) of s 459G are as follows:

(2) An application may only be made within 21 days after the demand is so served.

(3) An application is made in accordance with this section only if, within those 21 days:

(a) an affidavit supporting the application is filed with the Court; and

(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.

Section 459H applies where, on an application under s 459G, the Court is satisfied that there is a genuine dispute about the existence or amount of the debt or that the company has an offsetting claim: sub-s (1). Sub-section (2) contains a formula for working out what is called the "substantiated amount". If the substantiated amount is less than the statutory minimum, the Court must set aside the demand. If the substantiated amount is at least as great as the statutory minimum, the Court may vary the demand and declare it to have had effect, as so varied, as from the date the demand was served.

Section 459J(1) empowers the Court, on an application under s 459G, to set aside the demand if it is satisfied that because of a defect in the demand, substantial injustice will be caused unless the demand is set aside, or there is some other reason why the demand should be set aside.

Before the Registrar

On the first return date the applicant sought directions about the filing of further affidavits, including material concerning an application to set aside the judgment upon which the statutory demand was based. The respondent objected to the filing of further affidavits on the ground that there was no valid application before the Court to which they could attach. The questions whether there is a valid application before the Court and whether the applicant should have further time in which to file supplementary material were referred to a Judge.

Respondent's submissions

The respondent's first submission was that the twenty-one day limit in s 459G operates in respect of both the application and the affidavit. Then it was said that unless the affidavit in support of an application to set aside on the "genuine dispute" ground contains sufficient material to make out a case under s 459H, it is not "an affidavit supporting the application" for the purposes of sub-s (3). If an affidavit does not have that character, there is no valid application because a s 459G application consists of the originating process and a supporting affidavit. Finally, it was submitted that Mr Gray's affidavit does not show a genuine dispute, in the sense that if the information contained in it were the only material before the Court, the Court could not find a genuine dispute for the purposes of s 459H.

Applicant's submissions

The applicant contended for two propositions. The first was that the supporting affidavit is in the nature of a pleading rather than an affidavit of a conventional character. It must contain material facts, but need not go into evidence. The Gray affidavit contains the material facts: there had been a compromise of a disputed debt, the judgment on which the statutory demand was based had been entered by mistake, and application was being made to set it aside. There was no obligation to go into the evidence that would be deployed in making the application to set aside. The second proposition was that irrespective of whether a respondent files affidavits, the applicant is entitled to rely on material additional to that contained in the affidavit accompanying the application.

Form of s 459G application

Section 459G(3) provides that an application is made in accordance with the section only if, within the twenty-one day period, two things happen. The first is that an affidavit supporting the application is filed. The second is that copies of the application and affidavit are served. A company which files and serves a document in which it seeks an order that a statutory demand be set aside on the ground that there is a disputed debt would, in the ordinary parlance of the Court, be understood to have made an application to the Court. But that document will not be an "application" for the purposes of s 459G for want of a supporting affidavit and its service. The filing of a supporting affidavit after the expiration of the twenty-one day period will not convert the filed document into an "application" under s 459G, because that application is a composite of a claim for relief and supporting affidavit. Both must be filed and served within time in order that there be an "application". It is true that s 459G does not refer to the filing of an application (as opposed to the filing of the affidavit), but the section proceeds on the basis that the Court is moved by the filing of an application.

Deferring for later consideration what an affidavit must contain in order to be an "affidavit supporting the application", the filing and service of a claim for relief and an affidavit which does not support the claim will not result in the making of an application under s 459G.

Grant's Case

In David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 276-277 Gummow J, with whom the other members of the Court agreed, said:

In providing that an application to the court for an order setting aside a statutory demand "may only" be made within the twenty-one day period there specified and that an application is made in accordance with s 459G only if, within those twenty-one days, a supporting affidavit is filed and a copy thereof and of the applications are served, sub-ss (2) and (3) of s 459G attach a limitation or condition upon the authority of the court to set aside the demand. ... Here, the phrase "[a]n application may only be made within 21 days" should be read as a whole. The force of the term "may only" is to define the jurisdiction of the court by imposing a requirement as to time as an essential condition of the new right conferred by s 459G. An integer or element of the right created by s 459G is its exercise by application made within the time specified. To adapt what was said by Isaacs J in The Crown v McNeil (1922) 31 CLR 76 at 100-101, it is a condition of the gift in sub-s (1) of s 459G that sub-s (2) be observed and, unless this is so, the gift can never take effect. The same is true of sub-s (3).

His Honour then referred to s 467A, which provides that an application under Pt 5.4 "must not be dismissed" merely because of "a defect or irregularity in connection with the application" unless the court is satisfied that substantial injustice has been caused which cannot otherwise be remedied. He continued:

However, s 467A cannot assist the appellants. If an application for an order setting aside a statutory demand has not been made within twenty-one days after service of the demand, there is no application under Pt 5.4 before the court. Therefore, there is no question of such an application being dismissed because of a defect or irregularity in connection with it. In Re J & E Holdings Pty Ltd (1995) 36 NSWLR 541 at 551, Sheller JA summed the matter up as follows:

"The position is quite simply that unless the Court has a power to extend the time within which the application to set aside the statutory demand can be made, the plaintiff has no right to make it."

In Grant the company had taken no relevant step within time, and the matter for decision was whether the Court had power under s 1322 to extend the twenty-one day period. It was held there was no power to extend the period. But it must follow from Gummow J's observations, (if not from the plain words of s 459G(3)), that if what is filed and served within time is a claim for relief and an affidavit which does not support the claim, no application has been made, and the court has no "authority" to set the notice aside.

Decisions on O 71 r 36B

This rule provides that an application under s 459G

must be accompanied by an affidavit:

(a) stating any material facts relied upon by the applicant in support of the application; and

(b) identifying the grounds on which it is said that the Court should make an order under section 459H or 459J of the Corporations Law setting aside the demand.

In Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 47 FCR 451, an offsetting claim case, Beazley J dealt with a submission that the affidavit filed did not satisfy O 71 r 36B as it did not state the "material facts" upon which the applicant relied, with the result that the applicant had not complied with the requirements of s 459G to file and serve its affidavit within time: at 455. At 460 her Honour said:

It seems to me that ... r 36B does not require an applicant to set out in admissible form the evidence by which the "material facts" are to be proved. Rather it requires the verification of "material facts" which will enable the Court to be satisfied whether, in this case, there is a serious question as to the existence of an offsetting claim.

At 463 her Honour considered a submission that certain material in the affidavit relating to loss of profits should have been put forward in an expert's affidavit, and observed:

this objection throws up the difficulty of the construction of O 71, r 36B for which counsel for the respondent contends. In my opinion, it is inconceivable that evidence such as that of an expert is required for the purposes of s 459G. It must be remembered that s 459G requires that the supporting affidavit be filed and served within 21 days. This time period reflects the expeditious mode which the legislature has determined is to be the manner of staying the operation of a statutory demand. That is not to say, however, that the mere assertion of the amount of loss, or the amount of the claim, however based, is sufficient to satisfy the Court of the amount of the offsetting claim. One would normally expect that there would be reference to at least some primary material in the affidavit to enable the Court to have the requisite satisfaction for the purposes of s 459H. If there was any difficulty in the production of primary material, it would always be open to the Court to exercise its discretion under O 33, r 3.

Neither of these passages is of much assistance in ascertaining the minimum content of an affidavit for it to be a "supporting" affidavit within s 459G. The first passage is dealing with a misconceived submission, namely that an affidavit that does not comply with r 36B for that reason does not comply with s 459G. The observations in the first passage are directed solely to what the rule requires. Although the second passage is not specifically directed to the rule, the reference to O 33, r 3 shows that it has the rule as its context. It could not be directed to the requirements of the section, because what the statute requires cannot be dispensed with under a rule of court.

In 71 Paisley Street Footscray Pty Ltd v Vineyards Estate Pty Ltd (unreported 18 August 1995) Olney J dealt with a submission that because the affidavit filed did not comply with O 71 r 36B it was not "an affidavit supporting the application" as required by s 459G(3). His Honour said:

Although the provisions of O 71 r 36B cannot affect the proper construction of s 459G(3), it is fair to say that an affidavit which states the material facts relied upon by the applicant in support of an application would comfortably satisfy the description of an "affidavit supporting the application". On the face of it O 71 r 36B contemplates that the affidavit required by s 459G(3) is to be in the nature of a pleading in that it requires facts to be stated rather than the evidence to be relied on. That this is so makes sense. It can hardly be expected that in the fairly limited period allowed for making an application to set aside a demand a company will be able to marshall all of its evidence and submit same in affidavit form. The purpose of the affidavit contemplated by s 459G(3) is to tell the creditor why it is said that the demand should be set aside and not necessarily to require the production of the evidence in admissible form which will be relied upon to support its case.

These observations are primarily directed to r 36B, and indeed the whole passage is a response to a submission that the affidavit did not satisfy the rule. His Honour's last sentence, however, appears to be directed to s 459G and not to the rule - the affidavit should disclose the ground upon which it is said the demand should be set aside rather than the evidence that would support the ground.

Other cases

Two relevant decisions of other courts in which rules of court played no part are John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 and The Hire Works Pty Ltd v Elexpo Pty Ltd (1995) 19 ACSR 114. In John Holland Young J at 253 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 say merely 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 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.

The cases discussed under this and the previous heading have not dealt with the issue that arises in the present case. John Holland was concerned with whether the affidavit material showed a genuine dispute. No question arose as to whether the affidavit was a "supporting" affidavit within s 459G(3). In Scanhill and 71 Paisley Street the principal question was whether the affidavit satisfied O 71 r 36B. This may have been a question preliminary to the ultimate "genuine dispute" or "offsetting claim" question, but it was not the same preliminary question as that raised here - whether the affidavit filed with the application satisfies the description of an "affidavit supporting the application". But that issue was squarely raised in Hire Works.

Hire Works was a genuine dispute/offsetting claim case. The affidavit in question was sworn by a director of the company who said he had personal knowledge of the facts. He then said the company was not indebted to the claimant for the sum claimed or at all, and concluded that "For the abovementioned reasons" the demand should be set aside. The company's counsel conceded that this affidavit was insufficient to entitle it to an order setting aside the demand, but contended that it satisfied s 459G(3) because it did express support for the motion; the sub-section required no more. Master Mahony, Senior Master of the Supreme Court of Victoria, referred to the observations of Young J in John Holland, and to those of Ryan J in Re Louisbridge Pty Ltd [1994] 2 Qd R 144 at 145 that the affidavit must provide "grounds for concluding that there is a genuine dispute ... or that the company has an offsetting claim". The Master then said it was not necessary in all instances that the affidavit satisfy the requirements laid down in those cases. That was because an application under s 459G may be directed to a defect in the demand or to some other matter that requires no more than a formal affidavit. The Master continued:

Thus, what was said in John Holland and Louisbridge was not indicative of some universal standard to be attained by every affidavit intended to accord with s 459G(3).

It would seem to follow from this that whether an affidavit purporting to satisfy the requirements of s 459G(3) will be held to have done so, or not, will depend on the circumstances of the case. This means that, if there is an affidavit filed and served as required, a question with respect to its sufficiency is not jurisdictional. In other words, that the affidavit does not provide "grounds for
concluding that there is a genuine dispute ... or that the company has an offsetting claim" does not necessarily mean that the application must be dismissed.

In the most usual case, where a company is seeking that a statutory demand be set aside on the ground of genuine dispute or cross claim, such as John Holland and Louisbridge and (apparently) this case, the observations in those cases as to the standard to be attained by an applicant's affidavit should ordinarily prevail.

It seems to me, however, that even where (as here) the affidavit contains no more than an assertion of dispute, it would not be correct summarily to dismiss the application without the applicant's having an opportunity to explain why (if it does not appear in the affidavit) the deponent said no more. It may be that there is a valid explanation, for example, that the person with detailed knowledge of the facts was unavailable.

The Master adjourned the hearing so as to enable the company to file further material in support of its motion.

Is a complying affidavit a condition of jurisdiction?

It seems to me that s 459G(3) makes plain that the Court can entertain an application to set aside only if within the prescribed period an affidavit supporting the application is filed and copies of the application and affidavit are served. The High Court in Grant said that compliance with the sub-section is a limitation or condition upon the authority of the court to set aside a demand; it is a condition of the jurisdiction that sub-s (3) be observed; if the condition is not observed there is no application before the Court. I am thus unable to agree with the Senior Master that the failure of an affidavit to satisfy the minimum requirements for an affidavit to be a "supporting affidavit" is not a jurisdictional impediment.

The minimum requirements in a genuine dispute case

In order to be a "supporting affidavit", an affidavit must say something that promotes the company's case. An affidavit which merely says "I am a director of the company but am too busy at present to make a full affidavit, and I will do so later" would not support the application. It would in no way advance, further or assist the company's cause, which is to have the notice set aside. At the other extreme, the affidavit need not detail, in admissible form, all the evidence that supports the contention of a genuine dispute: John Holland. That evidence must be available at the hearing of the application to set aside, because that application is for final and not interlocutory relief: 71 Paisley Street.

In a s 459H(1)(a) case, the affidavit must in my view disclose facts showing there is a genuine dispute between the parties. A mere assertion that there is a genuine dispute is not enough. Nor is a bare claim that the debt is disputed sufficient. It follows from the fact that the affidavit need not go into evidence, which is the customary function of an affidavit, that it may read like a pleading.

An affidavit which exhibits an exchange of correspondence between the parties or between their solicitors from which it appears that a claim is made and rejected for reasons given can qualify as a supporting affidavit. And an affidavit verifying the pleadings in an action may qualify.

I am thus unable to accept the respondent's submission that the affidavit must contain sufficient material to make out a case under s 459H. In reply, that submission was somewhat retreated from. It was said that the affidavit must, as a minimum, contain a statement of the material facts on which the applicant intends to rely to show a genuine dispute - it might read more like a pleading than a story. That accords with what I consider to be the minimum requirement.

Section 459G(3) and O 71 r 36B

I doubt that there is much difference between the requirement in r 36B that the affidavit state the material facts and what I have called the minimum requirement under s 459G(3). I agree with Olney J that an affidavit which sets out the material facts will satisfy s 459G(3). But one can imagine cases where the affidavit is not structured in the manner of a pleading, with a sequential chain of events deposed to. An affidavit which simply verifies a body of correspondence passing between the parties containing assertions and denials of indebtedness may be an example. The material facts may not be "stated" in the formal manner contemplated by s 36B, but it may be apparent from a perusal of the correspondence that the parties are genuinely in dispute about the claimed debt. So I would not wish to say, though it would doubtless be convenient if it were the case, that r 36B simply renders in different language the effect of the words "affidavit supporting the application".

A multitude of affidavits?

In several cases it has been held that an applicant is not restricted on the hearing to the affidavit that is served with the application. See Scanhill at 467 and Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362 at 368. An applicant whose initial affidavit has satisfied the threshold test must be able to supplement the material, because while the "supporting" affidavit does not have to deploy the evidence, on the hearing only admissible evidence can be relied on. In Louisbridge, Ryan J said that "provided that an affidavit is filed and served within the 21 day period which supports the application by providing grounds for concluding that there is a genuine dispute ... or that the company has an offsetting claim", supporting affidavits may be filed after the period has expired. Apart from Hire Works, the cases do not support the proposition for which the applicant contended, namely that an affidavit that does not satisfy the threshold test can be supplemented later on. That issue did not arise in Scanhill or Mibor. It did arise in Hire Works, but for the reasons
I have given, I am respectfully unable to agree that the court can entertain as an application under s 459G a case in which an affidavit containing the minimum requirements has not been served within time.

The present case

The deponent says he is a director of the company and has personal knowledge of the matters deposed to. Although it is somewhat unclear, paragraph 3 seems to be saying that the respondent claimed a sum of money as a debt due by the applicant; the applicant disputed the debt; a compromise was agreed to involving instalment payments by the applicant in return for which the respondent agreed not to sue; notwithstanding the compromise the respondent succeeded in entering judgment for the full amount of the debt; because of the compromise the respondent was not entitled to enter judgment; the deponent has given instructions to seek to have the judgment set aside; and by reason of the foregoing the deponent believes there is a genuine dispute between the parties as to the alleged liability. Although this material is not set out in point form, and is indeed ambiguous and in need of construction, that in substance is what the affidavit says. It thus sets out the facts, though not the evidence, which show a genuine dispute between the parties, and accordingly satisfies the minimum requirements. The applicant is therefore entitled to supplement the affidavit.

The unsatisfactory form of the Gray affidavit invited the respondent's objection to it, and although that objection has failed, I will make no order as to costs.

I certify that this and the preceding thirteen pages are a true copy of the reasons for judgment of the Honourable Justice Sundberg

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

Associate

17 September 1996

Counsel for the Applicant: P K Searle

Solicitors for the Applicant: Garrick Gray & Co

Counsel for the Respondent: R A Finkelstein QC and P Bick

Solicitors for the Respondent: Freehill Hollingdale & Page

Date of Hearing: 4 September 1996

Place of Hearing: Melbourne

Date of Judgment: 17 September 1996

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