CATCHWORDS

CORPORATIONS  - insolvency - winding up - application to set aside statutory demand to pay debt - consideration of s 459J - defects in relation to the demand - distinguished from defects in the demand - substantial injustice - some other reason - affidavit accompanying demand served in NSW complied with form specified in Rules of Supreme Court of Victoria - whether defect - whether sufficient that affidavit complies with the rules of any court having jurisdiction in respect of the demand or winding up - whether genuine dispute about existence of debt.

WORDS AND PHRASES - “genuine dispute”.

Corporations (New South Wales) Act 1990:  s 42

Corporations Law:  s 220, ss 459C, 459E, 459G, 459J, and 459H

Corporations Regulations: reg 1.03, reg 1.04

Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA (1994) 15 ACSR 347

Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785

Scandon Pty Ltd v Dome Supplies Pty Ltd (1995)13 ACLC 1256

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

John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd
(1994) 12 ACLC 716

Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341

Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37

Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226

Hunter Resources Limited v Melville (1988) 164 CLR 234

Australian Broadcasting Corporation v Redmore Pty Ltd (1989) 166 CLR 454

Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 51 FCR 446

B & M Quality Constructions Pty Ltd v Buywrite Steel Supplies Pty Ltd (1995) 13 ACLC 88

Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 14 ACLC 1,095

Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601

Greenwood Manor Pty Ltd v Woodlock (1994) 48 FCR 229

Victor Tunevitsch Pty Ltd v Farrow Mortgage Services Pty Ltd (in liq) (1994) 14 ACSR 565

Olsson v Dyson (1969) 120 CLR 365

Pearce and Geddes, Statutory Interpretation (4th ed, 1996)

SPENCER CONSTRUCTIONS PTY LTD v G & M ALDRIDGE PTY LTD

VG 774 of 1996

NORTHROP, MERKEL and GOLDBERG JJ

MELBOURNE

29 JULY 1997

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

MINUTES OF ORDER

THE COURT ORDERS THAT:

1.                                          The appeal is dismissed.

2.                                          The appellant pay the respondent’s costs of the appeal.

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

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

THE COURT:

INTRODUCTION

This is an appeal from the decision of a judge of the Court in which an application by the appellant to set aside a statutory demand claiming $12,303.00 was dismissed.  The demand, dated 9 July 1996, was served on the appellant by the respondent under s 459G of the Corporations Law.  The appellant had contended that:

·               there were defects in the demand which warranted it being set aside; and

·               there was a genuine dispute as to the existence of the debt claimed in the demand.

The learned primary judge, Finn J, held that the defects did not warrant an exercise of discretion under s 459J(1)(b) of the Corporations Law as they did not produce substantial injustice and were not of such a character as to warrant the clear disapprobation of the Court.

His Honour also held that while disputes were alleged in the evidence adduced before him they failed to meet the threshold of genuineness as stated by Lindgren J in Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA (1994) 15 ACSR 347.  Finn J found that the disputes alleged constituted no more than bare assertions which were, in the main, inconsistent with the terms of the contract propounded by the appellant.

FACTUAL BACKGROUND

On 2 March 1994 the appellant, then known as Fyna Constructions Pty Ltd, entered into a head contract as builder with Vynotas Pty Ltd (“Vynotas”) for the construction of a residential development at 388‑442 Victoria Parade, East Melbourne.  Under that contract Vynotas was entitled to deduct retention monies from progress payments.  Earlier, in or about January 1994 the appellant entered into an arrangement in the nature of a sub‑contract with the respondent for the carrying out by the respondent of underpinning works which were to form part of the head contract works.  A form of sub‑contract was prepared but was never executed. 

At the hearing before Finn J the appellant propounded one form of sub‑contract, which had not been executed by the parties, as being the relevant contract between the parties and the respondent propounded, as the relevant contract, an amended form of sub‑contract which it had executed but which had not been executed by the appellant.  The appellant disputed that the latter document constituted the relevant contract between the parties.  However, it was common ground between the parties that such contract as was entered into provided for progress claims and progress payments and for the retention of 10% of the progress payments approved for payment pending practical and final completion. 

The respondent carried out the underpinning works, submitted progress claims and received progress payments in respect of which $12,303.00, being 10% of the progress payments approved by the appellant and made to the respondent, was withheld by the appellant.  There is an issue as to whether this amount had been paid by the principal, Vynotas, to the appellant.

On 7 December 1994 Vynotas terminated the head contract with the appellant and the new construction manager retained on its behalf, Total Project Control Pty Ltd, distributed a memorandum to the sub‑contractors and suppliers involved in the works in the following terms:

“It is our intention on behalf of Vynotas Pty Ltd to immediately deal with all Sub‑Contract and Supply Agreements in order to ensure that:

*          Contractors and Suppliers are paid for work certified as complete, including for legitimate variations,

*          completion of the Contract Works is achieved within the original general contract provisions, especially in regard to quality and cost. ...”

The appellant claims that at a site meeting with the new construction manager on 8 December 1994, at which the respondent was represented, the new construction manager:

“represented in effect, amongst other things, that all moneys owing to sub‑contractors by the Company would be made good by Vynotas Pty Ltd”.

The appellant contends that because the head contract was terminated and Vynotas undertook to deal with all sub‑contractors including the respondent, it is not responsible for paying the retention sum which it says is payable by Vynotas to the respondent.

On 12 December 1994 the appellant wrote a letter to the respondent which included the following:

“The Principal has now accepted the obligation to pay all sub‑contractors and suppliers engaged for the project.  In the circumstances, we advise that all future claims made by you in relation to the project should be forwarded to the attention of [the new construction manager].”

On 16 December 1994 the respondent wrote to the new construction manager and informed it that the following amounts were outstanding:

“Original contract:                                                                    $ 2,000.00

 Retention held (cash):                                                               12,303.00

 Total amount outstanding:                                                       $14,303.00”

The respondent had not requested the appellant to pay the $2,000.00 which was due under the sub‑contract.  Vynotas paid the $2,000.00 but not the remaining sum of $12,303.00.  Vynotas informed the respondent that the retention amount had been paid to the appellant but the appellant says this amount has never been received by it.

Correspondence between the appellant and the respondent’s solicitors was to no avail and eventually the statutory demand claiming $12,303.00 was served.

DEFECTS AND DISPUTES RELIED UPON BY APPELLANT

The appellant alleged two defects in the statutory demand and a defect in relation to the accompanying affidavit.  The defects were that:

(a)        the demand was not directed to the appellant at its registered office which was current at the time of the service of the statutory demand.  On 14 February 1996, the address identified in the demand as the appellant’s registered office had been changed to another address with effect from 15 February 1996;

(b)        the demand was served in New South Wales but specified an address in Victoria, being the address of the respondent’s solicitors, for service of any application under s 459G of the Corporations Law; and

(c)        the affidavit accompanying the statutory demand was in the form specified in the Rules of the Supreme Court of Victoria and was not in the form required by either the Federal Court Rules or the Rules of the Supreme Court of New South Wales.

The defects referred to in (b) and (c), but not the defect in (a), were raised before the primary judge.  No objection was taken to the reliance by the appellant on the appeal upon the defect in (a).

The grounds relied upon before the primary judge and on appeal for contending that there was a genuine dispute about the existence, or the amount, of the debt to which the demand related were as follows:

(a)        the debt was not due and payable unless and until the appellant received the retention money Vynotas had withheld from it in respect of the respondent’s work;

(b)        payment of the debt by the appellant had been waived by the respondent as, upon the termination of the head contract, Vynotas undertook liability for paying the retention money and the respondent accepted that undertaking of liability in lieu of any previous obligation of the appellant to pay that amount.  Although the ground was expressed in terms of “waiver”, in reality it alleged a “novation”.

Counsel for the appellant acknowledged that the defects upon which the appellant relied had not caused any substantial injustice. The demand had been received by the appellant which was able to file its application to set it aside within the strict time period required by s 459G.  The appellant nevertheless submitted that the primary judge should set aside the statutory demand under s 459J(1)(b) on the basis that there was “some other reason why the demand should be set aside”.  It was contended that the reason was that it was proper for the Court to censure significant and substantial departures from the prescribed procedures:  see Scandon Pty Ltd v Dome Supplies Pty Ltd (1995) 13 ACLC 1256. 

Finn J did not regard the defects, nor any of the circumstances arising from them, as warranting an exercise of discretion by the Court under s 459J(1)(b).  His Honour referred to the federal character of the matter and concluded that, whatever might be the difficulties which the defects might cause in proceedings in a State court, they should not be treated as being of significance in the Federal Court unless:

(a)        they produce substantial injustice; or

(b)        they were of such a character as to warrant the clear disapprobation of the courts.

His Honour also found there was nothing in the contractual relationship between the parties which provided any plausible basis for alleging that it was a contractual term that the retention moneys did not have to be paid until the appellant received the moneys from Vynotas.  Nor could his Honour find any evidence to support the appellant’s contention that Vynotas or its new construction manager had assumed any legal obligation, enforceable by the respondent, to pay the retention moneys to it.

THE DEFECTS IN RELATION TO THE DEMAND

Before us the appellant contended that this was a case where the demand should be set aside for “some other reason” under s 459(1)(b) because the gravity of the defects was such that the Court should show its disapprobation and warn persons wishing to rely on the statutory demand procedure of the importance of complying with the relevant statutory and regulatory requirements.  It was central to the appellant’s submission that “some other reason”, for the purposes of s 459J(1)(b), encompassed a defect in the demand notwithstanding that the defect did not cause substantial injustice.  Counsel for the appellant relied upon the reasoning of Lockhart J in Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226 and Senior Master Mahoney in Scandon Pty Ltd v Dome Supplies Pty Ltd (supra).  The appellant also contended, before us, that the accompanying affidavit did not comply with “the rules” of court as required by s 459E(3).

Counsel for the respondent accepted that there were defects in the demand but contended that they were of no substance or consequence.  Counsel disputed that the accompanying affidavit did not comply with “the rules” of court.  Accordingly, it was said, the Court could not, or ought not, set the demand aside under s 459J merely because of the defects.

It is necessary to identify the alleged defects.  Section 459E(2)(e) provides that a statutory demand “must be in the prescribed form (if any)”.  By reason of reg 1.03 of the Corporations Regulations, Form 509H of the Regulations is prescribed for the purposes of s 459E(2)(e).  Form 509H , so far as is relevant, is in the following form:

“To (name and ACN or ARBN of debtor company) of (address of the company’s registered office)

1.         The company owes ...

...

6.         The address of the creditor for service of copies of any application and affidavit is (insert the address for service of the documents in the State or Territory in which the demand is served on the company, being, if solicitors are acting for the creditor, the address of the solicitors) ...”

Regulation 1.04 provides:

“A form must be completed in accordance with the directions and instructions specified in the form.”

Section 459E(3) requires a demand, unless the debt is a judgment debt, to be accompanied by an affidavit which verifies the debt and “complies with the rules”.  The expression “the rules” is defined in s 9 of the Corporations Law as meaning:

“(a)     rules of the Federal Court; or

 (b)       rules of the Supreme Court of this or another jurisdiction;

 as the case requires...”

The demand before the Court was served on the appellant and received by it in New South Wales but:

(a)        it was addressed to the appellant at its former registered office, a different registered office having been established on 15 February 1996;

(b)        the address for service of any application and affidavit was given as the respondent’s solicitors’ address in Melbourne.

It was common ground that these two deficiencies were defects in the demand.

The accompanying affidavit was in accordance with Form 5‑7A of the Rules of the Supreme Court of Victoria, Chapter V which differs, in substantive respects, from the form required by the Federal Court Rules and the Rules of the Supreme Court of New South Wales.  The respondent disputed that there was any defect in relation to the affidavit.  If there was a defect in respect of the affidavit it was a defect in relation to the demand rather than in the demand itself.

Section 9 of the Corporations Law defines “‘defect’, in relation to a statutory demand” 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”.

Section 459J provides:

“(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”.

What is the consequence of a defect?  As a matter of construction it appears to us that the section is intended to operate as follows.  If the defect is “in the demand” it is only to be set aside if substantial injustice will be caused by the defect unless the demand is set aside:  see s 459(1)(a) and (2).  If there is any other defect, including a defect in relation to the demand rather than in the demand itself, then the demand may only be set aside if the Court is satisfied that there is some reason why the demand should be set aside:  see s 459J(1)(b) and (2).

If our construction is correct the statute itself provides for the consequences of non‑compliance in the case of  “a defect” so that, in respect of a defect in or in relation to a demand, strict compliance with the statutory provisions is not a precondition to the validity of the demand.  It is now well settled that the consequence of failing to comply with a statutory requirement is not a question of categorisation into a mandatory/directory dichotomy.  Rather, it is a question of legislative intent to be discerned in the words of the relevant statutory provision construed in the context of the statute as a whole:  see Australian Broadcasting Corporation v Redmore Pty Ltd (1989) 166 CLR 454, 457 per Mason CJ, Deane and Gaudron JJ.  In respect of a defect falling within s 459J the ultimate issue is whether, construing the relevant provisions in their context (including their scope and purpose), there is a legislative intent that either strict or substantial compliance with the relevant requirement is a precondition to the validity of the action taken:  see Hunter Resources Limited v Melville (1988) 164 CLR 234, 241, 245, 248‑9, 251, 256‑7; Australian Broadcasting Corporation v Redmore Pty Ltd (1989) 166 CLR 454, 457; and Pearce and Geddes, Statutory Interpretation (4th ed, 1996) 284‑5.  Section 459J(2) makes it quite clear that the legislative intent is that defects in relation to statutory demands are not to result in invalidity save and except as provided in s 459J(1).  Given that role there is no basis for construing s 459J(2) as being limited to defects in demands rather than defects in relation to demands.

In summary, s 459J(2) prevents the Court from setting aside a statutory demand “merely because of a defect” except as provided in sub‑section (1).  Section 459J(2) is the legislative prescription which ensures that defects alone, whether in the statutory demand or in relation to the statutory demand, will not result in invalidity.

The failures to specify the correct registered office of the appellant and an address of the respondent in New South Wales for the service of any application and affidavits are clearly “defects” in the demand in that the required form and the directions and instructions contained in it have not been complied with.  As no injustice will be caused by these defects the Court is precluded from setting aside the demand merely because of them:  ss 459J(1)(a) and (2).  However, the appellant contends that the Court is able to treat the gravity of the defects in the demand as affording “some other reason” under s 459J(1)(b) as to why the demand should be set aside.  If that contention is correct the Court is entitled to set aside a demand because of a defect in it even if substantial injustice will not be caused by the defect, notwithstanding that the combined operation of ss 459J(1)(a) and (2) suggests that that is precisely what a court cannot do.

The interpretation of s 459J(1) contended for by the appellant is not correct. Section 459J(1) and (2) constitute the statutory code for defects in a demand;  within that code the legislature did not distinguish between degrees of defect in statutory demands.  As we have pointed out a defect in a demand only gives rise to an entitlement (if substantial injustice is established) to have the demand set aside under s 459J(1)(a), but not under s 459J(1)(b).  Accordingly, the “other reason” required by s 459J(1)(b) must, in our view, be a reason other than a defect in the demand.

Section 9 of the Corporations Law defines a “statutory demand”, unless the contrary intention appears, as meaning:

“(a)     a document that is, or purports to be, a demand served under section 459E; or

 (b)       such a document as varied by an order under subsection 459H(4).”

No contrary intention appears in s 459J.  Accordingly, the expanded definition applies to s 459J which operates in respect of documents purporting to be demands served under s 459E. Thus so long as a document “purports to be” a statutory demand, the power of the Court to set it aside on the basis that there is a defect in or relating to the demand, is to be determined by reference to s 459J.  That offers further support for our view that even significant defects in a demand are to be determined under s 459J(1)(a) rather than s 459J(1)(b). 

In Topfelt Pty Ltd v State Bank of New South Wales Ltd (supra, 238) Lockhart J expressed the view that:

“There may, however, be cases where deficiencies in the form of demands are so fundamental that the demands are incapable of assuming the description of statutory demands within the meaning of the Corporations Law.  This is a question to be decided in future cases.”

However Lockhart J did not regard the case before him as such a case.  His Honour held that the demand was erroneous because it could not be complied with on its face “even allowing for misstatements” (at 242).  In Topfelt the demand required the payment of the debt which was described as “$179,722.73 together with interest from 11 March 1993 to date and continuing”.  It was not suggested that the debtor was in fact misled by the description but his Honour observed (at 242) that the debtor had to make “inquiries of one kind or another in order to ascertain the amount of interest that is said to be payable, whether he makes the inquiries from his solicitor or from the Supreme Court or others”.  Lockhart J concluded (at 242) that it was not the obligation of a debtor to calculate the interest which the creditor requires him to pay and that:

“In all the circumstances I am satisfied that the defects in the statutory demand in this case are of such a kind and magnitude that they constitute good reasons why the demand should be set aside under s 459J(1)(b)”.

Topfelt was relied on by the appellant in support of the submission that a statutory demand can be set aside under s 459J(1)(b) because of defects in the demand even though there is no substantial injustice caused by the defects.  We doubt that Lockhart J was expressing such a view, but if he was we would respectfully differ from it.  Rather, Lockhart J based his conclusion on the basis that the statutory demand could not in fact be complied with because it was not the obligation of a debtor to calculate the interest the creditor calls upon the debtor to pay.  This factor is not accurately described only as a “defect in the demand”; it is more than a defect as the debtor was unable to comply with the notice without making enquiries which it was not obliged to make.  The substantive point was that for the purposes of the statute, in these particular circumstances, there cannot be a failure to comply with the demand made by the creditor.  Accordingly, in Topfelt the issue of substantial injustice under s 459J(1)(a) did not arise as there was a reason under s 459J(1)(b), other than a defect in the demand, for setting the demand aside.

Our view of the operation of s 459J is also consistent with the Explanatory Memorandum to the Corporate Law Reform Bill 1992:

685. This Division will implement the Harmer Report’s recommendations in connection with the setting aside of statutory demands. ...

686.     The Harmer Report proposed that a demand may be set aside if the court is satisfied that:

·                    there is a substantial dispute as to whether the debt is owing;

·                    the company appears to have a counter claim which may exceed the amount of the debt; or

·                    the demand ought to be set aside on other grounds.

687.     This last general power would enable the court to take account of matters such as improper or invalid service and mistakes or misstatements in the notice of demand, in circumstances where this would significantly prejudice any party.

688.     The provisions in relation to the setting aside of a statutory demand are intended to be a complete code for the resolution of disputes involving statutory demands, and to do so on the basis of the commercial justice of the matter, rather than on the basis of technical deficiencies.  In particular it is intended to remove the present difficulties which are experienced where difficulties in estimating the extent of the debt may lead to an invalidating of the statutory demand on the basis of a minor overstatement of the amount due.  This issue has been highlighted in recent cases (Ataxtin Pty Ltd v Gordon Pacific Developments Pty Ltd (1991) 5 ACSR 10; Hassgill Investments Pty Ltd v Newman Air Charter Pty Ltd (1991) 5 ACSR 321).”

We agree with Hill J when he said in Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 51 FCR 446 at 450, that ss 459J(1)(a) and (b) are mutually exclusive.

Insofar as the decision of Senior Master Mahoney in Scandon Pty Ltd v Dome Supplies Pty Ltd (supra) suggests that a defect in a demand can be set aside under s 459J(1)(b) when the defect is not productive of substantial injustice we would, with respect, disagree. In our view Master Mahoney fell into error in by reading “defect” in s 459J(2) as limited to a “defect in the demand”.  As we have already noted a “defect” in s 459J(2) is wider than a “defect in the demand” in s 459J(1)(a).  In this respect we would also respectfully differ from McLelland CJ in Eq in B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1995) 13 ACLC 88, 91 where His Honour read “defect” in s 459J(2) as a defect in the demand itself.

Master Mahoney also read an “other reason” in s 459J(1)(b) as being a reason other than one where “substantial injustice will be caused”.  In our view this is a mis‑reading of the sub‑paragraph.  An “other reason” is clearly a reason other than “a defect in the demand”.  As we have said, we agree with Hill J in Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (supra) that sub‑paragraph (b) covers only cases where the reason to set aside the demand is a reason other than the existence of a defect in the demand:  see also Victor Tunevitsch Pty Ltd v Farrow Mortgage Services Pty Ltd (in liq) (1994) 14 ACSR 565, 567; Chains & Power (Aust) Pty Ltd v Commonwealth Bank of Australia (1994) 15 ACSR 544, 552; Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 15 ACSR 682, 699.

Our conclusion is that in the absence of substantial injustice, a court is precluded by s 459J from setting aside a demand solely on the ground that it contains defects.  We would add that the alternative view contended for by the appellant would, in a practical sense, render sub‑paragraph (a) otiose.  It would have been sufficient for the section to provide for a demand to be set aside if there is reason to do so.  As substantial injustice (as described in s 459J(1)(a)) is the most obvious reason, no special provision in sub‑paragraph (a) would have been necessary.  Our construction of the section gives effect to the legislative intent and gives a substantive operation to each part of the section.

For these reasons we do not accept the appellant’s contentions in respect of the defects in the demand.  We turn to consider the appellant’s contentions in respect of the affidavit, which if made out, would constitute a defect in relation to the demand which might be set aside, if there is reason to do so, under s 459J(1)(b).

At the time a statutory demand is served, the court in which any application to set it aside or any petition for the winding‑up of the company in the event of non‑compliance with the demand might be brought is not pre‑determined.  In the case of the appellant, it was open to it to apply to the Federal Court, the Supreme Court of New South Wales or the Supreme Court of Victoria to set aside the demand.  It was open to the respondent to apply for a winding‑up of the appellant in each of those courts. 

In principle, in these circumstances, there is no reason why the accompanying affidavit may not be sworn in any of the forms prescribed by the rules of a court having jurisdiction in respect of the demand or the winding up of the appellant as a result of non‑compliance with the demand.  The Federal Court, the Supreme Court of New South Wales and the Supreme Court of Victoria had jurisdiction in respect of these matters at the time of the demand.  The fact that the accompanying affidavit might be of limited significance in any subsequent proceedings does not assist either way.

In our view the expression “as the case requires” in s 9, when applied to the relevant rules in s 459E(3), enables the creditor to swear its accompanying affidavit in the form provided by the rules of any court which would have jurisdiction to order the winding‑up of the appellant or in which an application to set aside the demand could be brought.  In the present case this includes the Federal Court, the Supreme Court of New South Wales and the Supreme Court of Victoria.

Counsel for the appellant submitted that “as the case requires” was a reference to the place in which the demand was served, which would be the place of the registered office of the appellant.  However it must be remembered that the Corporations Law created a national scheme and s 42 of the Corporations (New South Wales) Act 1990 confers jurisdiction to hear applications in relation to companies incorporated in New South Wales on the courts of other States and the Federal Court.  In any event there is no reason under the Corporations Law to require compliance with the rules of the court in the  jurisdiction in which the registered office is situated, as the demand can be effectively and validly served at other places: s 220 Corporations Law.

The appellant relied on B & M Quality Constructions Pty Ltd v Buywrite Steel Supplies Pty Ltd (supra) where a statutory demand was set aside because the accompanying affidavit did not comply with the Rules of the Supreme Court of New South Wales as to the manner of verification of the debt.  McLelland CJ in Eq (at 91) held that the failure to comply with the rules was a sufficient “other reason” to set aside the demand for the purposes of s 459J(1)(b).  The appellant also relied on Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 14 ACLC 1,095 in support of its submission that if an affidavit was not in a proper form, the statutory demand should be set aside.  In that case the accompanying affidavits did not comply with the rules of the Federal Court or of the Supreme Court of New South Wales in important respects.  However, in neither case did the court have to consider the situation arising before us in which the affidavit did comply with the rules of another court having jurisdiction in the matter.

In our opinion, there is nothing in the Corporations Law or the cross‑vesting scheme in respect of statutory demands which requires that the determination of which rules are the rules which govern the form of an accompanying affidavit, is to be by reference to the registered office of the company the subject of the demand, or the ascertainment of relevant facts relating to the debt, the debtor and the creditor and their connection with a particular court. 

Adoption of the rules of a court “as the case requires” is apt to cover the rules of any court which has jurisdiction to hear and determine any application in relation to, or arising out of, the service of a statutory demand.  The Supreme Court of Victoria is such a court.  In the present case the application by the appellant to set aside the statutory demand was made in the Federal Court.  It could just have easily have been made in the Supreme Court of Victoria or the Supreme Court of New South Wales.  No reason of policy or principle requires that the rules of any one court, potentially having jurisdiction in a matter arising out of the service of a statutory demand, be preferred over the rules of another court having the same jurisdiction.

In our view as the accompanying affidavit complied with the Rules of the Supreme Court of Victoria there was no defect in relation to the form of that affidavit.  Even if we are in error in reaching that conclusion we would not regard the form of affidavit used as warranting an order to set aside the demand under s 459J(1)(b).

Accordingly, the appellant’s appeal on the ground of “a defect” under s 459J fails.

THE PRINCIPLES - A GENUINE DISPUTE?

It does not appear that there was any dispute before the primary judge as to the relevant principles applicable to determining whether there is a genuine dispute about the existence or the amount of a debt to which a demand relates.  Under s 459H a court may set aside a demand if it is satisfied, inter alia,:

“(1)      .......

(a)        that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;

(b)        ........”

Finn J was content to adopt the explanation of “genuine dispute” given by McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 where his Honour said:

“In my opinion [the] expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the ‘serious question to be tried’ criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat.  This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit ‘however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently and probable in itself, it may be’ not having ‘sufficient prima facie plausibility to merit further investigation as to [its] truth’ (cf Eng Mee Yong v Letchumanan [1980] AC 331 at 341), or ‘a patently feeble legal argument or an assertion of facts unsupported by evidence’:  cf South Australia v Wall (1980) 24 SASR 189 at 194.”

His Honour also referred to the judgment of Lindgren J in Rohala Pharmaceutical Pty Ltd (supra) where, at 353, his Honour said:

“The provisions [of s 459H(1) and (5)] assume that the dispute and offsetting claim have an ‘objective’ existence the genuineness of which is capable of being assessed.  The word ‘genuine’ is included [in ‘genuine dispute’] to sound a note of warning that the propounding of serious disputes and claims is to be expected but must be excluded from consideration”.

There have been numerous decisions of single judges in this Court and in State Supreme Courts which have analysed, in different ways, the approach a court should take in determining whether there is “a genuine dispute” for the purposes of s 459H of the Corporations Law.  What is clear is that in considering applications to set aside a statutory demand, a court will not determine contested issues of fact or law which have a significant or substantial basis.  One finds formulations such as:

“... at least in most cases, it is not expected that the court will embark upon any extended enquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute.  All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute”.

See Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362 at 366-7, followed by Ryan J in Moyall Investments Services Pty Ltd v White (1993) 12 ACSR 320 at 324.

Another formulation has been expressed as follows:

“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 ...”

See John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716 at 718, followed by Northrop J in Aquatown Pty Ltd v Holder Stroud Pty Ltd (Federal Court of Australia, 25 June 1996, unreported).

In Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605, Thomas J said:

“There is little doubt that Div 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 Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341 at 357 Beazley J said:

“... the test to be applied for the purposes of s 459H is whether the court is satisfied that there is a serious question to be tried that the applicant has an offsetting claim”.

In Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 at 39, Lockhart J said:

“... what appears clearly enough from all the judgments is that a standard of satisfaction which a court requires is not a particularly high one.  I am for present purposes content to adopt any of the standards that are referred to in the cases ...  The highest of the thresholds is probably the test enunciated by Beazley J, though for myself I discern no inconsistency between that test and the statements in the other cases to which I have referred.  However, the application of Beazley J’s test will vary according to the circumstances of the case.

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”.

In Greenwood Manor Pty Ltd v Woodlock (1994) 48 FCR 229 Northrop J referred to the formulations of Thomas J in Re Morris Catering (Australia) Pty Ltd (1993) 11 ACLC 919, 922 and Hayne J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia (supra), where he noted the dictionary definition of “genuine” as being in this context “not spurious ... real or true” and concluded (at 234):

“Although it is true that the Court, on an application under ss 459G and 459H is not entitled to decide a question as to whether a claim will succeed or not, it must be satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt.  If it can be shown that the argument in support of the existence of a genuine dispute can have no possible basis whatsoever, in my view, it cannot be said that there is a genuine dispute.  This does not involve, in itself, a determination of whether the claim will succeed or not, but it does go to the reality of the dispute, to show that it is real or true and not merely spurious”.

In our view a “genuine” dispute requires that:

·      the dispute be bona fide and truly exist in fact;

·      the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.

We consider that the various formulations referred to above can be helpful in determining whether there is a genuine dispute in a particular case, so  long as the formulation used does not become a substitute for the words of the statute.

IS THERE A GENUINE DISPUTE?

The appellant submitted that the facts before the primary judge raised a genuine dispute as to whether, under the terms of any sub‑contract found to exist, no payment in respect of a progress claim (of which retention monies are a part) was due until after payment was received in respect of the claim from Vynotas.  However, as the primary judge pointed out, there was no evidence that the alleged sub‑contract might contain such a clause.

Two forms of sub‑contract were propounded before the Court.  The form propounded by the appellant did not support, or provide any basis for, the appellant’s claim that no payments in respect of the progress claim by the respondent or the retention amount were due or payable until after payment was received or made in respect of such a claim or amount from Vynotas.  The various clauses relied upon by the appellant, when construed with other clauses of the same document, do not support or give rise to the term alleged by the applicant to exist.

In our opinion, notwithstanding the uncertainty as to the precise terms of the contractual arrangement between the appellant and the respondent, there is no evidence which supports the appellant’s contention that under the terms of the sub‑contract between the parties, the retention monies were not payable until after payment of them by the principal Vynotas.

The appellant ultimately submitted, in the alternative, that the Court was entitled to infer that there had been an implied novation of the sub‑contract between the respondent and Vynotas releasing the appellant from further liability (see Olsson v Dyson (1969) 120 CLR 365 at 388) or, an election by the respondent only to claim the retention moneys from Vynotas.  The learned primary judge found that there was no evidence before him that suggested that either Vynotas or its new construction manager assumed any legal obligation, enforceable by the respondent, to make the payment of the retention monies to it whether by way of assignment or novation.  His Honour found, in substance, that there was no basis in the evidence for the appellant’s claim that the respondent had abandoned its contractual rights, as against the appellant, to recover the retention monies.  Finn J concluded that, at best for the appellant’s case, there was evidence that the respondent was prepared to attempt to obtain payment from Vynotas whether or not that party was legally obliged to pay.  In our view no error by his Honour has been demonstrated.  The short answer to the appellant’s case is, as counsel for the respondent submitted, that there was no evidence that the respondent accepted or agreed that it would only look to Vynotas for payment of the retention money.

In arriving at that conclusion we accept that, as was said by Windeyer J in Olsson v Dyson (supra):

“Novation is the making of a new contract between a creditor and his debtor in consideration of the extinguishment of the obligations of the old contract:  if the new contract is to be fully effective to give enforceable rights or obligations to a third person he, the third person, must be a party to the novated contract”. (at 388)

“.... the requirements of our law are satisfied by a tacit agreement to extinguish the former obligation, and this is inferred when an inconsistent obligation is by agreement substituted.” (at 390)

In the present case there was no evidence of an “inconsistent obligation” substituted, expressly or impliedly, by agreement of the respondent.  In our view there is no factual basis for the proposition that there was a novation, as suggested by the appellant.  The same conclusion also applies in respect of the alleged waiver or election which is based on the same facts.

In reality the appellant’s case is that, if further evidence is able to be adduced, it expects to be able to establish that there is a genuine dispute.  Put another way, in our view the appellant is really contending that there might be a genuine dispute but it cannot establish that there is a genuine dispute at this stage.  But a genuine dispute is required to exist at this, and not some later, stage.  If the material before the Court does not provide a basis for establishing that a genuine dispute exists, it is no answer to say, in effect, that the Court has yet to be told the whole story.  A statutory demand will not be set aside to enable the debtor to go on a fishing expedition; it will be set aside if the debtor can establish that the evidence properly before the Court satisfies it that there is a “genuine dispute about the existence or amount of the debt to which the demand relates” as required by s 459H.

For these reasons the appeal is to dismissed with costs.

I certify that this and the preceding twenty-four (24) pages are a true copy of the Reasons for Judgment herein of their Honours Northrop, Merkel and Goldberg JJ

Associate:

Dated:              July 1997