FEDERAL COURT OF AUSTRALIA

Anderson Formrite Pty Ltd ACN 097 507 652, in the matter of Anderson Formrite Pty Ltd ACN 097 507 652 v CASC Hire Pty Ltd ACN 066 511 680 [2005] FCA 1424

CORPORATIONS – statutory demand – accompanying affidavit – judgment debt – statutory demand for amount less than judgment debt – whether accompanying affidavit necessary

Corporations Act 2001 (Cth) s 126, s 127, s 459E, s 9, s 459G, s 459H, s 459J

Property Law Act 1969 (WA) s 9, s 10

Acts Interpretation Act 1901 (Cth) s 15AA

Companies Act 1981 (Cth) s 364

Federal Court (Corporations) Rules 2000 r 5.2

MEC Import Sales Pty Ltd v Iozzelli SRL (1998) 29 ACSR 229 cited

NZI Securities Australia Limited v Poignand (1994) 51 FCR 584 cited

MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636 cited

CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384 cited

B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Ltd (1994) 15 ACSR 433 cited

Wildtown Holdings Pty Ltd v Rural Traders Co Ltd (2002) 172 FLR 35 cited

McDermott v Black (1940) 63 CLR 161 cited

Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 cited

Victor Tunevitsch Pty Ltd v Farrow Mortgage Services Pty Ltd (In Liq) (1994) 14 ACSR 565 cited

IN THE MATTER of Anderson Formrite Pty Ltd ACN 097 507 652

ANDERSON FORMRITE PTY LTD ACN 097 507 652 v CASC HIRE PTY LTD ACN 066 511 680

WAD 52 OF 2005

SIOPIS J

7 OCTOBER 2005

PERTH

IN THE MATTER of Anderson Formrite Pty Ltd ACN 097 507 652

THE COURT ORDERS THAT:

1.             The statutory demand dated 17 February 2005 issued by the defendant is set aside.

2.             The defendant is to pay the plaintiff’s costs, including any reserved costs.

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

IN THE MATTER of Anderson Formrite Pty Ltd ACN 097 507 652

REASONS FOR JUDGMENT

1                     This is an application made under ss 459G, 459H and 459J of the Corporations Act 2001 (Cth) (‘the Act’).  The application is for orders setting aside a statutory demand dated 17 February 2005 and served on the plaintiff by the defendant under cover of a letter dated 18 February 2005.

Background

2                     The plaintiff was engaged in September 2001 by Baulderstone Hornibrook Limited (‘Baulderstone’) as the formwork contractor for the construction of a building known as the Woodside Building at St George’s Terrace in Perth.  At all material times, Mr Warren Anderson, was the sole director and company secretary of the plaintiff.

3                     The plaintiff entered into a subcontract with the defendant by which the plaintiff hired and purchased certain items of equipment from the defendant.  These items of equipment were needed for the purpose of carrying out the plaintiff’s contract with Baulderstone.

4                     In May 2002, Baulderstone terminated the contract between the plaintiff and Baulderstone.  The termination of that contract with Baulderstone had the consequence that the plaintiff breached several of its contracts with its subcontractors including the subcontract with the defendant.

5                     The defendant commenced an action against the plaintiff in the District Court of Western Australia on the hire contracts and obtained default judgment against the plaintiff in the sum of $195 554.13.

6                     Mr Anderson, on behalf of the plaintiff, agreed with the defendant to pay the judgment debt by instalments of $50 000.  Two payments for $50 000 were made by the plaintiff in March 2003 and May 2003.  The evidence suggests that these payments were made by Mr Anderson personally.  The plaintiff did not make the next payment due under the agreement between the plaintiff and the defendant.  The defendant then issued a statutory demand.  When the plaintiff did not comply with the statutory demand, the defendant commenced winding up proceedings against the plaintiff in the Supreme Court of Western Australia.

7                     Mr Anderson authorised Mr Joe Passione, the Project Manager of the plaintiff to negotiate a settlement of the outstanding debt with the defendant.  Mr Passione had a number of meetings with Mr Cornelis Borsboom, one of six directors of the defendant, in the months of December 2003 and January 2004 for this purpose.

8                     Mr Passione says that during those discussions he proposed that the plaintiff would assign to the defendant a debt of $48 884 owed to the plaintiff by Brands Construction Pty Ltd (‘Brands’) in payment of an equal sum owed by the plaintiff to the defendant and that Mr Borsboom agreed.  Mr Passione says that there was no discussion as to what would happen if Brands did not pay the debt.  Mr Passione deposed that he said that the plaintiff would deliver to the defendant a FH 2002 Holland Formwork Hoist (‘the Hoist’) in payment of the balance of the outstanding debt after deducting the amount of the assigned debt, and that Mr Borsboom agreed that the defendant would sell the Hoist.  Mr Passione further deposed that the Hoist had a market value of $50 000 to $60 000.  He says that it was agreed that if the Hoist was sold for an amount which was more than the outstanding balance the excess amount would be repaid to the plaintiff.

9                     Mr Passione says that Mr Borsboom agreed that the defendant would discontinue the winding up application.  Mr Borsboom does not dispute the substance of the conversation nor that an agreement was entered into with Mr Passione on behalf of the plaintiff but says that the agreement reached was an agreement in principle and was subject to the agreement being documented by both parties’ respective solicitors.  Mr Passione says that he participated in discussions with Mr Borsboom in early January 2004 about the preparation of a deed, but he says that the purpose of the deed was to record a concluded oral agreement made between himself and Mr Borsboom for the compromise of the debt.

10                  In mid January 2004 notice of the assignment of Brands debt was given.  The plaintiff sent a notice to the defendant.  The plaintiff also delivered the Hoist to the defendant, which the defendant accepted on 13 January 2004.

11                  Mr Passione dealt with the plaintiff’s solicitors in relation to the preparation of the deed and says that he instructed the solicitors of the terms of the agreement reached with the defendant.

12                  The solicitors acting for the plaintiff prepared a draft deed which was referred to as the ‘Deed of Settlement’.

13                  The draft deed recorded that the plaintiff would assign to the defendant the Brands debt of $48 884, and that the plaintiff would place on consignment with the defendant one FH 2002 Holland Formwork Hoist which the defendant would be entitled to sell.  The parties agreed that the Hoist had an indicative market value of $50 000.  There was also provision that insofar as the sale of the Hoist exceeded $46 670.13, the defendant was entitled to hold that excess amount on trust until the balance of all monies had been received from Brands under the assigned debt, at which point the defendant would release the monies held on trust to the plaintiff.  The draft deed also provided that the defendant would discontinue the winding up proceedings on execution by the parties of the deed.

14                  Significantly, the draft deed also contained the following term:

‘4.     Bar

         This deed may be pleaded in bar to any claim commenced or taken by any party against any other party in respect of the outstanding debt owed or that may be owed from time to time by [the plaintiff] to [the defendant] or any cause of action or other matter connected with the outstanding debt owed or that may be owed from time to time by [the plaintiff] to [the defendant].’

15                  Mr Passione approved this draft deed.  On 12 January 2004, Mr Borsboom received a facsimile from Mr Passione that enclosed the draft deed and asked for his comments.

16                  Mr Borsboom said that he referred the draft deed to the defendant’s solicitors who advised him that there should be amendments made to the draft deed.

17                  The defendant’s solicitors wrote a letter to the plaintiff’s solicitors dated 15 January 2004 wherein they proposed various amendments be made to the draft deed.  Significantly, the letter from the defendant’s solicitors contained the following paragraphs:

‘3.     Clause 4 Bar

         Clause 4 should be amended to read as follows:

            “Until such time as:

(a)          Brands have completed payment of the remaining instalments to the value of $48,884.00 (excluding GST) and

(b)          Hoist 1 has been sold by [the defendant] to a value exceeding the outstanding balance of the debt (excluding GST) and

(c)          seven months have expired after the date of the last payment by Brands or after the receipt of funds on the sale of Hoist 1; (This is to preclude any claim being made against [the defendant] by any liquidator or trustee of [the plaintiff] or Brands for repayment of the funds in the event of a possible liquidation of [the plaintiff] or Brands in the relevant period.)’

[The defendant] expressly reserves its right to take any lawful proceedings for the recovery of any outstanding balance including but not limited to the issue of further Winding Up proceedings but thereafter this Deed may be pleaded in bar to any claim commenced or etc…”

4.                  There shall be a new clause 5 to read as follows:

“[The defendant] shall not take any steps to recover the outstanding Judgment Debt whilst Brands duly carries out the terms of its Contract as assigned to [the defendant].”

            Would you please return the Deed to this office for our perusal when you have made the necessary alterations.’

18                  By a facsimile dated 19 January 2004, the plaintiff’s solicitors sent a further draft of the deed to the defendant’s solicitors which amended the provisions of cl 4 in the manner which had been requested in their letter of 15 January 2004.  The covering letter from the plaintiff’s solicitors reads:

‘Please find attached the amended Deed in accordance with your letter dated 15 January 2004 and our subsequent discussion on Friday 16 January 2004. 

Please confirm that the amended document is in accordance with your requirements so we can have our client execute and deliver to you.

We confirm a letter has been drafted and will be sent today advising Brands Construction Pty Ltd that the sale agreement has been assigned to your client, Construction Sales & Hire Pty Ltd.  Upon receipt of their acknowledgment we will provide you a copy.’

19                  The facsimile transmittal sheet also records:

‘cc Anderson Formrite Pty Ltd – 9321 1079/9375 3884’.

20                  The amended draft deed contained the amendments to cl 4 requested by the defendant’s solicitors, but the new cl 5 proposed by the defendant’s solicitors was not added.  Mr Passione says in his affidavit that neither he nor Mr Anderson was aware of the contents of this letter from the plaintiff’s solicitors before it was sent and he did not instruct the plaintiff’s solicitors to send it.  Further, he says that the amended draft deed did not reflect the oral agreement between himself and Mr Borsboom.

21                  On 29 January 2004, the defendant’s solicitors wrote to the plaintiff’s solicitors stating that the winding up application had been adjourned for a further week and advising that they were awaiting the delivery of the settlement deed for execution by their client.

22                  The plaintiff’s solicitors sent a letter dated 9 February 2004 to the defendant’s solicitors which enclosed an original Deed of Settlement which had been signed by Mr Anderson.  The letter contained the following paragraph:

‘We also enclose the original Deed of Settlement duly executed by our client.  We request that your client executes the Deed and return a copy to our office as soon [sic] at your earliest convenience.’

23                  Mr Anderson deposed that he had in late December 2003 spoken with Mr Passione and authorised him to make an offer to compromise the outstanding debt with the defendant by the assignment of the debt owed by Brands and the delivery of the Hoist.  He said that Mr Passione had told him that he had reached agreement with the defendant in early January 2004 on full satisfaction of the debt owed to the defendant, and that the agreement Mr Passione had reached would be recorded in a deed.  Mr Anderson said that at the time that he signed the document sent to him by the plaintiff’s solicitors he was not aware that the document did not reflect the terms of the agreement made between Mr Passione and Mr Borsboom in late January 2004.  He says that when he signed the document he thought that it reflected the agreement that Mr Passione had made with Mr Borsboom.

24                  Some time after 9 February 2004, Mr Borsboom signed the deed in the place provided on the signing page for the execution of the deed by the defendant.

25                  As a consequence of each of Mr Anderson and Mr Borsboom affixing their respective signatures to the document, the signing page of the document appeared as follows:

‘19 January 2004

Signing page___________________________________________

EXECUTED as a deed

Signed and delivered by Anderson Formrite Pty Ltd

in the presence of

(signature of W P Anderson)____________           ______________________________________

Director or Agent for the Company                                     Director or Agent for the Company

Warren Perry Anderson________________           ______________________________________

Name of Director or Agent for the Company (print)            Name of Director or Agent for the Company (print)

Signed and delivered by Construction Sales & Hire Pty Ltd

in the presence of

(signature of Cornelis Johannes Borsboom)           ______________________________________

Director or Agent for the Company                                     Director or Agent for the Company

Cornelis Johannes Borsboom___________            ______________________________________

Name of Director or Agent for the Company (print)            Name of Director or Agent for the Company (print)’

26                  By letter dated 19 March 2004, the defendant’s solicitors returned to the plaintiff’s solicitors the Deed of Settlement.  The letter stated:

‘We return herewith the Deed of Settlement duly executed by Construction Sales & Hire Pty Ltd and would ask if you would arrange for the document to be executed by Anderson Formrite Pty Ltd.  On receipt of the executed and stamped document we have instructions to withdraw the application for winding up.

We may add that our client has received no payments from Brands Constructions and that it is our client’s intention to now issue proceedings against Brands unless payment is made by Monday 22 March 2004.

It might be appropriate if this information could be conveyed to the Managing Director of Brands by your client.’

27                  There was no response to this letter in evidence.  However, the defendant’s solicitors subsequently withdrew the winding up application.

28                  Mr Borsboom deposed that after the plaintiff delivered the Hoist to the defendant, he made inquiries as to the value and saleability of the Hoist.  Mr Borsboom contacted the manufacturer of the Hoist who advised him that the Hoist could not be used in Western Australia under the new State Safety Regulations unless it was fitted with an electronic safety system.  He was further advised that the cost of the electronic safety system was in the region of $15 000.

29                  Mr Borsboom also said that the defendant has received no offers to purchase the Hoist, and that Brands went into liquidation in or about June or July 2004.  He said that the defendant has received no payments under the assignment of the debt due from Brands to the plaintiff.

30                  The defendant served a statutory demand dated 17 February 2005 on the plaintiff which claimed the sum of $95 554.13.

31                  The relevant statutory demand reads as follows:

‘To:  Anderson Formrite Pty Ltd…(“the Company”)

1.      The Company owes CASC Hire Pty Ltd formerly known as Construction Sales & Hire Pty Ltd ACN 066 511 680 of 2 Redcliffe Road Redcliffe in the State of Western Australia (the “Creditor”) the amount of $95,554.13 being the total amount of the debt described in the Schedule.

2.      The amount is due and payable by the Company.

…

Schedule

       Description of Debt:

       The balance of the Judgment of the District Court of Western Australia Held at Perth Action No. 1161 of 2002 dated the 18^th day of June 2002 entered for the Creditor against the Company for $195,554.13 now standing at $95,554.13 the Company having paid the Creditor the sum of $50,000 on the 4^th day of March 2003 and the sum of $50,000 on the 23^rd day of May 2003.

Dated the 17^th day of February 2005.’

32                  It is common cause that no affidavit accompanied the statutory demand.

Statutory framework

33                  Section 459E(3) of the Act provides:

‘Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that:

(a)         verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and

(b)         complies with the rules.’

34                  Section 9 of the Act provides:

‘rules means:

(a)         rules of the Federal Court; or

(b)         rules of the Supreme Court of a State or internal Territory;

as the case requires.’

35                  The relevant rule is to be found at r 5.2 of the Federal Court (Corporations) Rules 2000.  This rule provides as follows:

‘For the purposes of subsection 459E(3) of the Corporations Act, the affidavit accompanying a statutory demand relating to a debt, or debts, owed by a company must:

(a)         be in accordance with Form 7 and state the matters mentioned in that Form; and

(b)         be made by the creditor or by a person with the authority of the creditor or the creditors; and

(c)          not state a proceeding number, or refer to a Court proceeding, in any heading or title to the affidavit.’

36                  Form 7 requires the affidavit to state the name of the creditor(s) and the name of the debtor company.  The Form then requires the deponent to state his or her relationship to the creditor.  If the creditor is a company, the deponent may be a director.  A deponent who is not a creditor must state the facts entitling him or her to make the affidavit.  The deponent is then required to identify the debt(s), state the nature of the debt(s), and state the source of his or her knowledge of the matters stated in the affidavit in relation to the debt(s).  Significantly, the Form also requires that the deponent must depose that the debt (or total amount of the debts) is due and payable by the debtor company; and that he or she believes that there is no genuine dispute about the existence or the amount of the debt(s).

37                  Section 459J(1) of the Act provides as follows:

‘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.’

38                  Section 459G of the Act provides:

‘(1)      A company may apply to the Court for an order setting aside a statutory demand served on the company.

(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.’

39                  Section 459H(1) of the Act provides:

‘This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:

(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)          that the company has an offsetting claim.’

40                  Section 126 of the Act provides:

‘(1)      A company’s power to make, vary, ratify or discharge a contract may be exercised by an individual acting with the company’s express or implied authority and on behalf of the company.  The power may be exercised without using a common seal.

(2)       This section does not affect the operation of a law that requires a particular procedure to be complied with in relation to the contract.’

41                  Section 127 of the Act provides:

‘(1)      A company may execute a document without using a common seal if the document is signed by:

(a)          2 directors of the company; or

(b)          a director and a company secretary of the company; or

(c)          for a proprietary company that has a sole director who is also the sole company’s secretary – that director.

(2)       A company with a common seal may execute a document if the seal is fixed to the document and the fixing of the seal is witnessed by:

(a)          2 directors of the company; or

(b)          a director and a company secretary of the company; or

(c)          for a proprietary company that has a sole director who is also the sole company secretary – that director.

(3)       A company may execute a document as a deed if the document is expressed to be executed as a deed and is executed in accordance with subsection (1) or (2).

(4)       This section does not limit the ways in which a company may execute a document (including a deed).’

The plaintiff’s submissions

42                  The plaintiff submits that the statutory demand should be set aside on three grounds.

43                  Firstly, it is said that the defendant did not comply with the provisions of s 459E(3) of the Act when it served the statutory demand, in that the demand was not accompanied by an affidavit that verified the debt and complied with the ‘rules’ within the meaning of the Act.  The plaintiff submitted that the exemption in s 459E(3) of the Act from having to accompany a demand with a complying affidavit in respect of a ‘judgment debt’, only applies where the demand is for the very amount of the judgment debt and not for any other amount.  Because the demand in this case was for a sum less than the sum in respect of which the judgment was given, and no affidavit had accompanied the demand, the defendant had failed to comply with s 459E(3) of the Act.  The demand should accordingly be set aside under s 459J(1)(b) of the Act.  The plaintiff relied upon MEC Import Sales Pty Ltd v Iozzelli SRL (1998) 29 ACSR 229 (‘Iozzelli’) for the proposition that an affidavit must accompany the demand unless the demand is for the very sum of the judgment.

44                  Secondly, the plaintiff submits that there is a genuine dispute under s 459H(1)(a) of the Act about the existence of the debt to which the demand relates.  The plaintiff says that the dispute relates to the terms and effect of the oral agreement which was reached by Mr Passione on behalf of the plaintiff and Mr Borsboom on behalf of the defendant, and the aftermath of that agreement.  The relevant areas of dispute are whether the oral agreement was to have immediate binding effect or would only have binding effect once a binding deed between the parties was executed; whether the compromise agreed to at the time was to operate as a release of the plaintiff from the date of the agreement so that the effectiveness of any compromise was not delayed until, or dependent upon, the defendant recovering the full amount of the debt under the agreement; and whether the deed of settlement which was subsequently prepared by the plaintiff’s solicitor and which was signed by Mr Anderson and Mr Borsboom which postponed the release of the plaintiff from liability in respect of the outstanding debt, was binding on the parties so as to supersede the oral agreement.  In relation to the last mentioned matter, the plaintiff argues that there is a genuine dispute as to whether the deed of settlement was binding.  This is because it is arguable that because the parties specifically chose to use a deed as the means whereby the parties would effect or record their agreement, the formalities needed to execute a deed had to be complied with.  It was said the use of a deed is important in relation to the compromise of claims because of issues regarding consideration that can arise in the context.  It was submitted there was no compliance with the formalities, because Mr Borsboom, was the only person who signed the deed for the defendant.  The defendant did not affix its seal to the document and did not comply with its articles of association in relation to the entry into a deed.  Further, it was submitted that the defendant did not comply with the provisions of s 127(1) and s 127(3) of the Act, nor with the provisions relating to the execution of a deed under s 9 and s 10 of the Property Law Act 1969 (WA) (‘Property Law Act’).

45                  The third ground, relied upon by the plaintiff was that there was a cross‑claim against the defendant founded on the defendant not having returned the Hoist and therefore having converted the Hoist.

The defendant’s submissions

46                  As to the plaintiff’s first ground, the defendant accepted that it had not accompanied the demand with an affidavit, but submitted that it was not necessary to do so, because the debt demanded was a judgment debt within the meaning of s 459E(3) of the Act.  The defendant submitted that the exemption on the requirement to accompany the statutory demand with a complying verifying affidavit under s 459E(3) of the Act, was not limited only to the circumstance where the statutory demand was for the very sum of the judgment debt.  It was sufficient if a lesser sum was claimed provided that the debt emanated from a greater amount that was the very sum recorded in the judgment.  The defendant argued that Iozzelli was distinguishable, because it dealt with a specific circumstance of a judgment having been obtained in Italian lira, and it being necessary to convert that sum into Australian dollars.  Here, argued the defendant, there was no need for any conversion from a foreign currency to take place.

47                  As to the second ground relied on by the plaintiff, the defendant submitted that there is no genuine dispute in relation to the terms and effect of the oral agreement which was reached between Mr Passione and Mr Borsboom.  The oral agreement had been superseded by the parties entering into a binding written agreement.  The defendant accepted that the deed of settlement had not been executed by the defendant in a manner which complied with its articles of association, s 127 of the Act or the provisions of s 9 and s 10 of the Property Law Act.

48                  However, the defendant submitted that there was no genuine dispute on this issue because there was no statutory requirement that an agreement to compromise a debt was required to be by way of a deed and that the defendant was, therefore, not required to comply with the formalities associated with the execution of a deed, s 127(1) of the Act or s 9 and s 10 of the Property Law Act.  All that was necessary was for the person who signed the deed on behalf of the company to have been acting within his or her actual or apparent authority.  The defendant relied upon the cases of NZI Securities Australia Limited v Poignand (1994) 51 FCR 584 (‘Poignand’) and MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636 (‘MYT Engineering’).

49                  The defendant also argued that it was not necessary for the defendant also to have executed the document because it was sufficient if only the plaintiff had executed it for it to be binding on the plaintiff.  Further, the defendant argued that it was open to the defendant at any time to procure that a second director of the defendant sign the deed.

50                  As to the plaintiff’s third ground, the defendant argued that there can be no claim in conversion because the Hoist was delivered into the possession of the defendant with the consent of the plaintiff so that it could be sold by the defendant on consignment, that the plaintiff had never demanded the return of the Hoist, and that, in any event, the Hoist was of no use to the defendant and the plaintiff could collect the Hoist from the defendant at any time.  There was, therefore, no basis on which any claim could be sustained that the defendant had dealt with the Hoist in a manner that was repugnant to the plaintiff’s right to possession.

Plaintiff’s submissions in response

51                  In response to the defendant’s arguments in respect of the second ground, the plaintiff argued that the cases of Poignand and MYT Engineering were distinguishable on the facts.  The Poignand case dealt with the means of appointing a receiver and the MYT Engineering case dealt with the means of executing a deed of company arrangement.  The plaintiff argued that in MYT Engineering the High Court accepted that in circumstances where a company is required to execute a deed the formalities must be complied with.  The plaintiff argued that in the particular circumstances of this case, the parties had stipulated that it was necessary that a deed be executed and in those circumstances the position fell within the exception recognised in MYT Engineering.

52                  The plaintiff further argued that it was the parties intention that both parties execute the deed and therefore it was not a case where one party could be bound in the absence of the other party also being bound.  Further, the plaintiff argued that as the statutory demand was served at a time when the document was in the form in which it appeared in the evidence, the matter had to be dealt with on the basis of the evidence as it stood and it was of no assistance to the defendant to say that it could now get a second director to sign the document.

Reasoning

53                  I deal with the first issue, namely whether it was necessary for the defendant to have accompanied the demand with an affidavit which complied with s 459E(3) of the Act.

54                  The resolution of this issue calls for a construction of the words ‘judgment debt’ in s 459E(3) of the Act.  Section 15AA of the Acts Interpretation Act 1901 (Cth) provides:

‘In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object.’

55                  In discerning the legislative purpose, it is appropriate to ascertain the mischief to which the legislation was directed by reference to the law reform commission reports and explanatory memoranda (CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384 at 408).  Section 459E was first enacted as part of a number of reforms made to the corporations law by the Corporate Law Reform Act 1992 (Cth).  These reforms were made following a report into insolvency matters by the Australian Law Reform Commission (‘the Law Reform Commission’) (Report No 45) (‘the Report’) which was published in 1988.  Under the law, as it stood at that time, a creditor was entitled to issue a statutory demand for a debt under s 364(2)(a) of the Companies Act 1981 (Cth).  If a company failed to comply with such a demand it was deemed to be unable to pay its debts.  However, if a statutory demand was issued in relation to a genuinely disputed debt, the courts held that the presumption of insolvency did not arise from the company’s failure to comply with that demand (B H McPherson, McPherson The Law of Company Liquidation, 3^rd edn, ed J O’Donovan, Law Book Company, 1987 at 52‑53).  There was no requirement under that regime for a statutory demand be served with an accompanying affidavit verifying that the amount of the debt was due and payable and that the deponent believed that there was no genuine dispute in relation to the debt.

56                  In Discussion Paper No 32 (‘the Discussion Paper’), published as part of its inquiry, the Law Reform Commission said (at par 106):

‘…  No major change is proposed to the procedure for the involuntary winding up of an insolvent company.  The proposals that are put forward seek to remove difficulties or shortcomings that have become apparent with the present system…  Most applications for winding up are based on the failure of a company to comply with a demand under s 364 of the companies legislation.  This demand process is easily used but is largely unregulated and because of this subject to some abuse.  In addition, the debt is often disputed.  To overcome these difficulties formal requirements for a statutory demand are proposed together with proposals for hearing issues of disputed debts.’

57                  Both in the Discussion Paper and in the subsequent Report the Law Reform Commission recommended that a change be made to the existing procedure for serving a statutory demand, inter alia, by requiring that, except in the case of a judgment debt, a statutory demand be in writing in accordance with a prescribed Form and that it was to be verified by an affidavit in a prescribed Form.  The Explanatory Memorandum to the Corporate Reform Bill 1992 provided as follows:

‘Proposed section 459E – Creditor may serve statutory demand on company

…

681.     Proposed subsection 459E(3) provides that unless the debt is a judgment debt, the demand must be accompanied by an affidavit that is in the prescribed form and verifies that the debt is due and payable by the company.  This is appropriate, given the serious consequence (a presumption of insolvency) which can arise if a statutory demand is not met, and is currently provided for in rules of court.’

58                  The legislative purpose of s 459E(3) of the Act was considered by McLelland CJ in the case of B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Ltd (1994) 15 ACSR 433.  The context in which his Honour considered the legislative purpose was in relation to whether the creditor had accompanied the demand with an affidavit that complied with Pt 80A r 15 of the Supreme Court of New South Wales Rules – the applicable rules under s 459E(3)(b) of the Act, in that case.  His Honour said (at 435‑436):

‘The requirement of that rule, as to the identity of the person making the affidavit accompanying the statutory declaration, is designed to serve the public interest as well as to protect the company against unwarranted demands, by endeavouring to ensure, within practical limits, that the person who must put his or her oath or solemn affirmation to the relevant matters (and thereby risk a conviction for perjury if a knowingly false statement is made) is the person associated with the creditor who is most likely to have direct knowledge of those matters.  It is important in this regard to bear in mind that the relevant matters include not only a belief as to the existence and amount of the debt, but also a belief as to the absence of any genuine dispute about the existence or amount of the debt.  The express requirement in the rule that the person making the affidavit depose to his or her belief that there is no genuine dispute is a significant mechanism for filtering out cases where there is in fact such a dispute, so as to prevent such cases from reaching the court on such an application as the present, with a consequent waste of time and resources.  This mechanism would be substantially weakened unless a person likely to have personal knowledge of the existence of a dispute if there is one makes the affidavit.  A statement of a belief that there is no genuine dispute based solely on hearsay is unlikely to have anything like the same degree of reliability.  I therefore do not regard what has occurred in the present case as a merely technical breach of the rules.  It goes to the heart of what Pt 80A r 15 was intended to achieve.’

59                  In the case of Wildtown Holdings Pty Ltd v Rural Traders Co Ltd (2002) 172 FLR 35 at 39‑40 (‘Wildtown’), the Full Court of the Supreme Court of Western Australia approved of the following observations made by Master Sanderson in the case of Four Seasons Construction Pty Ltd v Eastern Metropolitan Regional Council (2001) 35 ACSR 716 at [19] as to the purpose of an affidavit which accompanies a statutory demand:

‘First the corporation is advised that the debt is outstanding and is assured that the party serving the demand has no doubts that the debt is owed.  Secondly, and perhaps more importantly, when the matter comes before the Court, either on an application to set aside a statutory demand or on a winding up application, the Court, by reference to the accompanying affidavit can be sure the party issuing the demand has taken steps to satisfy themselves that the debt is outstanding.  This may have particular importance on an uncontested winding up.  But even on a contested application to set aside a statutory demand, if there is compliance with the rules in relation to the accompanying affidavit, the Court can be satisfied that there is a solid basis on which to begin.  The respondent should say that there is a debt, that it is still owed and about which there is no genuine dispute.  It is then up to the applicant to show that the demand ought be set aside either because there is a genuine dispute or for some other reason.  An accompanying affidavit which refers to the deponent’s belief that there is no genuine dispute about the debt is important if the issues between the parties are to be clearly delineated.’

60                  The importance of the creditor serving the statutory demand with an accompanying affidavit which complied with the requirements of the Act, was also recognised by the Full Court of the Supreme Court of Western Australia in the Wildtown case.  In that case, the creditor served a statutory demand and an accompanying affidavit.  The deponent, did not, however, depose that to his belief there was no genuine dispute about the existence or the amount of the relevant debt or debts.  The Full Court had to determine whether this constituted a defect in the affidavit such that the statutory demand should be set aside on the basis of s 459J(1)(b) of the Act.  Referring to that defect in the affidavit, Templeman J (with whom Steytler and Miller JJ agreed) said at 44:

‘There was, therefore, a major omission from the affidavit.  As Miller J said in Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd at 359 [32]:

         “…the failure of the deponent to swear that there was no genuine dispute between the parties was a significant omission.  It is essentially because there is no genuine dispute that the legislation has provided for the (statutory demand) procedure.”

…, in my view, as a result of this failure, it cannot be said that there was either compliance or substantial compliance with O 81G, r 31.  On that ground also, in my view, the statutory demand should have been set aside.’

61                  In my view, the foregoing considerations should inform the construction that is to be given to the words ‘judgment debt’ in s 459E(3).

62                  The rationale for exempting a statutory demand for the very sum of a judgment, from the need for verification by an accompanying affidavit is apparent.  The judgment speaks for itself as to the amount which is due and payable and, prima facie, also in relation to the absence of a genuine dispute.

63                  However, once the statutory demand is for a sum different from the sum in the judgment, the rationale for the exemption from the verification no longer applies because extraneous events or circumstances have intervened.  There is then a need to identify the amount claimed by reference to the extraneous intervening events and circumstances.  Further, these intervening events and circumstances are capable of giving rise to disputes as to the amount of an outstanding debt and, also, as to the continued existence of the debt.  Thus, it is possible, depending on the nature of any agreement that the debtor and creditor may have reached in relation to the compromise or further payment of the judgment debt, that liability in respect of the judgment debt may have been discharged, to be replaced by a different contractual obligation (see McDermott v Black (1940) 63 CLR 161 at 183‑185).  In these circumstances, the same considerations which underlie the introduction of the legislative requirement for verification of statutory demands for amounts that were never the subject of a judgment, apply equally to demands for amounts different from the sum in respect of which a judgment was given.  It follows, in my view, that a narrow construction should be given to the words ‘judgment debt’ in s 459E(3) of the Act so that the exemption is confined to demands for the very amount in respect of which judgment was obtained, and not for any different amount.

64                  The defendant has not argued that in the event that I determined that, on the proper construction of s 459E(3) of the Act, there was a need for the statutory demand to be accompanied by a complying affidavit, that the demand should not be set aside under s 459J(1)(b) of the Act.  As is evident from the matters referred to above, the failure to accompany the statutory demand with a complying affidavit is a serious omission.  In my view, the statutory demand should be set aside (Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 458‑459 (‘Spencer Constructions’), Wildtown, Victor Tunevitsch Pty Ltd v Farrow Mortgage Services Pty Ltd (In Liq) (1994) 14 ACSR 565 at 568).  Accordingly, I order that the statutory demand dated 17 February 2005 be set aside.

65                  In view of the conclusion to which I have come, there is no need to consider the other arguments which were raised by the plaintiff.  However, these matters were argued fully and I will briefly state my views.  Applying the test in Spencer Constructions at 456, I would have found that there was a genuine dispute on the question of whether the parties reached an agreement to compromise the debt and, in particular, whether the document signed by Mr Anderson and Mr Borsboom bound the parties, on the following grounds.  It is arguable that the formalities for the execution of a deed are to be complied with where the parties to the intended deed agreed that it is by means of a deed that they would contract, and it is also arguable that the decisions Poignand and MYT Engineering are distinguishable.  Further, it is a question of fact whether the parties did agree that it would be by the execution of a deed that they would, on the defendant’s version, contract, or, on the plaintiff’s version, record the existing oral agreement.  Also, it is arguable that this was not a case where it was sufficient that one party only execute a deed for that party to be bound.  The evidence shows that the common intention was that both parties would execute the deed and each party was to undertake obligations under the deed.  It is, also, of no avail to the defendant to argue that it could at any time have procured another director to have added his signature to the document.  The statutory demand was issued with the document in the form in which it was put into evidence, and, as I have said, in the particular circumstances of this case, it is arguable that the signature of one director for the defendant is insufficient.

66                  I would have found that there was no basis for an offsetting claim on the grounds that the plaintiff did not demonstrate the existence of a plausible claim for conversion by the defendant of the Hoist.

Associate:

Dated:              7 October 2005