FEDERAL COURT OF AUSTRALIA

Reavill Farm Pty Ltd v Burrell Solicitors Pty Ltd [2013] FCA 1295

THE COURT ORDERS THAT:

1.    The Creditor’s Statutory Demand dated 10 September 2013 for a debt in the sum of $188,005.11, described as “Judgment/Order in the Supreme Court of NSW Case Number 2013/00255030 made on 22 August 201[3]”, served on the plaintiff on 12 September 2013, be set aside.

2.    The Defendant pay the Plaintiff’s costs as agreed or taxed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    The Creditor’s Statutory Demand dated 17 September 2013 for a debt in the sum of $349,302.42, described as “Judgment/Order in the Supreme Court of New South Wales Case Number 2013/00255045 made on 22 August 201[3]”, served on the plaintiff on 19 September 2013, be set aside.

2.    The Defendant pay the Plaintiff’s costs as agreed or taxed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.     The Creditor’s Statutory Demand dated 10 September 2013 for a debt in the sum of $188,005.11, described as “Judgment/Order in the Supreme Court of NSW Case Number 2013/00255030 made on 22 August 201[3]”, served on the plaintiff on 12 September 2013, be set aside.

2.    The Defendant pay the Plaintiff’s costs as agreed or taxed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.     The Creditor’s Statutory Demand dated 17 September 2013 for a debt in the sum of $349,302.42, described as “Judgment/Order in the Supreme Court of New South Wales Case Number 2013/00255045 made on 22 August 201[3]”, served on the plaintiff on 19 September 2013, be set aside.

2.    The Defendant pay the Plaintiff’s costs as agreed or taxed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

INTRODUCTION

1        On 27 September 2013, each of the plaintiffs in NSD 2023/2013 and NSD 2024/2013, namely, Reavill Farm Pty Ltd (ACN 001 817 492) (“Reavill”) and Champions Quarry Pty Ltd (ACN 127 774 949) (“Champions”) respectively, filed originating process by way of applications under s 459G of the Corporations Act 2001 (Cth) (“Act”) to set aside a Creditor’s Statutory Demand dated 10 September 2013 for a debt in the sum of $188,005.11, described as “Judgment/Order in the Supreme Court of NSW Case Number 2013/00255030 made on 22 August 201[3]”, served on the plaintiff on 12 September 2013.

2        Section C of each application in NSD 2023/2013 and 2024/2013 states:

The application is brought pursuant to s 459G of the Corporations Act 2001, on the ground stipulated in s 459J(1)(b) of that Act, in that there is a genuine dispute about the debt that is the subject of the statutory demand.

3        On the same day, namely, 27 September 2013, each of Reavill and Champions filed an affidavit, sworn by Jeffrey Francis Champion (“Mr Champion”) on 26 September 2013, allegedly in support of its application annexing a copy of the Creditor’s Statutory Demand served on 12 September 2013, para 5 of each of which read:

I say that there is a genuine dispute as to the debt. Annexed to this affidavit and marked “D” is a copy of the Amended Cross Summons in proceedings no. 2011/365912, filed 6 May 2013, and the Amended Statement of [Cross] Claim in those proceedings, filed 6 May 2013. The sums claimed in those proceedings are in excess of the debt the subject of the Creditor’s Statutory Demand …

4        On 3 October 2013, each of the plaintiffs in NSD 2051/2013 and NSD 2052/2013, namely, Reavill and Champions respectively, filed originating process by way of applications under s 459G of the Act to set aside a Creditor’s Statutory Demand dated 17 September 2013 for a debt in the sum of $349,302.42, described as “Judgment/Order in the Supreme Court of NSW Case Number 2013/00255045 made on 22 August 201[3]”, served on the plaintiff on 19 September 2013.

5        Section C of each application in NSD 2051/2013 and 2052/2013 states:

The application is brought pursuant to s 459G of the Corporations Act 2001, on the ground stipulated in s 459J(1)(b) of that Act, in that there is a genuine dispute about the debt that is the subject of the statutory demand.

6        On the same day, namely, 3 October 2013, each of Reavill and Champions filed an affidavit, sworn by Mr Champion on 2 October 2013, allegedly in support of its application annexing a copy of the Creditor’s Statutory Demand served on 19 September 2013, para 5 of each of which read:

I say that there is a genuine dispute as to the debt. Annexed to this affidavit and marked “D” is a copy of the Amended Cross Summons in proceedings no. 2011/365912, filed 6 May 2013, and the Amended Statement of [Cross] Claim in those proceedings, filed 6 May 2013. The sums claimed in those proceedings are in excess of the debt the subject of the Creditor’s Statutory Demand …

7        On 27 November 2013, the application in each proceeding came before me for hearing. At the commencement of the hearing, the plaintiffs sought the leave of the Court to file and rely on amended originating process in each proceeding. The amended originating process differed from that described in [2] and [5] above. In each amended originating process, Section C states:

The application is brought pursuant to s 459G of the Corporations Act 2001, on the grounds stipulated in ss 459H and 459J(1)(b) of that Act in that there is a genuine dispute about the debt that is the subject of the statutory demand and/or there is an off-setting claim, and/or it would otherwise be unjust to allow the statutory demand to stand.

I reserved on this leave application and indicated that I would rule on it at the time of giving judgment. I now refuse leave for the reasons outlined below.

8        The plaintiffs also sought leave to file in Court and read a further affidavit of Mr Champion sworn 26 November 2013. This affidavit dealt with matters which I considered to be irrelevant to the applications before me, namely, proceedings instituted in the Supreme Court of New South Wales on 22 November 2013 seeking to stay the enforcement of the judgments that are the subject of the Creditor’s Statutory Demands that the plaintiffs are seeking to set aside; the orders made by Lindsay J of that court on 26 November 2013 in respect of the stay applications; the reasons why the plaintiffs were said to be unable to comply with the timetable I fixed on 20 November 2013 for the filing and service by the plaintiffs of any affidavit evidence in reply and the filing and serving of a brief outline of submissions dealing with all four proceedings; as well as matters going to the proceedings commenced by the plaintiffs in the Supreme Court of New South Wales referred to in para 5 of Mr Champion’s earlier affidavits (see [3] and [6] above) and the relevant process included as annexure ‘D’ to those affidavits. I therefore refused the plaintiffs leave to file in Court and read Mr Champion’s affidavit sworn 26 November 2013.

BACKGROUND

9        On 22 December 2011, in NSW Supreme Court proceedings commenced by the defendant against Reavill, Champions, Mr Champion, Diana Christine Champion and Macabil Pty Limited, White J gave an interlocutory judgment.

10        On 5 June 2012, a cross-claim against the defendant was brought in these Supreme Court proceedings by Reavill, Champions, Mr Champion, Diana Christine Champion and Macabil Pty Limited.

11        The parties to these Supreme Court proceedings are currently preparing further evidence to be filed. The expectation is that the matter will be fixed for hearing in 2014.

12        On 11 November 2011, the defendant filed an application for assessment of solicitor client costs for barristers fees owed to Mr Tim Robertson SC – Case number: 2011/360984.

13        On 4 January 2012, the defendant filed an application for assessment of solicitor client costs for solicitors fees owed to it – Case number: 2012/3059.

14        On 15 August 2013, the NSW Supreme Court issued Certificates of Determination of Costs in 2011/360984 and 2012/3059 and published Reasons.

15        On 3 January 2013, Reavill filed an application for Review of the Costs as Assessed in 2011/360984 and 2012/3059.

16        On 11 April 2013, the NSW Supreme Court issued Certificates of Determination of the Costs Review Panel in 2011/360984 and 2012/3059.

17        On 22 August 2013, the NSW Supreme Court entered judgment against Reavill, Champions, Mr Champion and Diana Christine Champion in favour of the defendant as creditor for the amount of $188,005.11 relative to the Certificate in Costs Assessment 2011/360984 (unpaid barristers costs).

18        On 22 August 2013, the NSW Supreme Court entered judgment against Reavill, Champions, Mr Champion and Diana Christine Champion in favour of the defendant as creditor for the amount of $349,302.42 relative to the Certificate in Costs Assessment 2012/3059 (unpaid solicitors costs).

STATUTORY CONTEXT

19        Division 3 of Pt 5.4 of the Act deals with applications to set aside a statutory demand served on a company pursuant to s 459E of the Act.

20        Section 459G 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.

21        Section 459H provides:

(1)     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.

(2)     The Court must calculate the substantiated amount of the demand in accordance with the formula:

Admitted total – Offsetting total

where:

admitted total means:

(a)    the admitted amount of the debt; or

(b)    the total of the respective admitted amounts of the debts;

as the case requires, to which the demand relates.

offsetting total means:

(a)     if the Court is satisfied that the company has only one offsetting claim—the amount of that claim; or

(b)    if the Court is satisfied that the company has 2 or more offsetting claims—the total of the amounts of those claims; or

(c)    otherwise—a nil amount.

(3)    If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.

(4)    If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:

(a)     varying the demand as specified in the order; and

(b)     declaring the demand to have had effect, as so varied, as from when the demand was served on the company.

(5)    In this section:

admitted amount, in relation to a debt, means:

(a)    if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt—a nil amount; or

(b)     if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt—so much of that amount as the Court is satisfied is not the subject of such a dispute; or

(c)     otherwise—the amount of the debt.

offsetting claim means a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).

respondent means the person who served the demand on the company.

(6)     This section has effect subject to section 459J.

22        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.

23        Section 459L provides that unless the Court makes an order under ss 459H or 459J, the Court is to dismiss the application and s 459M provides that an order under ss 459H or 459J may be made subject to conditions.

CONSIDERATION AND ANALYSIS

24        The combined effect of ss 459G(1) and (2) of the Act is that a company can only apply to the Court for an order setting aside a statutory demand served on the company if the application is made within 21 days after the demand is so served. There is no dispute that the four applications in the present case satisfy that requirement. The applications in NSD 2023/2013 and 2024/2013 were filed on 27 September 2013, within 21 days after the demands were served namely, 12 September 2013; and the applications in NSD 2051/2013 and 2052/2013 were filed on 3 October 2013, within 21 days after the demands were served namely, 19 September 2013.

25        The combined effect of ss 459G(1), (2) and (3) of the Act is that an application will only be in accordance with s 459G if, within those 21 days:

(1)    An affidavit supporting the application is filed with the Court; and

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

It is common ground that if the affidavits sworn by Mr Champion on 26 September 2013 are “affidavit[s] supporting the application[s]” in NSD 2023/2013 and 2024/2013, and if the affidavits sworn by Mr Champion on 2 October 2013 are “affidavit[s] supporting the application[s]” in NSD 2051/2013 and 2052/2013, all the applications will be in accordance with s 459G. This flows from the undisputed facts that Mr Champion’s affidavits were filed with the Court on the same date as the respective applications they purport to support and copies of both were served on the defendant company within the respective 21 day periods.

26        So the first issue which emerges from this largely common ground is whether Mr Champion’s affidavits sworn 26 September 2013 are “affidavit[s] supporting the application[s]” in NSD 2023/2013 and 2024/2013; and whether Mr Champion’s affidavits sworn 2 October 2013 are “affidavit[s] supporting the application[s]” in NSD 2051/2013 and 2052/2013.

27        Each of the four applications is grounded in s 459J(1)(b) of the Act, namely, “there is some other reason why the demand should be set aside” which, construed in context, means some reason other than because of a defect in the demand. In other words, paras (a) and (b) of s 459J(1) are mutually exclusive: see, Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 51 FCR 446 at 450E per Hill J, and Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 459D–461B per the Court.

28        So construed, are Mr Champion’s affidavits supportive of the respective applications? If these were applications grounded in s 459H(1)(a) of the Act, then the first sentence of para 5 of each affidavit, namely: “I say that there is a genuine dispute as to the debt”, would not be enough: Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 at 459F. In Graywinter, Sundberg J said at 459D that: “In order to be a ‘supporting affidavit’, an affidavit must say something that promotes the company’s case.”

29        In Process Machinery Australia Pty Ltd v ACN 057 262 590 Pty Ltd [2002] NSWSC 45 at [22], Barrett J said:

The real point is that the application and affidavit filed and served within the 21 day period must fairly alert the claimant to the nature of the case the company will seek to make in resisting the statutory demand. The content of the application and affidavit must convey, even if it be by necessary inference, a clear delineation of the area of controversy so that it is identifiable with one or more of the grounds made available by ss.459H and 459J. That process of delineation may not be extended after the end of the 21 day period, although it is open to the plaintiff to supplement the initial affidavit by way of additional evidence relevant to the area of controversy identified within the period.

30        In Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd (2007) 61 ACSR 321, White J said:

[29]    In POS Media Online Ltd v B Family Pty Ltd (2003) 21 ACLC 533; [2003] NSWSC 147, Austin J observed that the observations of Barrett J in Process Machinery at [21] and [22] arguably took the observations of Sundberg J in Graywinter further than they were taken by the Court of Appeal of the Supreme Court of Western Australia in Energy Equity Corporation v Sinedie Pty Ltd (2001) 166 FLR 179; [2001] WASCA 419, and might be inconsistent with Callite Pty Ltd v Adams [2001] NSWSC 52.

…

[32]    Having regard to the diversity of reasoning in these cases as to the precision with which a ground of challenge must be delineated in the supporting affidavit, I do not consider that comity requires me to follow the observations in Process Machinery at [21]–[22] that a supporting affidavit must clearly delineate the grounds of challenge to a statutory demand expressly or by necessary implication.

[33]    If I was wrong in my conclusion expressed during argument that the grounds of challenge were raised by necessary inference, I am nonetheless of the view that the grounds of challenge were available to the plaintiff. They arise from the terms of the supporting affidavit and documents annexed to it. In my respectful opinion, it is not necessary for the applicant to expressly articulate the grounds in the affidavit, or to do so by necessary inference, as distinct from available inference. In my respectful view, all that can be implied from the requirement in s 459G that there be an affidavit filed and served within 21 days supporting the application is that the grounds of challenge must be raised in that affidavit. As Parker J said in Financial Solutions Australasia Pty Ltd v Predella Pty Ltd (2002) 26 WAR 306; 167 FLR 106; 20 ACLC 1287; [2002] WASCA 51 (at [34]):

[34] … The statutory yardstick remains that the affidavit should support the application. The precise nature of the application may well influence what this requires.

31        In the present case, there could be no genuine dispute between the plaintiffs and the defendant about the existence or amount of the debts to which the demands related. The debts were judgment debts for fixed amounts. So much was conceded by counsel for the plaintiffs. Section 459H(1)(a) was therefore irrelevant.

32        Section 459H(1)(b) – “the company has an offsetting claim” – was not relied on, although it was relied on in the proposed amended originating process which the plaintiffs sought leave to file in each proceeding on the morning of the hearing. As I refused leave (see [7] above), it can be put to one side.

33        This leaves s 459J(1)(b) and the question remains, whether Mr Champion’s affidavits sworn 26 September and 2 October 32013 are “affidavit[s] supporting the application[s]” grounded on that section. In my view they are. In each case, the second and third sentences of para 5 read:

Annexed to this affidavit and marked “D” is a copy of the Amended Cross Summons in proceedings no. 2011/365912, filed 6 May 2013, and the Amended Statement of [Cross] Claim in those proceedings, filed 6 May 2013. The sums claimed in those proceedings are in excess of the debt the subject of the Creditor’s Statutory Demand …

34        The Amended Cross-Summons and the Amended Statement of Cross-Claim in proceedings No 2011/365912 contain sufficient information and material to “fairly alert” the defendant “to the nature of the case” the plaintiffs “will seek to make in resisting the statutory demand”: Process Machinery at [22], whether one adopts the “clear delineation” test of Barrett J in Process Machinery at [22], or the more elastic test of White J in Hansmar Investments at [32] and [33].

35        It follows, in my view, that Mr Champion’s affidavits sworn 26 September 2013 and 2 October 2013 are “affidavit[s] supporting the application[s]” in all proceedings, ground as they all are on s 459J(1)(b) of the Act and that, in consequence, all applications are in accordance with s 459G.

36        The remaining issue which emerges is whether the existence of the cross-claim, arising as it does out of the same subject matter or circumstances upon which the judgment debts are constituted, is a reason why the demands should be set aside under s 459J(1)(b)?

37        It is to be observed that s 459H(6) provides that s 459H has effect subject to s 459J. In Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1995) 16 ACSR 213, Olney J expressed the view at 219 that: “It is not altogether clear what the effect of s 459H(6) is …” and went on to say that:

The “other reason” cannot be a defect causing substantial injustice nor can it be a mere defect (s 459J(2)), and it could hardly have been intended to refer to a genuine dispute between the company and the person making the demand about the existence or amount of the debt.

38        In the Full Court (1996) 62 FCR 302, the Court at 317 said:

Whatever view is taken of the relationship between s 459J(1)(a) and (b), the Court has a discretion in a case which does not involve a defect in the demand to set aside the demand, if some appropriate reason is shown. The discretion may be exercised in favour of a company, even without a showing that substantial injustice would otherwise be caused: [Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 55 FCR 562 at 577].

It would be unwise to attempt to mark out the limits of the discretion conferred by s 459J(1)(b)…

39        And in the subsequent case of Spencer Constructions, a differently constituted Full Court confirmed that the only fetter on the Court’s discretion under s 459J(1)(b) is whether the reason is the existence of a defect in the demand: at 460F–G and the cases there referred to.

40        It follows, in my view, that in the present case, the Court’s discretion is not in any way fettered if there is “some other reason why the demand(s) should be set aside”.

41        Counsel for the plaintiffs submitted that I should exercise my discretion under s 459J(1)(b) to set the demand(s) aside for the following reasons.

(1)    The Amended Statement of Cross-Claim (Annexure D to the 26 September and 2 October 2013 affidavits) sets out the relief sought by the plaintiffs. Order 2 seeks:

An order that the legal costs and disbursements claimed by the first cross­ defendant and any other monies claimed under Costs Assessment no 2011/360984 and Cost Assessment no 2012/3059 be set aside.

(2)    The Amended Statement of Cross-Claim was filed on 6 May 2013, well before the defendant sought to enter the judgments that found the demands. The causes of action giving rise to the relief sought in the Cross-Claim include misleading and deceptive conduct, breach of retainer, negligence and breaches of the Legal Profession Act 2004 (NSW).

(3)    These are plausible contentions, placing the debt in dispute and requiring further investigation (through a hearing in the Supreme Court). The dispute truly exists in fact by virtue of the commencement of proceedings in the Supreme Court.

(4)    Notwithstanding that judgments have been entered, this particular claim to relief is not an off-setting claim: it is a claim that there is no liability to pay the monies claimed under the costs assessments.

(5)    If there were any doubt about that position, on 26 November 2013, the Supreme Court of NSW stayed the enforcement of both the judgment debts that are the subject of the demands, pending the determination of the cross-claim.

(6)    The stay was granted following the undertaking of the plaintiffs to pay a sum of $72,000 into court in instalments .

42        There is no evidence of the matters referred to in [41(5)] and [41(6)] because I refused leave to file and read Mr Champion’s further affidavit sworn 26 November 2013. However, these matters were conceded by counsel for the defendant (T 27/39–28/16).

43        I agree that I should exercise my discretion under s 459J(1)(b) to set aside the demands. There is undoubtedly a genuine dispute between the defendant and the plaintiffs, not about the existence or amounts of the judgment debts upon which the demands are founded, but about the costs assessments which constitute the basis upon which the judgment debts were entered and whether those assessments are “infected” by the cause of action raised in the cross-claim such that there is no liability to pay the moneys claimed under those costs assessments.

44        The plaintiffs should have their costs of the applications.

Associate:

Dated:    4 December 2013