FEDERAL COURT OF AUSTRALIA

PCM Nominees (WA) Pty Ltd v ACN 063 291 430 Pty Ltd [2017] FCA 848

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiff’s application be dismissed.

2.    The time for compliance with the statutory demand be extended for a period of 28 days from today’s date.

3.    The plaintiff pay the costs of the defendant, to be assessed if not agreed.

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

REASONS FOR JUDGMENT

MCKERRACHER J:

INTRODUCTION

1    The plaintiff applies to set aside a statutory demand issued by the defendant. The application proceeds on the bases that:

(a)    there is a genuine dispute as to the relevant debt;

(b)    there was no evidence to support the existence of a debt;

(c)    the debt has been secured to the defendant’s reasonable satisfaction;

(d)    the statutory demand was issued for the improper purpose of applying pressure on the plaintiff to pay the amount claimed; and

(e)    the claim cannot meet the requirements of a claim on a guarantee.

2    The dispute relates to the proceeds of sale of a property by the plaintiff in Perth. The parties agreed that a caveat registered against the property would be withdrawn and the nett proceeds of sale would be held in the trust account of the plaintiff’s solicitors, not to be dealt with without the consent of the defendant’s solicitors.

3    The plaintiff says that in circumstances where it was abundantly clear that there was a genuine dispute about the proceeds, rather than commence a proceeding which would ventilate that dispute, the defendant resorted to the tactical issuing of a statutory demand.

4    By way of an interlocutory application the defendant seeks orders that the plaintiff’s application be dismissed for want of jurisdiction.

BACKGROUND

5    Mr Phillip McAlister is the sole director and sole shareholder of both the plaintiff and the defendant. The defendant is in liquidation. The liquidator relies on a Deed entered into between the plaintiff and the defendant, Mr McAlister and PMCARCH Pty Ltd on or about 31 July 2014. In the affidavit accompanying the statutory demand, the liquidator claims debts totalling $527,248 said to be owed to it by the plaintiff in its own right and as trustee for the Wright Street Development Trust (the debt). These sums relate to amounts payable under the Deed in respect of two outstanding loan accounts between the defendant and Mr McAlister as described in the statutory demand. In the affidavit in support of the statutory demand, the liquidator says:

I have inspected the business and financial records of the [defendant] made available to me by [Mr McAlister], the sole director and secretary of the [defendant], upon my appointment as liquidator of the [defendant] in relation to the [plaintiff’s] account with the [defendant].

The debts mentioned in paragraph 1 of this affidavit are due and payable by the [plaintiff] based on the business and financial records of the [defendant] available to me as liquidator of the [defendant].

I believe that there is no genuine dispute about the existence or amount of the debts.

6    Mr McAlister, however, for the plaintiff, says that in correspondence exchanged between the parties, the plaintiff’s solicitors gave notice that the defendant’s interpretation of the terms and conditions of the Deed were not agreed and the liquidator’s construction was ‘irrelevant and unenforceable’.

7    The defendant relies on two extensive affidavits. The first is that of Mr Adrian Di Menna, a lawyer employed by Murfett Legal. This affidavit annexed the 29 September email from Western Legal which attached the originating process to set aside the defendant’s statutory demand and the supporting affidavit of Mr McAlister. On 29 September Mr Di Menna responded indicating that:

We confirm we will accept service once we receive a filed copy of the documents (ie stamped by the registry) … Until such time service has not been effected.

8    On 14 October 2016, Mr Di Menna wrote to Western Legal inviting the plaintiff to discontinue its application to set aside the defendant’s statutory demand due to failure to comply with the requirements of s 459G(3) of the Act. In the absence of a response, a further invitation was extended on 17 October 2016. This also did not yield a response.

9    The defendant also relies upon an affidavit of Mr Simon Harris, a director of the advisory and investment firm KordaMentha. Mr Harris confirms the appointment of Mr Rocke as liquidator on 19 May 2015 and the investigations conducted since that time. He refers to the entry into the Deed whereby the defendant sold its architectural business to PMCARCH, Mr McAlister acknowledged the debt of $527,248 and the plaintiff guaranteed payment of the debts to the defendant and charged all of its right, title, estate and interest in the property to the defendant to secure payment of the debt.

10    As the sole director of the defendant, the plaintiff, PMCARCH and in his own capacity, Mr McAlister was the only signatory to the Deed.

11    On or about 13 January 2016, a caveat was registered over the property at the instance of the liquidator to secure the interest under the Deed.

12    On 11 February 2016, demand letters were sent, both to Mr McAlister and to the plaintiff demanding payment of the debt and between 21 February 2016 and 16 August 2016 there was further correspondence in relation to those matters.

13    The liquidator and Mr Harris each say that the plaintiff has never raised a genuine dispute in relation to the debt and the guarantee of that debt by the plaintiff.

14    The sale of the property occurred and settlement took place on 12 October 2016. As noted, the caveat was withdrawn on the basis that the proceeds of the sale would be held in the plaintiff’s solicitor’s trust account pending agreement of the parties or a court order.

STATUTORY FRAMEWORK

15    Section 459C of Corporations Act 2011 (Cth) raises the presumption of insolvency, providing:

459C    Presumptions to be made in certain proceedings

(1)    This section has effect for the purposes of:

(a)    an application under section 234, 459P, 462 or 464; or

(b)    an application for leave to make an application under section 459P.

(2)    The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made:

(a)    the company failed (as defined by section 459F) to comply with a statutory demand; or

…

(3)    A presumption for which this section provides operates except so far as the contrary is proved for the purposes of the application.

16    There is then s 459F of the Act which specifies when a company is taken to fail to comply with a statutory demand. It provides:

(1)    If, as at the end of the period for compliance with a statutory demand, the demand is still in effect and the company has not complied with it, the company is taken to fail to comply with the demand at the end of that period.

(2)    The period for compliance with a statutory demand is:

(a)    if the company applies in accordance with section 459G for an order setting aside the demand:

(i)    if, on hearing the application under section 459G, or on an application by the company under this paragraph, the Court makes an order that extends the period for compliance with the demand—the period specified in the order, or in the last such order, as the case requires, as the period for such compliance; or

(ii)    otherwise-the period beginning on the day when the demand is served and ending 7 days after the application under section 459G is finally determined or otherwise disposed of; or

(b)    otherwise-21 days after the demand is served.

17    However, the present application is pursuant to s 459G which specifies the circumstances in which a company may apply to set aside a statutory demand:

(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.

18    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 …

INTERLOCUTORY DISPUTE

19    Before dealing with the plaintiff’s application, it is necessary to consider the defendant’s application for orders pursuant to r 13.01(c) of the Federal Court Rules 2011 (Cth) in which it argues that the plaintiff’s application to set aside the defendant’s statutory demand filed at Court on 29 September 2016 has not been duly served and the requirements of s 459G(3) of the Act have not been satisfied. The defendant seeks orders that the plaintiff’s application be dismissed for want of jurisdiction due to the failure on the part of the plaintiff to serve the plaintiff’s application within the strict 21 day time period provided in s 459G(3) of the Act and costs on an indemnity basis pursuant to r 40.02(a) of the Rules.

20    The evidence reveals that the defendant served the statutory demand on the plaintiff on 9 September 2016 by hand, delivering the creditors’ statutory demand to the plaintiff’s registered office. It follows that the 21 day period for compliance for the purpose of s 459G(2) of the Act ended on 30 September 2016 (the expiry date). The defendant’s position is that the plaintiff purported to serve its application to set aside the statutory demand on 29 September 2016, but failed in substance to do so. The plaintiff’s application to set aside was emailed to Mr Di Menna. The defendant makes the point that the application to set aside did not bear the seal of the Court or the registrar’s signature, any Court stamp, the Court proceeding number or the return date for the plaintiff’s application.

21    The defendant contends that the plaintiff has failed to comply with the requirements of s 459G(2) of the Act which provides that an application to set aside a creditor’s statutory demand must be filed at Court within 21 days after the demand is served, accompanied by a supporting affidavit pursuant to s 459G(3)(a) of the Act and served on the person that served the statutory demand within 21 days after it has been served pursuant to s 459G(3)(b) of the Act.

22    The requirements for service under s 459G(3)(b) of the Act are that the application and supporting affidavit purportedly being served must have:

(a)    the seal of the Court, the registrar’s signature or some other authenticating mark, such as the Court stamp;

(b)    the Court proceeding number; and

(c)    the return date for the application, that is, the date and time which the application will be heard by the Court.

23    The defendant relies on Cooloola Dairys Pty Ltd v National Foods Milk Ltd [2005] 1 Qd R 12 and Opensoft Australia Pty Limited v Miller Street Pty Limited [2011] FCA 653 (at [31]) where Jagot J said:

As the plaintiff acknowledged, there is a long line of authority which stands for the proposition that the requirement of s 459G(3)(b) of the Corporations Act is for a copy of the application and supporting affidavit to be served as filed; or, otherwise put, that copies of the originating process and supporting affidavit as sealed by the Court, bearing a proceeding number and a return date, are required to be served by the terms of s 459G(3)(b). …

(emphasis added)

24    In the absence of strict compliance with s 459G of the Act, the application to set aside the statutory demand is not validly on foot and should be dismissed. See, for example, Accommodation West Pty Ltd v Innis [2009] WASC 337 (at [4]-[7]) where Master Sanderson said:

4    The defendant argues that the document which was served was not a copy of the application for the purposes of s 459G of the Corporations Act. It was submitted that the omission of the first return date was fatal and simply could not be rectified by any subsequent actions of the plaintiff's solicitor.

5    That argument must be accepted. There is now a line of decisions dealing with this question. It begins with the decision in Benonyx Pty Ltd v Fetrona Pty Ltd [1999] NSWSC 1181 and two decisions of mine, Chelring Pty Ltd v Coombs [2000] WASC 60 and Universal Trade Exchange Pty Ltd v Westpac Banking Corp [2002] WASC 36; (2002) 20 ACLC 1302. The Supreme Court of Queensland has considered the matter on at least two occasions and come to the same conclusion: see LJAW Enterprises Pty Ltd v RJK Enterprises Pty Ltd [2004] QSC 134 and Cooloola Dairys Pty Ltd v National Foods Milk Ltd [2004] QSC 308; [2005] 1 Qd R 12.

6    In addition to these decisions, reference should be made to the decision of the Full Court of this court in Robowash Pty Ltd v Robowash Finance Pty Ltd [2000] WASCA 409; (2000) 158 FLR 338. This decision was not squarely on point. In that case the plaintiff had served on the defendant a copy of the affidavit lodged in support of the application but the copy of the affidavit was missing four pages from an annexure. The court held that the requirement was that the copy served should be an 'exact copy'. As that requirement had not been complied with the demand ought be set aside.

7    I think all of these cases indicate there must be strict compliance with the requirements of s 459G. In this case there has not been strict compliance with the requirements of the section and the application to set aside the demand is not properly on foot.

25    As to the 21 day period, it is apparent from David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 that there is no source of power which would permit the 21 day time period in s 459G of the Act to be extended. In particular, there is no scope for reliance on ss 1322, 467A or 70 of the Act, all of which were considered in David Grant & Co. Specifically, reliance on s 1322 of the Act to supplement or qualify the 21 day timeframe would not assist because, as a rule of statutory interpretation, when one provision of legislation provides a strict set of requirements, such as s 459G of the Act, a more general provision of the same legislation, such as s 1322 of the Act, cannot be relied upon to relax the operation of the strict provision. Further, the defendant says s 467 of the Act would not be available because in order to cure the plaintiff’s failure to comply with s 459G, unless the application is validly served, it cannot be said that there is an application on foot that would enliven the power under s 467 of the Act. Finally, the defendant also submits that s 70 of the Act would not enable the plaintiff to proceed with the application out of time because the Act does not confer a power to extend the time limit contained in s 459G of the Act. It follows, the defendant says, that as the plaintiff’s application has not been served within the 21 day time period set out in s 459G of the Act, it must be dismissed for want of jurisdiction: see Gusdote Pty Ltd v Ashley (2011) 193 FCR 227 where Foster J said (at [56] and [91]):

56    Therefore, if the evidence before me is insufficient to cast doubt upon the presumption raised by s 160 of the Evidence Act and also insufficient to overcome the deeming effect of the second limb of s 29 of the Acts Interpretation Act, I will be obliged to hold that, for the purposes of ss 459E, 459F and 459G of the Act, the four Statutory Demands were all served on Thursday 31 December 2009. Taking into account weekend days and public holidays immediately after 23 December 2009, 31 December 2009 was the fourth working day after 23 December 2009 within the meaning of s 160(3) of the Evidence Act. Friday 25 December 2009 and Monday 28 December 2009 were both public holidays in New South Wales and Queensland. If I were to hold that the Demands were served on 31 December 2009, the proceedings brought by Gusdote and Madeas will have been commenced more than 21 days after 31 December 2009 and thus outside the time limited by s 459G(2) of the Act. In that event, both applications would have to be dismissed for want of jurisdiction.

…

91    Adopting the approach of the Full Court of the Supreme Court of South Australia in Derma Pharmaceuticals Pty Ltd and of White J in Scope Data Systems Pty Ltd and applying the principles laid down by the High Court in David Grant & Company Pty Ltd, I find that both Gusdote and Madeas have failed to prove that they made their applications to set aside the Demetrious' Statutory Demands within 21 days after those Demands were served as required by s 459G(2) of the Act. Gusdote and Madeas have failed to prove that those Demands were delivered to Hunter Partners' letterbox on 1 January 2010. For these reasons, their applications in respect of the Demetrious' Statutory Demands must be dismissed for want of jurisdiction.

26    The plaintiff, however, takes the position that as receipt of the relevant email was acknowledged by Mr Di Menna, the question of whether the material had been brought to the attention of the defendant’s solicitors Murfett Legal at the address contained on the statutory demand was answered affirmatively so that service was effected. In particular, the plaintiff relies upon the decision in Austar Finance Group Pty Ltd v Campbell (2007) 215 FLR 464 where Austin J said (at [55]):

In my opinion the reasoning in these cases also applies to e-mail transmission, provided there is evidence that the document came to the notice of the person to be served, and the document was in readable form.

27    Further, it is common ground that the defendant filed its notice of address for service and an interlocutory application on 20 October 2016, appeared before a registrar of the Court six days later, 26 October 2016, and acceded to programming orders in relation to this matter. In other words, it is argued by the plaintiff that there was no equivalent of a conditional appearance filed and, rather, the defendant had acceded to the jurisdiction of the Court.

28    The defendant is not precluded from taking this substantive jurisdictional point. There are no longer ‘appearances’ required under the Rules so that equally, there is no longer a procedure for conditional appearances. What has been substituted, is a procedure under Pt 13 to allow a party to apply to set aside the originating application or set aside service, for the sorts of reasons that would have been available to a party or to a respondent under the process of a conditional appearance. The application which is to be made must be made at the time that the responding party files its notice of address for service, so in that respect it equates to the procedure for conditional appearances. That is what occurred here. Both documents were filed together. The defendant has not abandoned its assertions as to service.

29    The plaintiff’s contention is that cases on disputed service of documents look to the object of service, which was set out over 160 years ago in Hope v Hope (1854) 43 ER 534 (at 539-540) where it was observed:

The object of all service is of course only to give notice to the party on whom it is made, so that he may be made aware of and may be able to resist that which is sought against him; and when that has been substantially done, so that the Court may feel perfectly confident that service has reached him, everything has been done that is required.

30    Hope v Hope has been applied in this Court in relation to conditional appearances entered in a proceeding and in the Full Court of the Supreme Court of Western Australia in Briggs v Deputy Commissioner of Taxation (Cth) (1986) 88 FLR 235 per Kennedy J, Burt CJ and Brinsden J agreeing (at 240), a case that was applied in the Full Court of this Court in Kocharyan v Commissioner of Taxation [2015] FCAFC 196 (at [47]).

31    The plaintiff takes the position that the defendant has deposed to receipt of the email attaching the application and affidavits, filed papers and appeared in court to ‘resist that which is sought against him’. The plaintiff contends that such conduct establishes clearly that the object of the service was achieved and avoids a situation which would be ‘remarkable to the point of seeming absurdity, in that the defendant who, on his own affidavit admits that he received the writ … should be held not to have been served’: citing a passage from Pino v Prosser [1967] VR 835 per McInerney J (at 837) and also relying on my decision in United Group Resources Pty Ltd v Calabro (No 4) [2010] FCA 791 where I observed (at [29]-[30]):

29    In Howship Holdings Pty Ltd v Leslie [No 2] (1996) 41 NSWLR 542 (at 544) Young J said observed:

… personal service merely means that the document in question must come to the notice of the person for whom it is intended. The means by which that person obtains the document are usually immaterial. This is clear in cases that have been considered good law over the centuries, including Hope v Hope (1854) 4 De GM & G 328 at 341-345; 43 ER 534 at 539-540; R v Heron; Ex parte Mulder (1884) 10 VLR 314 at 315; Pino v Prosser [1967] VR 835 at 838. Some of those cases were complicated by the requirement in the former statutes that a person serving initiating process had to endorse the initiating process, but the principle is clear from them.

If this were not so, one would get the absurd situation referred to by McInerney J in Pino v Prosser (at 837), that the conclusion would be one which is:

"... remarkable to the point of seeming absurdity, in that the defendant who, on his own affidavit admits that he received the writ ... should be held not to have been served."

30    Recently in Metacorp Pty Ltd v Andeco Construction Group Pty Ltd [2010] VSC 199 Vickery J said (footnotes omitted):

84    As was pointed out by the Lord Chancellor in Hope v Hope:

The object of all service is of course only to give notice to the party to whom it is made, so that he may be made aware of and may be able to resist that which is sought against him; and when that has been substantially done, so that the court may feel perfectly confident that service has reached him, everything has been done as required.

85    To like effect were the observations of Holroyd J in Rudd v John Griffiths Cycle Co Ltd where his Honour, in the course of delivering a dissenting judgment of the Full Court, after referring to the common law history of personal service, went on to say:

Before the Common Law Procedure Act 1852, 15 and 16 Vict., c. 76, came into operation the Courts of England were in general very strict in their interpretation of what constituted personal service, but still on several occasions they declined to set aside the service where the copy of the writ had been delivered at the party’s residence to a servant or relative of his and from the facts the Judge thought it fair to infer that it came into his hands or to his knowledge so that he did or could, if he pleased, become acquainted with its contents.

…

32    As a further point, the plaintiff observes that service by email meant that although Mr McAlister was the sole director and shareholder of both the plaintiff and the defendant, there was no need to deal with service under s 109X(1)(b) of the Act as the appointment of a liquidator did not remove Mr McAlister from office.

33    A presumption of insolvency arises under s 459C(2)(a) of the Act if during or after the three months ending on the day in which the application was made the company failed to comply with the statutory demand. The plaintiff raised a point orally, although not in written submissions, that if a person wants to rely upon the failure to comply with a statutory demand to seek orders for the winding up of a company, they must commence that winding up application within three months. The plaintiff argues that as there have been various negotiations between the parties, the three month period has already expired, such that the presumption of insolvency could not be relied upon. The plaintiff’s point is that the presumption of insolvency could not be relied upon in any event without issuing a ‘fresh’ statutory demand, which in turn makes, as the plaintiff suggests, the defendant’s application ultimately futile. The defendant pressed its interlocutory application, having received no notice of the argument. The plaintiff’s point (and I need make no comment on its correctness or otherwise), does not arise on this application, nor was it a ground of the application. (That said, on this point which is entirely obiter, I note the observations of Santow J in Pinn v Barroleg Pty Ltd (1997) 138 FLR 417 (at 420–421). However there have been other views expressed.)

Determination of procedural point

34    As is clear from David Grant, s 459G defines the jurisdiction of a court in its imposition of the 21 day requirement as an essential condition to an application to set aside a statutory demand. It is common ground that the application to set aside the statutory demand was filed within the 21 day time limit. It was not, however, in any formal sense, served within time.

35    The difficulty is in s 459G(3)(b) which requires that an application is made in accordance with the section only if, within those 21 days, a copy of the application and a copy of the supporting affidavit are ‘served’ on the person who served the statutory demand on the company. The question is what ‘served’ means in this context. As is clear from [28] of Austar Finance, the focus is upon initiating a proceeding in accordance with the rules applicable in the relevant court.

36    It does not appear to be in dispute that the copy of the application to set aside was incomplete in some technical respects, and did not bear any official markings of the Court, nor that the content of the application emailed was identical to that which had already been filed. There is also no doubt as to its receipt and that it was emailed, not to the company or the liquidator in person, but to the liquidator’s solicitors. The only point taken in this proceeding by the liquidator in relation to service is that what was served was not a true copy of the application.

37    As Austin J observed in Austar Finance, in interpreting the relevant provisions, the courts have placed emphasis on the substance of what has been done, rather than on technicalities. His Honour said (at [38]-[39]):

38    This approach was applied by Barrett J in Condor Asset Management Ltd v Excelsior Eastern Ltd (2005) 56 ACSR 223, where it was held that a statutory demand delivered to an address that was not the plaintiff's registered office, but which came to the plaintiff's attention, was validly served (at [5]).

39    In Hastie and Jenkerson (a firm) v McMahon [1990] 1 WLR 1575 at 1579, Woolf LJ said that special considerations apply to documents used for initiating legal proceedings, and he made it expressly clear that his finding (that documents could be served by facsimile transmission if there was proof that they had been received in complete and legible form by the intended recipient) was not intended to apply to an originating process. But the principle articulated by Young J in Howship Holdings was expressed in terms capable of applying to originating process, and in Dwyer v Canon Australia Pty Ltd [2007] SASC 100 Debelle J applied it to an originating process, treating it as a “common law requirement” apparently available as an alternative to strict compliance with the rules of court (at [27]).

38    In this case, there is no doubt proof of actual receipt by the liquidator’s solicitors of the copy of the document that was filed, even though it did not bear the Court’s stamp.

39    His Honour continued (at [50]-[56]):

50    The notion that service is effective if the documents are actually received in readable form derives from the liberal interpretation of the concept of personal service identified in such cases as Howship Holdings (at 544; 304-305). Several cases have applied this line of reasoning to facsimile transmission. Thus, in NM Superannuation Pty Ltd v Hughes (1992) 27 NSWLR 26, a case about whether a notice had been validly sent pursuant to the rules of a superannuation fund, Cohen J said (at 35):

I see no reason for finding that a notice sent and received by facsimile transmission is any less a notice in writing than one which is sent and received in any other fashion.

51    In Hastie & Jenkerson (a firm) v McMahon, the English Court of Appeal held that service of a list of documents in accordance with the direction of the court was effected by sending and receipt of a facsimile copy of the list.

52    In Australian Securities Commission v Bank Leumi Le-Israel (Switzerland) (1996) 69 FCR 531, a case about whether shareholder tracing notices had been “given”, Lehane J referred to these two cases and said (at 550) that they “clearly establish that there is nothing in the nature of facsimile transmission which excludes it as a means of giving or serving a document”, although the time limits in the provisions he was considering would be enlivened only upon actual receipt of the notice in full and legible form.

53    Those decisions were applied by Debelle J in Dwyer v Canon Australia where the question related to efficacy of service of an originating process under the Corporations Act on a company. His Honour emphasised that the documents sent by facsimile must come to the notice of the person for whom they are intended, and observed that mere arrival at the receiving facsimile machine is not a completed act of service (at [7]).

54    In Seventh Cameo Nominees Pty Ltd v Holdway Pty Ltd (1998) (unreported, Vic Sup Ct, Chernov J, 24 April 1998, 5305/1998) it was held that an application to set aside a statutory demand and the supporting affidavit, filed within the time limit, transmitted by facsimile and received all on the same day, were validly served for the purposes of s 459G(3).

55    In my opinion the reasoning in these cases also applies to e-mail transmission, provided there is evidence that the document came to the notice of the person to be served, and the document was in readable form.

56    In the absence of such evidence, it will be more difficult to establish that electronic transmission constitutes effective service. The general rule found in UCPR, r 10.20(2)(a) is that an originating process in proceedings in the Supreme Court must be personally served. Transmission by e-mail is not personal service, because the language of UCPR, r 10.21(1) requires a physical encounter in which a hard copy of the document is left with the person to be served, or if the person does not accept a copy, is put down in the person's presence and the person is told the nature of the document. There is more room for argument where the document is transmitted by facsimile, especially in light of Chernov J's judgment in the Seventh Cameo Nominees case. It seems to me, however, that the document cannot be left “with” the person to be served (as opposed to being left at the person's premises) unless it happens that the person is present when the receiving fax machine prints the transmission.

40    The difficulty remains, however, that service was not effected on the liquidator, even though an indication was given by his solicitors that when the proper form was served, service would be accepted by the solicitors.

41    I am bound to follow the approach taken by a Full Court of this Court in Rochester Communications Group Pty Ltd v Lader Pty Ltd (1997) 143 ALR 648. In that case, like the present, filing was within time. Service, however, was not on the correct address. It was not served on the corporate defendant, either at its registered office or the address for service stipulated in the statutory demand. Rather, it was sent to an office of one of the defendant’s directors and whilst, in some circumstances, irregular service may be cured, that is not open in circumstances where service is essential to invoke jurisdiction. Service in this regard could be contrasted to cases in which there may be irregularities in the issue of the process, which might be capable of cure: for example, Atco Industries (Australia) Pty Ltd v Ancla Maritima SA (1984) 69 FLR 455 (at 461-464). Noting that strict compliance with the time limits was required so that all involved will know where they stand at the expiration of 21 days after service of the demand, Beaumont J noted in Rochester (at 670):

If the Court were to have a largely unregulated discretion to validate defective service, at any time after that period, this would run the risk, in my view, of undermining a central element of the new statutory scheme [referring to the scheme of Pt 5.4 of the Act].

42    Although Austar Finance did emphasise the practical question of whether notice was received, the defects in that case also led to the conclusion that the application had not been properly served and the proceedings were dismissed.

43    I am bound to follow the Full Court in Rochester as Austin J did in Austar Finance. It follows that service of the plaintiff’s application was defective.

44    The defendant seeks indemnity costs in accordance with the principles outlined in Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 and Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 on the basis of evidence that the plaintiff’s solicitors were informed, prior to the expiry date, that service of the application had not been properly effected and what would be required to properly effect service. Furthermore, the plaintiff’s solicitors were also informed after the expiry date that their application was fatally flawed and the defendant invited the plaintiff to withdraw its application on two separate occasions before the defendant incurred the significant costs in respect of the plaintiff’s application. The defendant contends there has been a wilful disregard of known facts and established law.

45    I consider this case falls short of an indemnity costs award. The plaintiff had at its disposal arguments which were not entirely hopeless. The defendant should have costs, but on a party and party basis.

46    The plaintiff’s application fails for lack of jurisdiction. However, lest that conclusion be wrong, I will go on to consider the substantive application.

SUBSTANTIVE APPLICATION

47    The terms of the statutory demand relevantly read as follows:

FORM 509H

Paragraph 459E(2)(e)

Corporations Act 2001

CREDITOR'S STATUTORY DEMAND FOR PAYMENT OF DEBT

To:    PCM NOMINEES (WA) PTY LTD ACN 129 710 818 IN ITS OWN RIGHT AND AS TRUSTEE FOR THE WRIGHT STREET DEVELOPMENT TRUST of Suite 6, Level 2, 11 Ventnor Avenue, West Perth, Western Australia 6005 ("the Company")

1.    The Company owes ACN 063 291 430 PTY LTD (IN LIQUIDATION) ACN 063 291 430 (formerly known as PHILIP MCALLISTER ARCHITECT PTY LTD) of KordaMentha, Level 10, 40 St Georges Terrace, Perth, Western Australia 6000 ("the Creditor") the amount of $527,248.00, being the total of the amounts of the debts described in the Schedule.

2.    Attached is the affidavit of Clifford Stuart Rocke, dated 9 September 2016, verifying the amount is due and payable by the Company.

3.    The Creditor requires the Company, within 21 days after service on the Company of this demand:

(a)    to pay to the Creditor the total of the amounts of the debts; or

(b)    to secure or compound for the total of the amounts of the debts, to the Creditor's reasonable satisfaction.

4.    The Creditor may rely on a failure to comply with this demand within the period for compliance set out in subsection 459F(2) of the Corporations Act 2001 as grounds for an application to a court having jurisdiction under the Corporations Act 2001 for the winding up of the Company.

5.    Section 459G of the Corporations Act 2001 provides that a company served with a demand may apply to a court having jurisdiction under the Corporations Act 2001 for an order setting the demand aside. An application must be made within 21 days after the demand is served and, within the same period:

(a)    an affidavit supporting the application must be filed with the court; and

(b)    a copy of the application and a copy of the affidavit must be served on the person who served the demand.

A failure to respond to a statutory demand can have very serious consequences for a company. In particular, it may result in the company being placed in liquidation and control of the company passing to the liquidator of the company.

6.    The address of the Creditor for service of copies of any application and affidavit is Murfett Legal, Ground Floor, 7 Tully Road, East Perth, Western Australia 6004.

SCHEDULE

DATED: This 9th day of September 2016

…

Clifford Stuart Rocke

Liquidator

ACN 063 291 430 PTY LTD (IN LIQUIDATION) ACN 063 291 430

NOTES:

…

48    The plaintiff relies on the fact that the statutory demand is expressly for payment to ‘secure the amounts of the debts to the creditor’s reasonable satisfaction’. The defendant itself has confirmed that the amount was secured to its reasonable satisfaction, the plaintiff says, on 12 October 2016 by the funds being lodged in a solicitor’s trust account. The debt was secured so that the parties could reach agreement in relation to the funds or obtain orders from a court as to the funds. The latter could not take place until there was a determination of the defendant’s entitlement to the funds. The plaintiff’s case is that in circumstances where the funds were secured in the solicitor’s trust account, the appropriate means for the defendant to resolve the dispute as to the funds, absent an agreement between the parties, was to commence proceedings in a court of competent jurisdiction, rather than to issue a statutory demand: Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ACSR 602 per Martin CJ, Owen and Miller JJA agreeing, (at [59]) where his Honour said:

The irony of this conclusion is that, as this case demonstrates, the use of the statutory demand process can be a singularly ineffective way of recovering a disputed debt. The statutory demand was issued by Createc more than a year ago. No doubt Createc has incurred significant legal costs issuing the demand, opposing the application to set aside the demand, and pursuing an appeal from the decision to set aside the demand. It has been ordered to pay Design Sign's costs of the application to set aside the statutory demand, and is likely to be ordered to pay Design Sign's costs of this appeal. It has made no progress whatever in recovery of its debt, and the UVX printer, for which it has not been paid, has remained at Design Sign's premises. If, instead of issuing a statutory demand, it had commenced proceedings against Design Signs in a court of competent jurisdiction, it is likely that those proceedings would either have been resolved, or at least well advanced to resolution by now. This case provides a stark example of the folly involved in attempting to subvert the purpose of the statutory demand process in order to recover a disputed debt.

49    Secondly, the plaintiff argues that the defendant’s decision to avoid the obligations of establishing its entitlement to that debt in a court of competent jurisdiction in these circumstances reflects a fundamental misconception as to the purpose and statutory demand process, as noted in Createc (at [42]):

The enthusiasm of creditors for using the statutory demand process as a means for collecting debts has produced many cases dealing with the relevant legal principles when application is made to set aside a statutory demand. In the circumstances of this case, it is only necessary to refer briefly to the established principles relating to the test to be applied for the purpose of ascertaining whether there is a genuine dispute, and the residual jurisdiction to restrain proceedings based on a statutory demand as an abuse of process.

See also Lifese Pty Limited v Lee Crane Hire Pty Limited [2012] FCA 302 per Edmonds J (at [17]-[20]) and MNWA Pty Ltd v Deputy Commissioner of Taxation (No 2) [2015] FCA 1128.

50    The plaintiff contends that there is nothing in the defendant’s statutory demand or affidavit that does more than set out a conclusionary statement that the debt is due and payable, whereas s 48(1)(e) of the Evidence Act 1995 (Cth) provides that a party may adduce evidence of the contents of a document by tendering a document which forms part of the records of the business. Section 69 of the Evidence Act provides an exception to the hearsay rule for business records in providing ‘the concept of a business record as an internal record, kept in an organised form accessible in the usual course of business act, actually recording the business activities themselves’: Hansen Beverage Company v Bickfords (Australia) Pty Ltd [2008] FCA 406 (at [133]). The plaintiff argues that the statutory demand was supported by no admissible evidence to establish that there was any debt due or owing.

51    The plaintiff relies on my recent summary of relevant principles in relation to a genuine dispute in Citation Resources Ltd v IBT Holdings Pty Ltd [2016] FCA 1265 (at [17]) where I said, after examining the relevant authorities:

17    In short then:

(a)    For there to be a genuine dispute, there must be a ‘plausible contention requiring investigation’. It raises the same sort of considerations as the ‘serious question to be tried’ criterion applicable to interlocutory injunctions.

(b)    The company will fail in that task only if it is found upon the hearing of its s 459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow.

(c)    The Court is not called on to determine the merits of, or to resolve, the dispute.

(d)    The threshold is not high or demanding; however the claim must have some merit and be genuine. That requirement has been described variously as the claim must be ‘real and not spurious’, the claim must have ‘a real chance of success’, there must be ‘a serious question to be tried’.

(e)    The Court does not engage in any form of balancing exercise between the strengths of competing contentions.

(f)    The essential task is relatively simple - to identify the genuine level of a claim (not the likely result of it).

(g)    A mere assertion of an oral agreement will not necessarily suffice.

52    The plaintiff’s position is that the obligations contained in the Deed have been completed. Mr McAlister’s evidence is that there is a genuine dispute in relation to the debt due to those obligations being completed. The plaintiff says that the defendant has done nothing more than merely assert the existence of a debt by reference to records without producing documentation which would support the existence of the debt. The plaintiff argues that on the face of the Deed, the plaintiff’s only liability is pursuant to a guarantee in the sum of $193,495 pursuant to cl 19.2(b). The plaintiff complains that the defendant has failed to adduce sufficient evidence to prove there is a liability in the sum claimed pursuant to the guarantee. In particular, the plaintiff asserts that where the defendant relies on a guarantee, as it does here, it is required to meet:

the long standing statement of higher authority that a “claim as against a surety is strictissimi juris and it is incumbent on the plaintiff to shew that the terms of the guarantee have been strictly complied with”.

Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 (at 569), quoting Bacon v Chesney (1816) 171 ER 443 (at 443).

53    The plaintiff says there was no admissible evidence to support the claim, and much less to meet the stringent requirements ‘of a longstanding statement of higher authority’.

Determination of substantive application

54    There is no requirement for formal evidence in relation to the debt. Rather, the requirements of s 459E of the Act are that the statutory demand must:

(a)    specify the debt and its amount;

(b)    require the debtor to pay the debt or secure or compound the debt that a creditor’s reasonable satisfaction within 21 days after the statutory demand is served on the company;

(c)    be in writing;

(d)    be in the prescribed form (Form 509H); and

(e)    be signed by or on behalf of the creditor.

55    The accompanying affidavit must verify the debt is due and payable by the company and comply with the Rules. As observed by French J (as his Honour then was) in Australian Securities and Investments Commission v Eastlands Pty Ltd (2006) 58 ACSR 658 (at [7]-[8]), s 459E(3) uses the expression ‘verify’ in the sense of a ‘formal affirmation’, therefore all is required by the section is a formal affirmation on oath that a certain amount of money is due and payable. In that case, a statement to the effect that the deponent had inspected the book and records of the company and believed the debt was due and payable met the standard required. There is no requirement that an affidavit in support of a statutory demand should adduce detailed evidence to establish that a debt is owing. In this instance, the statutory demand was issued in accordance with the prescribed Form 509H and clearly described the debt.

56    An application to set aside a statutory demand must do more than merely state that a genuine dispute exists: Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452. A plaintiff is not entitled to rely on any ground for setting aside the statutory demand which was not raised in the affidavit filed within the 21 day limit: D & S Group of Companies v O'Connor Investments Pty Ltd (1997) 15 ACLC 1794. In order for there to be a genuine dispute, the dispute must be bona fide and truly exist in fact and the grounds for alleging the existence of a dispute must be real, not spurious, hypothetical, illusory or misconceived: Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452. The onus of proving a genuine dispute exists rests on an applicant under s 459G: Moyall Investments Services Pty Ltd v White (1993) 12 ACSR 320.

57    As the defendant notes, the plaintiff does no more than the defendant in circumstances where it is required to do more. The affidavit of Mr McAlister merely asserts that a genuine dispute exists and that the Deed which gave rise to the debt on which the statutory demand is based does not set out the debt. No reasoning or evidence supporting the existence of a bona fide dispute has been provided and no argument in relation to the debt has been provided. Further, the plaintiff’s submissions go beyond the content of Mr McAlister’s affidavit of 22 September 2016 and seek to advance further grounds which were not set out in that affidavit. As indicated in D & S Group, this is not open to the plaintiff.

58    It is clear from Mr Harris’ affidavit that the defendant has demanded payment of debts owed by Mr McAlister to the defendant, which debts were guaranteed by the plaintiff. The debt is clear and unambiguous by virtue of the Deed signed by Mr McAlister in his capacity as sole director of each of the plaintiff, the defendant and PMCARCH and in his personal capacity. It outlines that Mr McAlister was indebted to the defendant in sums totalling $527,248. The plaintiff by way of guarantee and indemnity guaranteed repayment of that sum that Mr McAlister owed the defendant and offered security over the property.

59    Clauses 18.10, 18.11 and 19.4 of the Deed respectively provide as follows:

18.10    The Warranties, undertakings and indemnities in this Deed do not merge on Completion.

18.11    Subject to this Deed, the indemnities in this Deed are continuing obligations, independent from the other obligations of the parties under this Deed and continue after this Deed ends. It is not necessary for a party to incur expense or make payment before enforcing a right of indemnity under this Deed.

…

19.4    This guarantee and indemnity is a continuing security, and is not discharged or prejudicially affected by any settlement of accounts, but remains in full force until a final release is given by the Vendor.

60    These provisions dispose of any unparticularised contention by the plaintiff that obligations under the Deed have somehow been satisfied.

61    In relation to the plaintiff’s claim that the sum has been secured to the defendant’s reasonable satisfaction, the defendant rejects the suggestion that the payment of the proceeds of the sale of the property to the plaintiff’s solicitor’s trust account were sufficient to ‘secure the debt to the defendant’s reasonable satisfaction’. That is because, first, the proceeds of the sale of the property were paid into the trust account on or about 13 October 2016, after the defendant’s statutory demand had expired and after the plaintiff’s application was filed at Court. Secondly, the amount of the debt demanded by the defendant was $527,248, but the amount held in the plaintiff’s solicitor’s trust account is only $394,274.84. So far as can be ascertained from the evidence, the proper inference is that the sum was paid into the trust account pending determination of this dispute about the statutory demand. There is no evidence that the payment in was ‘secured’ for the purposes of the Act.

62    Regardless of the timing issues or the discrepancy of $132,973.16 between the amount demanded and the amount held on trust, in order for the debt to be secured to the defendant’s reasonable satisfaction, what is required is payment or security for the payment of the debt on the footing that it was presently payable: Forsayth NL v Juno Securities Ltd (1991) 4 WAR 376 (at 398).

63    The payment in was by the plaintiff’s solicitor’s writing to the defendant’s solicitors in these terms:

Dear Sir,

[The plaintiff] and [Mr] McAlister

Sale of 66 Wright Street, Highgate and Withdrawal of Caveat.

We refer to your email dated 11 October 2016, and various other correspondence between us.

Western Legal gives an undertaking on behalf of our clients, [the plaintiff] and [Mr] McAlister, and in its own right, that on the agreement that an executed Withdrawal of Caveat will be provided to the vendor prior to or at settlement, the net proceeds of sale of 66 Wright Street, Highgate, after payment of land tax in the sum of $2,156.30 and Western Legal settlement and legal costs of $11,513.01, as shown on the Vendor’s Settlements Statement, are to be held in Western Legal Trust Account after settlement, and that such funds will not be withdrawn, applied, or otherwise dealt with without the prior written consent of [Mr] Rocke as liquidator of [the defendant], or otherwise by Court order.

64    It appears to me that the proper characterisation of events is that in order to remove the caveat so as to achieve settlement, an undertaking was given by the plaintiff’s solicitors to hold the balance of funds received at settlement pending authorisation from the defendant’s solicitors or order of the Court. It is difficult to see how this could be characterised as securing the debt within the meaning of the notice of demand or s 459G of the Act and the plaintiff has not explained how that could be so. It is clearly not the full sum of the debt and, more importantly, nowhere is evidence given of the content of the email from the defendant’s solicitors of 11 October 2016 referred to in the letter. Further, at no point has evidence been adduced of the sum being paid in so as to permit settlement constituting a securing of the debt referred to in the statutory demand to the reasonable satisfaction of the defendant.

65    The very contention there is no indebtedness necessarily negates the security argument. It is not open for the plaintiff, on the one hand, to assert that a genuine dispute exists in respect of the debt and, on the other, to assert that the debt has been secured to the defendant’s reasonable satisfaction. The security option under the statutory demand contemplates an admitted debt which cannot or will not be paid immediately, but will be otherwise fully secured to the creditor’s satisfaction. That is not what happened here.

66    In relation to the motives of the defendant, the creditor is entitled to issue a statutory demand to achieve prompt payment of a debt. Even in circumstances where a debtor has raised a dispute, a creditor is entitled to issue a statutory demand to test the genuineness of the dispute: Redglove Holdings Pty Ltd v GNE and Associates Pty Ltd (2001) 165 FLR 72. In this instance, the plaintiff has merely made assertions that the Deed was unenforceable without providing any substantiation for those assertions. The plaintiff has failed to discharge the onus of establishing that a genuine debt dispute exists. The defendant has complied with the requirements for issuing the statutory demand and is not required to adduce further evidence. The debt has not been secured to the reasonable satisfaction of the defendant. The statutory demand was served for a proper purpose.

67    Applying the principles set out above (at [50]) from Citation Resources, it appears to me that the plaintiff has put forward nothing whatsoever of substance which might lead to a reasonable conclusion that there could be a genuine dispute. Many conclusions have been recited and assertions made, but none of them has been developed into any form of argument or evidence which could dispose of a plain reading of the Deed. There is no doubt that the Deed and, in particular, the clauses which I have emphasised give rise to the result that the sum is due and payable under the guarantee and no genuine dispute has been established.

68    The plaintiff has raised a further point to the effect that the plaintiff could not be called upon under the guarantee until demand was made under the principal obligation. That, at least, was the submission as I understood it. That is an argument which has not been ventilated in previous correspondence, submissions, or in the affidavit in support, but appears to have no support from the Deed itself.

69    Pursuant to the terms of the Deed, the plaintiff guaranteed performance of the financial obligations of PMCARCH and also guaranteed repayment of the loan account debt of Mr McAlister, charging its right over the property to secure that payment. The only evidence is that the total of the loan account debt of Mr McAlister, as at the time of demand, was $527,248. The guarantee continues past the settlement date. Nothing in the Deed or in the correspondence surrounding the Deed demonstrates any basis on which the primary debt or the guarantee was satisfied. There is also an air of unreality in pointing to a genuine dispute in the circumstance where, while there are a number of entities, all of the entities are either Mr McAlister himself or companies of which he was the director and shareholder.

70    There is certainly nothing in the correspondence for the plaintiff (which might fairly be construed as an attempt to ‘buy time’), which articulates any plausible basis why obligations under the Deed are complete, discharged or unenforceable.

CONCLUSION

71    The plaintiff’s application must be dismissed with costs.

Associate:

Dated:    28 July 2017