- 115 Constitution Road Pty Ltd v Downey

Judgment 1By Originating Process filed on 29 August 2012 in proceedings 2012/270084, Australia Seiwa Pty Limited applies for orders under ss 459G and 459J of the Corporations Act 2001 (Cth) that a creditor's statutory demand dated 8 August 2012 issued by the Defendants, Mr Malcolm Beard and Mr Gregory Ralph, be set aside. By Originating Process also filed on 29 August 2012 in proceedings 2012/270091, a second entity, Seiwa Australia Pty Limited, applies for orders under the same sections that a creditor's statutory demand in similar terms also dated 8 August 2012 issued by Messrs Beard and Ralph to that entity be set aside. The applications raise the same issues and were heard together, with evidence in one treated as evidence in the other. I will refer to the two plaintiff entities together as the "Plaintiffs" and to the statutory demands issued to them as the "Demands". 2The Demands issued to each of the Plaintiffs related to a claim in the amount of $94,687.52 which was described as monies due under a judgment delivered in this Court on 21 May 2012 and entered on 19 June 2012 in proceedings 2004/00187543. It appears that the amount claimed in the Demands relates to interest on costs ordered in favour of Messrs Ralph and Beard in respect of earlier proceedings in this Court. Because the Demands related to a judgment debt, they were not required to be, and were not, supported by affidavits. The Demands referred to Messrs Beard and Ralph as together the "Creditor" and were each signed by Mr Ralph but not by Mr Beard. 3The Demands were served by post under covering letters dated 8 August 2012 under letterhead referring to Gould Ralph Chartered Accountants and also to Gould Ralph Pty Limited. Those letters stated that: "Statutory demand Please find attached statutory demand from Malcolm James Beard and Gregory Charles Ralph in relation to the judgment order of $94,687.52 delivered in the Supreme Court of New South Wales on 21 May 2012 and entered 19 June 2012 in proceedings number 2004/00185743 for your attention." The covering letters were signed "Gould Ralph Pty Limited" by its director Mr Ralph. 4The applications to set aside the Demands were supported by affidavits of the Plaintiffs' solicitor, Mr Donald Junn, dated 29 August 2012. Mr Junn's affidavits identify the basis of the attack on the Demands as that they were issued in relation to a judgment debt in the names of both Messrs Ralph and Beard, but only Mr Ralph had signed them and the covering letter. Mr Junn gives evidence, on information and belief, that officers of the Plaintiff do not know whether the Demands were issued with Mr Beard's authority and there is nothing in the Demands or the covering letters which indicates that authority was given by Mr Beard. The Plaintiffs also rely on a further affidavit of Mr Junn dated 11 October 2012 which set out the background to the judgment debt. Application of s 459E(2)(f) of the Corporations Act 5Mr Junn's affidavits indicate that the Plaintiffs seek to have the Demands set aside on the ground that, first, they are defective by reason of the fact that only one of the creditors has signed the Demands. The Plaintiffs rely on s 459E(2)(f) of the Corporations Act which requires that the Demands "must be signed by or on behalf of the creditor" and point out that the Demands were signed only by Mr Ralph and that Mr Ralph did not express himself either in the Demands or the covering letters as having signed them also on behalf of Mr Beard. 6The question whether a statutory demand can be issued by one of a number of joint creditors is unclear, with some conflict in the authorities: Manzo v 555/255 Pitt Street Pty Ltd (1990) 21 NSWLR 1 at [7]-[8] (expressing a tentative view that it could be argued that it must be open to one joint creditor to demand payment of a joint debt); Bentham Management Pty Ltd v Union Finance Pty Ltd [2007] SASC 42 at [28] (questioning that view); Randall Pty Ltd v Chepan Pty Ltd [2009] NSWSC 783 at [22]ff; F Assaf, Statutory Demands and Winding Up in Insolvency, 2nd ed, LexisNexis Butterworths, 2012 at [2.21]. 7In the context of bankruptcy, the majority of the High Court held that all joint debtors are required to authorise the service of a bankruptcy notice founded on a judgment debt to which joint judgment creditors are entitled: Australian Workers' Union v Bowen [1946] HCA 24; (1946) 72 CLR 575 at 589, 593. However, that decision is not determinative of the present case, which is distinguishable because (as I will find below) Mr Beard in fact authorised Mr Ralph to serve (and implicitly to sign) the Demands; the service of those Demands did not amount to execution of a judgment; and, in any event, cases on bankruptcy notices are not necessarily applicable in respect of statutory demands; compare Randall Pty Ltd v Chepan Pty Ltd above at [27]. 8The question whether a statutory demand was signed by one of two creditors, being one of two trustees of a superannuation fund, was considered by Rein J in 115 Constitution Road Pty Ltd v Downey [2008] NSWSC 997; (2008) 68 ACSR 118. His Honour there found that there was a defect in that statutory demand where it was signed by only one of the two trustees, but would not have set it aside on that basis alone where there would be no substantial injustice in permitting the creditors to proceed on the statutory demand. His Honour set aside the statutory demand in that case on the basis that the signatory of the statutory demand did not have actual authority to act alone, since that authority was not conferred by the relevant trust deed and there was no evidence of either prospective or retrospective authorisation of the statutory demand by the other trustee. That second feature is absent in this case, as I will find below. In Randall Pty Ltd v Chepan Pty Ltd above, White J declined to set aside a statutory demand that had been signed by only one of two joint creditors, where the debt was due to joint creditors in their capacity as executors of a deceased estate and a single executor could bind an estate without the need for concurrence by other executors. 9In the present case, Mr Beard's evidence is that he in fact had authorised Mr Ralph to issue the Demands. That authorisation necessarily implied authority to take steps to sign the Demands; compare, in respect of solicitors' authority to sign statutory demands, Dennis Hanger Pty Ltd v Kanambra Pty Ltd (1992) 34 FCR 242; 106 ALR 544 at 547; Hawkins Construction (Australia) Pty Ltd v Mac's Industrial Pipework Pty Ltd [2002] NSWCA 136 at [15]-[17]. The Plaintiffs contend that there was "no evidence at the time the Demands were received" of such authority; however, the question for the purposes of s 459E(2)(f) is not whether there was evidence provided to the Companies of such authority at that time, but whether such authority existed, so that the Demands were in fact signed on behalf of the creditor. 10Mr Beard also gave evidence, which was admitted as submission only, that the judgment which provides the basis of the Demands was entered in favour of his partner Mr Ralph and him and arose from an order for interest on costs incurred in proceedings where Messrs Beard and Ralph were sued as partners in a partnership trading as Gould Ralph & Company ("Partnership"). Mr Beard also gives evidence that Mr Ralph had his authority to issue the Demands on behalf of the Partnership. In his affidavit dated 11 October 2012, Mr Junn contests the submission in Mr Beard's affidavit that the judgment debt on which the Demand was based was an asset of the Partnership with respect to which Mr Beard and Mr Ralph were sued as partners and contends that: "Never in the course of the Equity proceedings, the subsequent appeal or the application for interest on costs was any order made in favour of a partnership called Gould Ralph & Company, or any other partnership." The Plaintiffs in turn contend that the partnership sued in the proceedings was not a partnership consisting of Mr Beard and Mr Ralph, but rather a partnership consisting of Messrs Beard, Ralph and Seeto, although Mr Junn's affidavit acknowledges that both the Court at first instance and the Court of Appeal found that Mr Seeto left the partnership in October 1998. It was admitted by Messrs Ralph and Beard in the proceedings that Mr Seeto was in partnership with them during the first transaction in issue but not the second and third, and the Defence pleaded that Messrs Beard and Ralph remained partners in the Partnership. 11In my view, the nature of the allegations advanced and the judgments in the proceedings indicate that the claim brought against Messrs Beard and Ralph was brought in their capacity as partners in the Partnership and that the costs judgment in their favour is properly treated as an asset of the Partnership rather than an asset of each of them in their personal capacity. The character of such an asset is recognised in s 20(1) of Partnership Act 1892 (NSW) which relevantly provides that: "All property, and rights and interests in property, ... acquired ... on account of the firm, or for the purposes and in the course of the partnership business, are called in this Act partnership property, and must be held and applied by the partners exclusively for the purposes of the partnership, and in accordance with the partnership agreement." Under s 5 of the Partnership Act every partner in a partnership (other than a limited partnership or incorporated limited partnership) is an agent of the firm. A note to the form of statutory demand prescribed in Form 509H reflects that position in stating that it may be signed "on behalf of a partnership by a partner". It follows that, apart from the actual authority to sign the Demands on behalf of Mr Beard and himself conferred on Mr Ralph by Mr Beard, Mr Ralph also had authority to sign the Demand on their behalf under s 5 of the Partnership Act. 12In my view, the requirements of s 459E(2)(f) of the Corporations Act were therefore satisfied since the Demands were signed by Mr Ralph on behalf of the creditor, and with Mr Beard's authority, whether the creditor is characterised as Mr Ralph and Mr Beard jointly or as the Partnership of which they are partners. The Plaintiffs' claim relying on s 459E(2)(f) of the Corporations Act therefore does not succeed. The Plaintiffs also accepted in submissions that, if there were no more than a defect in the Demands by reason of a failure by Mr Beard to sign them, that defect would fall within s 459J(1)(a) of the Corporations Act and they would need to show substantial injustice in order to set aside the Demands. There is, in my view, no evidence in this case which would support a finding of substantial injustice. Application of section 459E(1) of the Corporations Act 13Mr Junn's affidavits indicate that the Plaintiffs also seek to have the Demands set aside on the ground that there is an additional defect, not found within the Demands, being the lack of material supplied to the Plaintiffs to the effect that Mr Beard had authorised the issue of the Demands. The Plaintiffs contend that the Court has power to set aside the Demands under s 459J(1)(b) of the Corporations Act and, given the suggested importance of all joint creditors clearly endorsing the issue of the Demands in their names, the Court should consider that there is good reason to set aside the Demands under that section. 14A statutory demand can be set aside for some other reason under s 459J(1)(b) of the Corporations Act. Whether a matter constitutes "some other reason" to set aside a statutory demand for the purposes of s 459J(1)(b) is to be determined by reference to the legislative intent of Pt 5.4: Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229 at 235. The court's power under s 459J(1)(b) "exist to maintain the integrity of the Pt 5.4 process" and should be used as necessary and appropriate "to counter attempted subversion of the statutory scheme", but subjective notions of fairness are not relevant to its exercise: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 132 FLR 300; 20 ACSR 746; 14 ACLC 1095; Meehan v Glazier Holdings Pty Ltd above; CP York Holdings Pty Ltd v Food Improvers Pty Ltd [2009] NSWSC 409. It is not necessary for a company to establish substantial injustice in order to set aside a statutory demand if a reason other than a defect in the demand is established under s 459J(1)(b); Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1996) 62 FCR 302; 135 ALR 677; 19 ACSR 125 at 139; 14 ACLC 394. 15The Plaintiffs contend that, since the relevant debt is owed to Messrs Beard and Ralph jointly, s 459E(1) of the Corporations Act provides that, they must jointly serve the Demands. Section 459E(1) provides: (1) A person may serve on a company a demand relating to: (a) a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum; or (b) 2 or more debts that the company owes to the person, that are due and payable and whose amounts total at least the statutory minimum." 16The Plaintiffs submit that: "'[section] 459E(1) requires not only the service of a Demand, but the service of the Demand by the person to whom the debt is owed. As service by post is one of the means contemplated for service by s 109X, the requirement is presumably not for the creditor to personally convey the demand to the company, but rather it is sufficient that an agent be employed for that purpose. It is, however, a matter of practical necessity for the company receiving the demand to know that the demand comes from the creditor, in the sense that it has been sent with the creditor's authority, in order to know whether it should be met. Thus it is submitted that this is the true meaning of the requirement that the demand be served by a creditor, being that upon service of the demand upon a company it would be clear to a reasonable person in the position of that company that the demand had been served with the authority of the creditor." The Plaintiffs submit that the scheme of Pt 5.4 of the Corporations Act would be "undermined fundamentally" if a statutory demand is found to be valid although it is not signed by the creditor or persons expressly purporting to act on behalf of the creditor. The Plaintiffs contend, in effect, that the person signing a statutory demand must not only do so with the creditor's authority, as a matter of fact, but also expressly communicate evidence of that authority to the company on which the demand is served at the time of service. 17In my view, the fact that a statutory demand has been issued by the creditor or with its authority is sufficiently communicated to the recipient of the demand by service of a statutory demand in the prescribed form that is in fact signed by or on behalf of the creditor, as required by s 459E(2) of the Corporations Act, and contains a statement that the company owes a specified amount to a particular person described as the "creditor" as required by Form 509H. In my view, s 459E(1) of the Corporations Act does not give rise to any further requirement that the creditor take any further step to demonstrate that authority to the recipient of the statutory demand at the time the statutory demand is served. The purpose of the statutory regime is achieved, in my view, if a statutory demand is set aside, in an appropriate case, if that authority does not in fact exist. No doubt, a company which receives a demand can also request evidence of the authority of the signatory to the demand if there is genuine doubt as to that matter, and any failure by a creditor to provide evidence of that authority on request in such a case may be relevant to the costs of any later application to set aside the statutory demand on the basis that the signatory lacked such authority. 18No non-compliance with the requirements of s 459E(1) of the Corporations Act is established in this case, so as to justify an order setting aside the Demands under s 459J of the Corporations Act, where service of the Demands were effected by Mr Ralph, on his own and Mr Beard's behalf, and authorised by Mr Beard as a matter of fact. 19Accordingly, each of the proceedings should be dismissed with costs.