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Judgment - ex tempore

1. By Originating Process dated 11 September 2011, the Plaintiff, JKAM Investments Pty Limited ("JKAM") applies under ss 459G, 459H and also s 459J of the Corporations Act 2001 (Cth), and for an order setting aside a creditor's statutory demand ("Demand") served by the Defendant, Champion Homes Sales Pty Limited ("Champion") on 24 August 2015.
2. The Demand is for an amount of $63,383.01, being a debt specified in a schedule to the Demand, which describes the debt as payment of costs by JKAM to Champion as provided by orders of Darke J in this Court on 18 July 2014, as determined by a certificate of determination of costs dated 24 June 2015 and then the subject of a judgment entered on 20 August 2015. The Demand is in turn verified by an affidavit of Mr Malesev, a director of Champion, dated 21 August 2015, which claims that the amount of the debt specified in the Demand is due and payable by JKAM, and refers to the assessment of costs in the proceedings heard before Darke J which has given rise to the judgment debt, and contains the requisite statement in an affidavit verifying a creditor's statutory demand that Mr Malesev believes there is no genuine dispute about the existence or the amount of the debt.
3. The application, when originally brought, covered a range of matters. In opening, Mr McDonald, who appears for JKAM, makes clear that JKAM does not contend that it is sufficient to give rise to a basis to set aside the Demand that JKAM has brought proceedings to seek to set aside the underlying judgment, does not now contend that there is an offsetting claim to support the setting aside of the Demand under s 459H of the Corporations Act, and does not now contend that there is a defect in the Demand by reason of an error in the Australian Company Number contained in the Demand.
4. Mr McDonald relied, in support of the application to set aside the Demand, first upon the proposition that the Demand was defective, so far as the schedule referred to Annexure A, being the certificate of determination of costs and Annexure B, being the judgment entered in respect of that certificate. Mr McDonald submitted that, in the two places in which the Demand was in evidence, those documents, which were described as Annexures A and B respectively, did not appear immediately after the Demand. That proposition is correct, so far as it goes.
5. The first place where the Demand appears in the evidence is annexed to the affidavit of Mr Elia, who appears to be the brother of the director of JKAM, and claims to be authorised to swear the relevant affidavit in the proceedings. Mr Elia annexes the Demand and, in Annexure C to his affidavit, there first appears a covering letter in respect of the Demand, then Annexures A and B being the certificate of determination of costs and judgment, then the Demand, then the affidavit verifying it. It will be noted that, taking Mr Elia's evidence at its highest, the relevant annexures were included in the material provided to him, but were included before and not immediately after the Demand. It should also be noted that Mr Elia does not himself refer to any prejudice which JKAM suffered by reason of that matter, or any difficulty in understanding the nature of the costs order or the judgment in respect of it by reason of that matter. It is, of course possible, although the evidence is not sufficient to say, that the annexures were out of order in the material served upon JKAM, or that they have subsequently been placed out of order when they were annexed to Mr Elia's affidavit.
6. The second place where the Demand is found in the evidence is in the affidavit of the Defendant's solicitor, Ms Kathy Klonis, dated 21 September 2015 and in an affidavit of service annexed to that affidavit. Ms Klonis annexes the Demand to that affidavit, where it is followed by the affidavit verifying it and it in turn by Annexures A and B being the certificate of determination of costs and judgment/order. That affidavit also annexes an affidavit of service of Mr Folkes in respect of service of the Demand and other documents, which in turn contains the Demand, the affidavit verifying it and then Annexures A and B, with the documents appearing in the same order as they appeared when Ms Klonis referred to them. In that case, Annexures A and B follow the Demand, and would be clearly identified by reference to it, although the affidavit verifying the Demand would appear between the Demand and the annexures.
7. In the event, it seems to me that nothing turns on these matters. Section 459J(1)(a) of the Corporations Act deals with the position in respect of a "defect" in a demand. The term "defect" is defined in s 9 of the Corporations Act in an inclusive manner, as including an irregularity, a misstatement of an amount or total, a misdescription of a debt or other matter, or a misdescription of a person or entity. It is by no means clear to me that there is a "defect" in the Demand in this case, so far as, even if the relevant documents were out of order, it seems to me that there is little real risk that anyone would have not understood what they were. Even if an error in the order in which the documents appeared is to be treated as a "defect" in the demand, for that purpose, s 459J(2) of the Corporations Act provides that the Court must not set aside a statutory demand because of a defect, unless substantial injustice will be caused unless the demand is set aside. In the present case, it seems to me that there is no basis for a proposition that substantial injustice would be caused. At the highest, the documents were present but out of order and, in those circumstances, no inference would readily be drawn that the recipient of the Demand would be misled by them. In any event, as I have noted, Mr Elia does not suggest that JKAM was misled by them, or it gave rise to any difficulty in JKAM's response to the Demand which was to move to set it aside within the relevant 21 day period specified in s 459G of the Corporations Act. In those circumstances, the Demand should not be set aside on that basis.
8. The second basis on which the Demand was sought to be set aside is that the affidavit verifying the Demand, sworn by Mr Malesev, contains a note, under the heading "Important Note" that "no proceedings (or, if applicable, no winding up proceedings) have been commenced in respect of the debt to which the affidavit pertains". Mr McDonald fairly accepts that that note is in the prescribed form, and has presumably been included in the affidavit for that reason. The historical genesis of that note, which has existed in the relevant prescribed form since the creditor's statutory demand regime was introduced, is that the affidavit accompanying a statutory demand is in a form which resembles affidavits filed in court proceedings, but is not in fact filed in a Court proceeding, because a court proceeding would not ordinarily have been commenced when a creditor's statutory demand is served. The purpose of the note, when introduced, was to make clear to the recipient that it was receiving something that was an affidavit, but not an affidavit filed in existing proceedings.
9. In the present case, Mr McDonald submits that the statement in that note was incorrect, so far as it is stated that no proceedings had been commenced "in respect of the debt" to which the affidavit relates. I pause to note that that debt was a debt in respect of costs, arising from the assessment of costs, which in turn arose from the order for costs made in the proceedings before Darke J. Prior to the date of the affidavit of 21 August 2015, JKAM had itself commenced proceedings by which it sought, relevantly, that the order for costs in favour of Champion in Darke J's judgment be stayed in addition to the certificate of determination of costs assessment, pending the outcome of those proceedings. It seems to me that Mr McDonald is, strictly, correct that the statement that no proceedings had been commenced in respect of the debt was incorrect, so far as the proceedings previously commenced by JKAM were proceedings in respect of the debt, at least to the extent that they sought to stay the costs order or the certificate of determination of costs which gave rise to the debt.
10. That, however, does not, without more, support an application to set aside the Demand. In particular, where an error appears in an affidavit supporting a creditor's statutory demand, that is to be treated as giving rise to reason to set aside that Demand, if at all, under s 459J(1)(b) of the Corporations Act which provides that the Court may set aside a demand if it is satisfied that there is some other reason why the demand should be set aside. The Court's power under that section exists to maintain the integrity of the process provided under Part 5.4 of the Corporations Act and will generally be used to counter an attempt of subversion of the statutory demand regime: Portrait Express (Sales) Pty Limited v Kodak (Australasia) Pty Limited (1996) 20 ACSR 746; Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 at [16]. There is no reason to infer that the suggested error in the affidavit supporting the Demand was intended to, or likely to, mislead JKAM as to the question whether proceedings had been commenced in respect of the debt, so far as proceedings had been brought by JKAM to stay the relevant costs order or the result of the assessment. JKAM would plainly have known of those proceedings, and there is no reason to think that it was likely that JKAM would be confused as to the existence of its own proceedings by the fact that Mr Malesev had not referred to them. Once again, Mr Elia does not himself say that any aspect of JKAM's response to the Demand was adversely affected by that statement contained in the verifying affidavit.
11. Mr McDonald submitted that reason to set aside the Demand existed, because that note was described as an important note, and it was false, or misleading, or incorrect. It seems to me that the note was, strictly, incorrect; I should not infer that it was false, at least so far as that proposition involves an element of intent; and I should not infer that it was misleading, or at least was likely to mislead, where JKAM to which it was directed plainly knew the correct position. It does not seem to me that s 459J(1)(b) of the Corporations Act requires, or warrants, the setting aside of a creditor's statutory demand, merely because of an error in an affidavit supporting the demand, where that error has no adverse consequence on the recipient of the demand, and does not display any attempt to subvert the procedure for creditor's statutory demands under the Corporations Act. For those reasons, the application to set aside the Demand on that ground is also not established.
12. The most substantial basis for an attack on the Demand was an allegation that the Demand, so far as it was based on an order for costs arising from the judgment in the proceedings brought before Darke J, and the assessment of those costs, was the product of fraud in those proceedings by Champion. That allegation was raised, together with numerous other allegations, in Mr Elia's affidavit dated 11 September 2015 in support of the application to set aside the Demand. It should be noted that Mr Elia's affidavit approaches this issue in a somewhat in direct way, pointing to inferences which may be drawn by calculations in the document and not directly to the circumstances in which the relevant document was signed. In paragraph 49 of that affidavit, Mr Elia asserts that a false document was made in the proceedings before Darke J and, in paragraph 50(g) of that affidavit, he asserts that the Acknowledgment of Debt dated 4 April 2012, to which Darke J referred in his judgment, was of a fraudulent character, although he there does not identify the matters said to give rise to the relevant fraud. In paragraph 51 of that affidavit he identifies two matters, which are said to relate to the identification of the witness to that Acknowledgement of Debt and the calculation in that Acknowledgment of Debt. Neither of those matters expressly refer to a backdating of the relevant document, on which Mr McDonald now relies, although the matters referred to in respect of the calculation might, as Mr McDonald submits, suggest that the document may not have been executed on the date it bears, so far as it is alleged that it relies on later figures that would not have been available on that date. Mr Elia's affidavit dated 11 September 2015 in turn annexed the Statement of Claim filed by JKAM, and subsequently dismissed by reason of the absence of involvement of a legal practitioner in acting for JKAM, in the proceedings, which again asserted that the relevant documents, including the Acknowledgment of Debt dated 4 April 2012 was fraudulent, repeating that allegation in similar terms to that contained in Mr Elia's affidavit.
13. There has since been prepared a further Amended Statement of Claim, which I have been informed has not yet been filed, which expressly seeks an order setting aside the judgment of Darke J for fraud on the Court, and setting aside the order for costs in favour of Champion in the proceedings. Such an order would, if made, presumably in turn impact upon the order arising from the assessment of costs consequential upon the costs order in those proceedings. Again, that Amended Statement of Claim attacks the content of the Acknowledgment of Debt, without squarely attacking its date, at least in any direct form.
14. Mr McDonald contends that, so far as a case arises, and at least if I am satisfied that a case arises, that the evidence relied upon by Darke J was fraudulent, then that would give rise to some other reason to set aside the Demand under s 459J(1)(b) of the Corporations Act. It seems to me that, as I noted in an exchange with Mr McDonald early in the application, there is a real difficulty in the proposition that I should be satisfied that the judgment was obtained by fraud in summary proceedings of this character. The issues which are involved in setting aside a judgment for fraud are well-established in the case law, and Mr McDonald referred to some of that case law in submissions. In particular, Mr McDonald referred to the High Court's decision in McDonald v McDonald [1965] HCA 45; (1965) 113 CLR 529 and to UCPR r 36.15 which provides that the Court may set aside a judgment or order if the judgment was given or the order was made irregularly, illegally or against good faith. I in turn reviewed, at some length, the circumstances in which a judgment could be set aside for fraud in Re Wan Ze Property Development (Aust) Pty Limited (in liq) [2013] NSWSC 189, to which counsel did not refer. There are, however, two matters which should be noted in respect of the jurisdiction to set aside a judgment for fraud. The first is that a party alleging fraud bears the onus of establishing it. The second is that the Courts are reluctant to set aside judgments, recognising the importance of finality in proceedings. The Court of Appeal's decision in Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 at 359 also emphasises that a party seeking to set aside a judgment for fraud must establish that its case is based on newly considered facts, which are material and make it reasonably probable that the case will succeed. The question whether the dating of the Acknowledgement of Debt was a matter that was not known to the parties, at the time of the hearing before Darke J, is a matter that received little attention in this application.
15. It is by no means clear to me that, in a summary application of this kind, where some relevant witnesses have not given evidence, and others have not been cross-examined, the Court could properly reach a finding, of a merits kind, that a judgment was liable to be set aside for fraud. In this case, it does not seem to me that Mr Elia's evidence goes further than to raise the allegation and, at its highest, identify the matters on which he will rely to support that allegation, rather than reaching the point that that allegation is established.
16. Mr McDonald in turn submits that, where fraud is alleged, the Court would more readily set aside a creditor's statutory demand than it would do in other circumstances, where, for example, it was alleged that a judgment was in error, and that a seriously arguable appeal against that judgment existed. It seems to me that that submission does not adequately distinguish between the position where fraud is alleged, and where it is proved. This is a case where fraud is alleged, and that allegation may or may not be well founded. If it is well founded, then the Court may more readily set aside the judgment, notwithstanding the interests of finality. But where, as here, that matter is alleged, rather than the Court being placed in a position to reach a finding about it, on the relevant standard and on its merits, then no issue of that kind arises.
17. It seems to me that the position here is, in truth, analogous to the position where there is a challenge to a judgment, on the basis that it is incorrect, the reason for that incorrectness here being an allegation that a backdated document was put before the Court, and an allegation that that had an impact on the findings made by Darke J. It is, of course, well-established, in that situation, a creditor's statutory demand will not generally be set aside without payment of the amount of the judgment debt into Court: Cranney Farm Pty Limited v Corowa Fertilizers Pty Limited [2011] NSWSC 9; Timberland Property Holdings Limited v Schindler Lifts Australia Pty Limited above at [26]. The reason for that approach is, as is the case here, that it is not inconsistent with the structure of Part 5.4 of the Corporations Act for a party which in fact has the benefit of a judgment debt, which has not been stayed or set aside, to rely on it for the presumption of insolvency that arises from service of a statutory demand and the failure to make payment in response to that demand. That point should be emphasised here because, even if Mr McDonald had persuaded me of more than that JKAM advanced allegations of fraud in respect of the evidence led before Darke J, it remains that this application to set aside the Demand could not and would not have in fact brought about the setting aside of the judgment of Darke J, or a stay of that judgment, which would have remained in full effect. Where that judgment remains in effect, and continues to bind the parties, then an additional factor is necessary to give rise to some other reason to set aside the demand, as Ward J recognised in Cranney Farm above, namely that the party who has served the statutory demand has been otherwise secured, for example by a payment into court, so that no need for a presumption of insolvency or earlier relation back date arising from the failure to comply with the Demand exists.
18. There is also a second reason why, as a matter of discretion, a court is unlikely to set aside a creditor's statutory demand, where a judgment remains in place and has not been stayed or set aside, by reason of the allegations of fraud here raised by JKAM. That is because, even if a presumption of insolvency arises from non-compliance with the Demand, the Court will still have a discretion whether to proceed to a winding up application, or to adjourn that application, pending the determination of the application to set aside the underlying judgment: Adamopoulos v Olympic Airways SA (1990) 95 ALR 525; Handberg v MIG Property Services Pty Limited [2012] VSCA 126; Re Amy Holdings Pty Ltd; Re Land Enviro Corp Pty Ltd [2014] NSWSC 1176; Re DCT Projects Pty Limited [2015] NSWSC 1696. In those circumstances, it is not necessary to set aside a creditor's statutory demand, merely because allegations that the judgment is incorrect, or is here affected by the backdating of the document are made, where it will be open to JKAM to rely on those matters, and on the state of any proceedings which it may have brought to set aside the judgment, in opposition to the winding up application.
19. JKAM also contended that a further reason to set aside the Demand arose because Mr Malesev's affidavit in support of the Demand falsely stated that he believed there was no genuine dispute as to the debt, and there is such a dispute by reason of the allegations of fraud to which I have referred. Mr McDonald fairly recognised that submission could rise no higher than the allegations of fraud in respect of the judgment. If it were not established that the underlying judgment was obtained by fraud, and that in consequence of it, the consequential costs orders, cost assessment and judgment arising from the registration of the costs orders should be set aside, then Mr Malesev could fairly believe that there could be no genuine dispute as to the costs judgment that founded the Demand. As I noted above, fraud is alleged in respect of the underlying judgment, but that allegation has not been and could not be established on its merits in this summary application and this basis to set aside the Demand is also not established.
20. For these reasons, I am not satisfied that a basis to set aside the Demand has been established. Accordingly, I order that the Originating Process filed 11 September 2015 be dismissed with costs.