Application to set aside - "Some other reason" - Affidavit in support... [2019] NSWSC 1217 | Case summary

Application to set aside - "Some other reason" - Affidavit in support... [2019] NSWSC 1217 | Case summary | Zoe

HER HONOUR: This is an application to set aside a statutory demand on four grounds, although it is only necessary for me to determine one as it has the result that the demand must be set aside. That ground, however, was only notified by the plaintiff a week before the hearing, being almost three months after the plaintiff commenced the proceedings. I gave leave to the plaintiff to amend its Originating Process to add this ground: In the matter of Nanevski Developments Pty Limited [2019] NSWSC 1204 (Nanevski No 1), and also made directions to enable the defendant to provide supplementary submissions in respect of it. In the result, although this late-raised ground has the consequence that the statutory demand is set aside, the costs orders which I propose to make reflect the practical reality that raising such matters 'late in the day' often mean that the parties' efforts to prepare to contest a matter on earlier notified grounds are wasted.
The ground lately raised is simply this: the affidavit verifying the statutory demand was sworn two days before the demand was issued. Section 459E(3) of the Corporations Act 2001 (Cth) provides: Creditor may serve statutory demand on company (3) Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that: (a) verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and (b) complies with the rules.
The definition of "rules" in section 9 of the Act includes "rules of the Supreme Court of a State…". In this case, the rule referred to in section 459E(3)(b) which must be complied with is rule 5.2 of the Supreme Court (Corporations) Rules 1999 (NSW), which requires that the affidavit "be in accordance with Form 7 and state the matters mentioned in that Form". Form 7 requires the deponent to swear or affirm that the debt in the statutory demand "is due and payable by the debtor company".
Correspondingly, section 459E(2) of the Corporations Act requires that the statutory demand be in the prescribed form, being Form 509H of Schedule 2: regulation 1.0.03 and Schedule 1 of the Corporations Regulations 2001. Form 509H requires a creditor's statutory demand to include the following statements: 1. The company owes … the creditor … the amount of the debt … 2. Attached is the affidavit of (insert name of deponent of the affidavit), dated (insert date of affidavit), verifying that the amount is due and payable by the company.
It will be immediately noted that section 459E(3) does not require that the affidavit verifying the debt be sworn on the date on which the demand is signed, but the word "is" suggests that the deponent must swear or affirm that the debt described in the demand is due and payable on the day that the affidavit is sworn. As a matter of logic, this requires the affidavit to be sworn contemporaneously with or after the date of the demand: In the matter of Unity Resources Group Australia Pty Ltd [2015] NSWSC 1174 per Brereton J at [5].
Section 459J of the Corporations Act provides: Setting aside demand on other grounds (1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that: (a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or (b) there is some other reason why the demand should be set aside. (2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.
Although, where the verifying affidavit is sworn before the date of the statutory demand, there is no defect in the demand itself, there is abundant authority that the demand will be set aside "for some other reason", including Wildtown Holdings Pty Ltd v Rural Traders Co Ltd (2002) 172 FLR 35; [2002] WASCA 196 (Templeman J, with whom Steytler and Miller JJ agreed); In the matter of Gemaveld Pty Limited [2012] NSWSC 582 per Black J. In this event, it is not necessary for the plaintiff to prove that substantial injustice will be caused unless the demand is set aside, as it would be required to do under section 459J(1)(a). The 'plethora' of cases in support of this proposition (described as such by Randall AsJ in Stellar Projects (Vic) Pty Ltd v Cambridge Plumbing Pty Ltd (2017) 324 FLR 279; [2017] VSC 532 at [24]) was recently summarised by Wigney J in Wollongong Coal Limited v Gujarat NRE India Pty Limited (2015) 104 ACSR 425; [2015] FCA 221 at [83]-[84]: 83 Since at least the decision of the Full Court of the Supreme Court of Western Australia in Wildtown Holdings Pty Ltd v Rural Traders Co Ltd (2002) 172 FLR 35 (Wildtown), the following four principles or propositions can be considered to be well established: first, an accompanying affidavit that predates a demand does not or cannot verify the demand; second, such an affidavit does not satisfy the requirement in s 459E(3); third, the requirement in s 459E(3) is an important safeguard in the statutory scheme and is therefore mandatory; and fourth, except perhaps in one situation, non-compliance with s 459E(3) will justify, if not compel, the setting aside of the demand under s 459J(1)(b) of the Act. It is not necessary to point to any substantial injustice. The authorities that establish these principals include: Ambassador at Redcliffe Pty Ltd v Barreau Peninsula Property Pty Ltd [2007] 2 Qd R 199 ; (2006) 202 FLR 459 (Ambassador) at [18]-[20]; R2M Pty Ltd v Gourlay [2011] FCA 168 (R2M) at [31]-[36]; Ri-Co Holdings (Australia) Pty Ltd v Allied Sandblasters Pty Ltd [2010] 1 Qd R 293 (Ri-Co Holdings) at [23]; Chadmar Enterprises Pty Ltd v IGA Distribution Pty Ltd (2005) 190 FLR 466 (Chadmar) at [54]-[56]; Technology Licensing Ltd v Climit Pty Ltd [2002] 1 Qd R 566 (Technology Licensing) [24]-[25]. 84 The one circumstance where non-compliance with s 459E(3) of the Act arising from a defective accompanying affidavit might be cured, and therefore might not lead to the setting aside of the demand, is where an "updating affidavit" has been served: Wildtown at [58]. An updating affidavit is a later affidavit which verifies that the debt referred to in the demand remained due and payable on the date the demand was made: Chadmar at [52]. It is tolerably clear, however, that to relevantly cure the non-compliance with s 459E(3), the updating affidavit must be served either with the demand or within a reasonable time before the expiration of the 21 days available to the debtor to apply to set aside the demand: Chadmar at [52]; and Ambassador at [21].
As Black J explained in Gemaveld at [14]: There are, of course, a number of cases where affidavits sworn prior to a statutory demand have been held not to verify that statutory demand, and that has been held to give rise to a defect for the purposes of s 459J of the Corporations Act. However, those cases variously related to affidavits sworn between a day and several days prior to the date of the statutory demand: Wildtown Holdings Pty Ltd v Rural Traders Pty Ltd [2002] WASCA 196; Chadmar Enterprises Pty Ltd v IGA Distribution Pty Ltd [2005] ACTSC 39; Ri-Co Holdings (Aust) Pty Ltd v Allied Sandblaster Pty Ltd [2009] QSC 122 [2010] 1 Qd R 293; R2M Pty Ltd v Gourlay [2011] FCA 168. It is obvious enough that an affidavit sworn on, say, 14 or 18 October could not, in fact, verify a debt claimed to exist on 19 October, because that debt might well have been repaid in the intervening day or days. In that case, an affidavit sworn before the demand was issued but on the same day was held to be valid.
In this case, the affidavit accompanying the demand was sworn on 27 March 2019, two days before the demand. In the same circumstances in Wildtown, Templeman J stated: "an affidavit executed two days before a statutory demand cannot verify that demand". Although such a defect may be cured by an updating affidavit verifying that the debt referred to in the demand remains due and payable, such an affidavit must be served with the demand or within a reasonable time before the expiration of the 21 days available to a debtor to apply to set aside the demand: Chadmar Enterprises Pty Ltd v IGA Distribution Pty Ltd (2005) 190 FLR 466; [2005] ACTSC 39 at [52]; Ambassador at Redcliffe Pty Ltd v Barreau Peninsula Property Pty Ltd [2007] 2 Qd R 199; [2006] QSC 247 at [21]; In the matter of Complete Investing Services Pty Limited (in liq) [2018] NSWSC 1003 at [46] (Gleeson JA). In these proceedings, commenced on 17 April 2019, a director of the creditor did swear an affidavit on 16 May 2019 deposing inter alia that the debt in the demand remained outstanding, but this was a month after proceedings to set aside the statutory demand had been commenced.
Whilst the defendant does not suggest that the cases to which I have referred are wrong, it was submitted that there is a conflict of authority, such that the defendant may persuade this Court that the facts of this case justify the exercise of its discretion not to set aside the statutory demand. The defendant cited Assaf, Statutory Demands and Winding Up in Insolvency (2nd ed., LexisNexis Butterworths, 2012) at [7.52] (footnotes omitted): There is a divergence of judicial opinion as to whether an accompanying affidavit sworn before the date of the statutory demand constitutes some other reason to set aside the demand under s 459J(1)(b). The weight of authority favours the view that an accompanying affidavit sworn even a few days before a statutory demand will be liable to be set aside for some other reason. [citing] … Wildtown …. Notable first instance decisions in favour of this view include the decision of Higgins CJ of the Australian Capital Territory Supreme Court in Chadmar Enterprises Pty Ltd (ACN 008613974) v IGA Distribution Pty Ltd (ACN 004391422) and Technology Licensing Ltd v Climit Pty Ltd, a decision of Chesterman J of the Queensland Supreme Court. ... The opposite conclusion was reached by Holmes J (also of the Queensland Supreme Court) in McDermott Projects Pty Ltd v Chadwell Pty Ltd, another case where the accompanying affidavit predated the demand by four days. Holmes J refused to follow Chesterman J's decision instead finding more convincing the comments of Santow J in Dolvelle Pty Ltd v Australian Macfarms Pty Ltd. In Dolvelle, Santow J held that a winding-up application based upon a statutory demand did not fall outside Pt 5.4 of the Act merely because the affidavit was two days premature. His Honour observed that 'the requirement (of exact coincidence of date for verification of the statutory demand), though important, is not to be treated as an essential integer of the relief sought' in that case (that is, a winding-up order). The learned author concluded that the better view is that an accompanying affidavit should be sworn on the same day as the statutory demand: at [7.53].
However, the decision of Santow J in Dolvelle Pty Ltd v Australian Macfarms Pty Ltd (1998) 43 NSWLR 717; (1998) 28 ACSR 175, on whose reasoning the decision of McDermott Projects Pty Ltd v Chadwell Pty Ltd [2002] 2 Qd R 363; [2001] QSC 322 also relies, was distinguished in Wildtown because it was an application to wind up a company for failure to comply with a demand, not an application to set the demand aside. In Wildtown per Templeman J at [55]: The reason for Santow J's conclusion lies in s 459Q of the Law, which sets out the requirements for a winding up application based on a failure to comply with a statutory demand. The application must have a copy of the demand attached to it. It must also be accompanied by an affidavit verifying the debt and the fact that the debt is due and payable. However, the affidavit which accompanied the statutory demand is not itself relevant to the winding up application. Hence, as Santow J said, an irregularity in the verification of the statutory demand is not fatal to a winding up application based on a failure to comply with that demand.
Similarly, in Unity Resources, Brereton J reviewed the dissonance between Wildtown Holdings, Dolvelle and McDermott Projects and drew the same distinction at [8]: In my view, it does not follow that the same approach is to be taken on a timely application to set aside a demand. Moreover, particularly in the context of a national law such as the Corporations Law, a Judge at first instance should follow the intermediate appellate court of another State on the same legislative provision, at least unless satisfied that that decision is plainly wrong, which, far from being the case, I am satisfied is plainly correct.
Aside from Dolvelle and McDermott Projects, Mr Assaf cites the decision of Senior Master Mahony in Dornay Nominees Pty Ltd v Blackbutt Nominees Pty Ltd (2001) 36 ACSR 749; [2001] VSC 20, which pre-dates Wildtown; and Ambir Pty Ltd v Perfect Touch Painting Services Pty Ltd [2003] NTSC 21, which post-dates Wildtown but does not refer to it, instead relying on the reasoning in Dolvelle once again.
The plaintiff submitted that Wildtown Holdings had been followed in numerous cases to hold that an accompanying affidavit sworn a day or more before the date of the demand is a "fatal flaw" or "necessarily fatal": Chadmar Enterprises at [54]-[56] (Higgins CJ); Wollongong Coal v Gujarat at [98] (Wigney J): "no sound reason to conclude that Wildtown is wrong, let alone plainly wrong"; Ri-Co Holdings (Australia) Pty Ltd v Allied Sandblasters Pty Ltd [2010] 1 Qd R 293; [2009] QSC 122 at [23] (Wilson J): "I respectfully concur in and adopt the analysis in Wildtown …"; R2M Pty Limited v Gourlay [2011] FCA 168 at [34]-[36] (Buchanan J): "The statutory demand was, applying Wildtown, fatally flawed …"; Stellar Projects (at [24] (Randall AsJ): "…I cannot conclude that Wildtown is wrong, let alone plainly wrong. Accordingly, I should not depart from Wildtown." I respectfully agree. It seems to me that the number of decisions applying Wildtown since the 2nd edition of Mr Assaf's book was published in 2012 strengthens the conclusion that Wildtown now represents the correct position, and any decisions at first instance which are contrary to it were wrongly decided.
Even accepting Wildtown to be correct, the defendant submits that there remains a discretion to refuse relief under section 459J(1)(b) of the Act despite the defect in the affidavit, relying on section 459J(2) and the interpretation of the section in Spencer Constructions Pty Ltd v G&M Aldridge Pty Ltd (1997) 76 FCR 452 at 458; (1997) 24 ACSR 353 at 358-9: If the defect is "in the demand" it is only to be set aside if substantial injustice will be caused by the defect unless the demand is set aside: see s 459(1)(a) and (2). If there is any other defect, including a defect in relation to the demand rather than in the demand itself, the demand may only be set aside if the court is satisfied that there is some reason why the demand should be set aside: see s 459J(1)(b) and (2). … Section 459J(2) is the legislative prescription which ensures that defects alone, whether in the statutory demand or in relation to the statutory demand, will not result in invalidity.
The defendant also relied on Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229; [2005] NSWCA 24 as considered by Barrett JA, with whom Beazley P and Gleeson JA agreed, in Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262, relying on [24], but the previous paragraph also warrants reproduction: 23 Meehan v Glazier Holdings Pty Ltd makes it clear that the "substantial injustice" criterion to which express reference is made in s 459J(1)(a) is not, by some process of osmosis, imported into s 459J(1)(b). 24 The operation of s 459J(1)(b) is not confined to cases coming within established categories. The section applies whenever there is a need to counter some attempted subversion of the intended operation of Part 5.4. …
More recently, in Rinfort Pty Ltd v Arianna Holdings Pty Ltd (2016) 111 ACSR 607; [2016] NSWSC 251, Black J summarised the principles relevant to section 459J(1)(b) of the Act, at [84] (citations omitted): … The Court's power to set aside a statutory demand under [section 459J(1)(b)] exists to maintain the integrity of the process provided under Pt 5.4 of the Corporations Act and is to be used to counter an attempted subversion of the statutory scheme, but is not exercised by reference to subjection notions of fairness. A statutory demand may be set aside under that section where it involves conduct which is unconscionable or an abuse of process. …
The defendant submits that there is no "subversion of the statutory scheme", no unconscionability and no abuse of process, and, relying on the language of Young CJ in Eq in Meehan v Glazier Holdings, nor is there a "gross defect" or "gross offence to the statutory scheme". The demand was clear despite the defect and enabled the plaintiff to identify the particulars of the debt owed. With respect, this submission fails to appreciate that the authorities from Wildtown onwards provide a reason why this particular defect, without more, is sufficient to set aside a demand "for some other reason". That the affidavit in support identifies a debt which is due and payable at the date of the demand is central to the statutory scheme. To do this, the affidavit cannot pre-date the demand.
The plaintiff submitted that the mandatory requirement of section 459E(3) Corporations Act is an important safeguard in the operation of the statutory scheme of proving insolvency to support an order winding up a company. This is the reason that "justifies if not compels" the setting aside of the demand: Wollongong Coal v Gujarat [83]. Likewise in Unity Resources, Brereton J set aside a statutory demand where the affidavit was sworn one day before the demand. His Honour noted that the failure to accompany the demand with an affidavit that complied with the requirements of s 459E(3) had "typically, if not invariably" resulted in demands being set aside, stating at [11]: [I]t is far preferable in this relatively technical area, as a matter of policy, to have a clear line of delineation, rather than a rule which involves some element of discretion... It seems to me that policy strongly supports the view that the line to be drawn is one which reflects the intention of s 459E, that the affidavit speak to the circumstances as at the date of the demand. As was said in Wildtown Holdings, an affidavit executed two days before a statutory demand cannot verify that demand.
Further, I note his Honour's explanation at [15]: … the absence of a proper and compliant accompanying affidavit will typically, if not invariably, result in the demand being set aside. In this case, for the reasons I have given, there was no compliant affidavit. The undistorted operation of Part 5.4, which requires verification of the debt as at the date of the demand, has been departed from, and in those circumstances, the proper outcome is that the demand be set aside.
The defendant's submission, in essence, is that the Court should consider matters of substantial injustice even though the defect falls within section 459J(1)(b). What the statute requires, however, is that there be "some other reason". Wildtown indicates that there is, here, "some other reason".

[3]

Orders

For these reasons, it follows that the statutory demand must be set aside. The usual order for costs would be that the defendant pay the plaintiff's costs of the proceedings. In Nanevski No 1, when granting leave to the plaintiff to amend its Originating Process to add the ground on which the plaintiff has succeeded, I ordered the plaintiff to pay any costs thrown away by the defendant by reason of the amendment. The bulk of the evidence prepared by both parties went to the other grounds relied upon by the plaintiff to set aside the statutory demand, in particular, whether there was a genuine dispute as to the existence of the debt or an offsetting claim. By reason of what Wigney J described in Wollongong Coal v Gujarat as "a highly technical point" but "nevertheless a good point" (at [82]), it has not been necessary to canvas that evidence.
Having regard to the difficulties in assessing costs thrown away by reason of an amendment, it seems to me to be a fair result in respect of costs overall to vacate the costs order which I made in Nanevski No 1 and instead make an order that there be no order for costs in respect of these proceedings. However, the defendant is entitled to be heard if it wishes to retain the existing costs order made in its favour, although, if it does, a different costs order would need to be made in respect of the proceedings as a whole than what I presently have in mind.
In these circumstances I make the following orders: 1. Pursuant to section 459J(1)(b) of the Corporations Act 2001 (Cth), set aside the statutory demand issued by the defendant dated 29 March 2019. 2. Vacate Order 2 made on 16 July 2019. 3. Make no order as to the costs of these proceedings. 4. Grant liberty to the defendant, within seven days, to vary Order 3 by providing written submissions limited to two pages, and also advising whether the defendant consents to its application being determined on the papers. 5. In the event that the liberty in Order 4 is exercised, direct the plaintiff to file any submissions in reply to those of the defendant within seven days of the defendant's submissions, also limited to two pages, and also advising whether the plaintiff consents to the application being determined on the papers. 6. Subject to the parties providing their consent in their respective submissions made under Order 4 and 5, any variation of Order 3 to be determined on the papers. 7. Liberty to apply on 2 days' notice in respect of Orders 4 to 6.

Application to set aside - "Some other reason" - Affidavit in support pre-dates demand - Wildtown Holdings Pty Ltd v Rural Traders Co Ltd

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