B&W Windows v Coshott Voits v Coshott

COUNSEL : Mr RA Parsons for B&W Windows Mr AJ O'Brien for Voits Holdings

SOLICITORS : Norbert Lipton & Co for B&W Windows Heckenberg Associates for Voits Holdings

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4180 of 2007 B & W WINDOWS PTY LIMITED v ROBERT GILBERT COSHOTT 4311 of 2007 VOITS HOLDINGS PTY LIMITED v ROBERT GILBERT COSHOTT JUDGMENT 1 HIS HONOUR: This is the hearing of two proceedings which I have heard together. I have not ordered that the evidence in one proceeding be evidence in the other but as they concern similar facts and circumstances they were heard at the same time. 2 I will first deal with the proceedings of 4180 of 2007 B & W Windows Pty Limited v Coshott. 3 The proceedings are proceedings to set aside a statutory demand served by the defendant on the plaintiff company. The demand was dated 7 August 2007 but it was not signed. The description of the debt was "Order of Federal Magistrate Court made 21 June 2007". The amount of the debt as described in the schedule was "$9,939.50". 4 The plaintiff company is a company which was incorporated on 2 January 2007 and whose Australian Company Number is 123 250 224. Prior to the incorporation of this company Mr Robert Coshott had had dealings and litigation with another company that was previously called B&W Windows Pty Limited. That company had an Australian Company Number of 003 048 477. It changed its name to Voits Holdings Pty Limited on 6 February 2007. In respect of this older company there were District Court proceedings in which Mr Coshott commenced proceedings against them and a Mr Voit on 20 November 2006. He sued in respect of the failure to deliver some doors and windows and made a claim of some $38,000. 5 Before getting into the areas of confusion that arose by reason of the two companies it is useful to note that there was a deed for the sale of business dated 1 February 2007 in which the old company therein referred to as Voits Holdings Pty Limited agreed to sell to a new company certain business assets. The new company therein described as B&W Windows Pty Limited. The agreement contained the usual clauses for the transfer of those business assets and for the business itself to pass to the new company. The new company's directors were Mr Cohen and Mr Voits. In early May 2007 while dealing with his District Court proceedings Mr Coshott was served with a petition numbered SYG 1391/2007. That was a bankruptcy petition relying upon, inter alia, a bankruptcy notice issued on the basis of a Local Court judgment entered on 16 February 2007 by a company, B&W Windows Pty Limited for $15,544.63. 6 Mr Coshott then commenced proceedings on 18 May 2007 in the Federal Magistrates Court of Australia being proceedings SYG 1575/2007 against B&W Windows Pty Limited. In that proceeding he sought a declaration that the bankruptcy notice was invalid, the petition was invalid and that he had a cross-claim in the District Court in excess of the Local Court judgment. He also sought an extension of the bankruptcy notice. Those proceedings came on for hearing before a Federal Magistrate and on 21 June 2007 the Federal Magistrate set aside the bankruptcy notice, dismissed the creditors petition on which it was based and ordered the respondent to pay the applicant's costs of those proceedings. It will be recalled that under his demand Mr Coshott seeks to recover the costs which he says are due in respect of this judgment in the Federal Magistrates Court. 7 The present plaintiff, and I will refer to it as the new company, sought to set aside the demand on the following grounds:

1. The demand was not signed by Mr Coshott and this was a defect. 2. The demand was not accompanied by an affidavit required under s459E(3). 3. The new plaintiff was not the debtor of the defendant because the order in the Federal Magistrate's Court related to the substance of proceedings between Mr Coshott and the old B&W Windows Pty Limited. 8 I turn to consider the defects in the demand. Section 459E(2)(f) of the Corporations Act 2001 (Cth) requires that the demand must be signed by or on behalf of the creditor. The failure to do would certainly constitute a defect and the Court could set aside the demand under s 459J(1)(a). The Court can only set aside under that section because of the defect in the demand if substantial injustice will be caused unless the demand is set aside. In the present case no substantial injustice has been demonstrated by the mere failure to have the demand signed. Accordingly, I would not set aside the demand on this ground. 9 I turn to consider the failure to have an affidavit in support of the demand. Section 459E(3) provides that unless the debt is a judgment debt the demand must be accompanied by an affidavit that verifies the debt or the total amount of the debts which are due and payable by the company and complies with the rules. 10 In the present case there is no such affidavit. This raises the question as to whether the debt referred to in the demand satisfies the description of a judgment debt. 11 As I have earlier mentioned, the order of the Federal Magistrate was "The respondent is to pay the applicant's costs of these proceedings". It was the submission of the defendant that he was entitled to a fixed fee as a result of this order pursuant to the Federal Magistrates Court Rules 2001 - Reg 21.10. That rule is in the following terms: "Costs and Disbursements "Unless the Court otherwise orders, a party entitled to costs in a proceeding (other than a proceeding to which the Bankruptcy Act applies) is entitled to: (a) costs in accordance with Part 1 of Schedule 1; and (b) disbursements properly incurred." 12 Apparently using Schedule 1 to those rules the defendant has come up with the amount which is referred to in the demand. How he achieves that from the schedule was not made plain in the evidence nor is it apparent from the schedule. It will be noted that the rule does not apply to a proceeding to which the Bankruptcy Act 1966 (Cth) applies. It was the defendant's submission that this particular proceeding was one in a general division of the Federal Court and would not fall within that description. However, on the face of the application it was purported to be made pursuant to the Bankruptcy Act (Cth) and the relief it sought was relief pursuant to the provisions of the Bankruptcy Act (Cth). 13 The application was an application under s 41(7) of the Bankruptcy Act (Cth) to set aside the bankruptcy notice and also an application in opposition to an application for a sequestration order under s 52 of the Bankruptcy Act (Cth). I am satisfied that the Federal Magistrates proceedings are proceedings under the Bankruptcy Act (Cth) and accordingly the fixed scale of fees does not apply. In these circumstances there is a necessity to tax the costs under Order 62 of the Federal Court Rules before an amount is determined. See r 13 of the Federal Magistrates Court (Bankruptcy) Rules 2006. Although it may be a contingent debt (see National Australia Bank Ltd v Market Holding Pty Ltd (In Liquidation) (2001) 37 ASCR 629 at paras 134 to 135 the debt is not due and payable and a demand relying on such a debt should normally be set aside, see Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd [1996] 20 ACSR 745 and NT Resorts Pty Ltd v DFCT (1998) 98 ATC 4310 at 4316. 14 The legislative purpose of s 459E(3) of the Act was considered by McLelland CJ in the case of B&M Quality Constructions v Buyrite Steel Supplies (1995) 13 ACLC 88. At page 90 His Honour said the following: "In my opinion the departure from the relevant rule in respect of the affidavit accompanying the statutory demand is a matter of substance. The requirement of that rule, as to the identity of the person making the affidavit accompanying the statutory declaration, is designed to serve the public interest as well as to protect the company against unwarranted demands, by endeavouring to ensure, within practical limits, that the person who must put his or her oath or solemn affirmation to the relevant matters (and thereby risk a conviction for perjury if a knowingly false statement is made) is the person associated with the creditor who is most likely to have direct knowledge of those matters. It is important in this regard to bear in mind that the relevant matters include not only a belief as to the existence and amount of the debt, but also a belief as to the absence of any genuine dispute about the existence or amount of the debt. The express requirement in the rule that the person making the affidavit depose to his or her belief that there is no genuine dispute is a significant mechanism for filtering out cases where there is in fact such a dispute, so as to prevent such cases from reaching the court on such an application as the present, with a consequent waste of time and resources. This mechanism would be substantially weakened unless a person likely to have personal knowledge of the existence of a dispute if there is one makes the affidavit. A statement of a belief that there is no genuine dispute based solely on hearsay is unlikely to have anything like the same degree of reliability. I therefore do not regard what has occurred in the present case as a merely technical breach of the rules. It goes to the heart of what Pt 80 a r 15 was intended to achieve." 15 These principles have been followed in a number of cases. See Anderson Formrite v CASC Hire Pty Ltd (2006) 24 ACLC 154. In the circumstances and in the absence of an affidavit which was required because the judgment was not for a judgment debt, in my view, the demand should be set aside. 16 I turn to the third matter. The confusion which has arisen in this matter was generated by the old company itself in the proceedings which it took against the defendant. A bankruptcy notice was issued in the name of B&W Windows Pty Limited without any reference to the ACN number. The Creditors Petition was issued by the old company and one can identify it from the ACN number but it was incorrectly in the name of B&W Windows Pty Limited. The petition was issued on 2 May 2007 and at that stage and also at the stage the bankruptcy notice had been issued the old company had changed its name to Voits Holdings Pty Limited. 17 Not unnaturally because of these defaults the Court set aside the bankruptcy notice. It is plain from a consideration of the subject matter of what was the debt relied upon in the petition and the debt relied upon in the bankruptcy notice that it related to a costs order concerning earlier proceedings prior to 2007. In these circumstances plainly the proceedings to set aside the bankruptcy notice in the Federal Magistrates Court were ones in which the relevant company was the old company it being the one which had the liability under the matters which related prior to 2007. In these circumstances such an order for payment of costs was not made against what I have described as the new company. Accordingly it is plain that there is no debt between the new company and the plaintiff in the present proceedings and the defendant and that there was no basis for issuing the statutory demand. 18 It was suggested by the defendant that the terms of the sale agreement somehow passed the liability from the old company to the new company. However, having regard to the terms of the agreement this is not the case. 19 For these reasons I order that the demand be set aside and that the defendant pay the plaintiff's costs of the proceedings. 20 I will hear submissions on costs. 4311 of 2007 VOITS HOLDINGS PTY LIMITED v ROBERT GILBERT COSHOTT 21 Identical evidence was read in these proceedings to the previous proceedings I have just dealt with except for the sale of business deed which was only tendered in the first proceedings. The demand in these proceedings was an identical demand to that in the other proceedings apart from the company to whom it was addressed and it was not accompanied by an affidavit. 22 For the reasons which I have set out in my earlier judgment, the failure to have an affidavit in support is fatal and I set aside the demand on this ground.

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