[2011] NSWSC 1343
In the matter of Fearndale Holdings Pty Limited (2019) 19 BPR 39,393
Source
Original judgment source is linked above.
Catchwords
[2013] NSWCA 344
Broke Hills Estate Pty Limited v Oakvale Wines Pty Limited (2005) 23 ACLC 1,266[2005] NSWSC 638
David Grant & Co Pty Limited v Westpac Banking Corporation (1995) 184 CLR 265[2007] NSWSC 103
Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd (2012) 87 ACSR 1[2011] NSWSC 1343
In the matter of Fearndale Holdings Pty Limited (2019) 19 BPR 39,393[2019] NSWSC 645
Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd (2012) 91 ACSR 170
Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2019] NSWSC 1169 | Case summary | Zoe
[2012] NSWSC 943
Infratel Networks Pty Ltd v Gundry's Telco and Rigging Pty Ltd (2012) 92 ACSR 27
[2003] NSWSC 147
Pravenkav Group Pty Limited v Diploma Construction (WA) Pty Limited (No 3) (2014) 46 WAR 483
[2014] WASCA 132
Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2008) 214 FLR 393
Judgment (10 paragraphs)
[1]
Solicitors:
Dettmann Longworth Lawyers (Plaintiff)
William James (Defendant)
File Number(s): 2019/93459
[2]
Judgment
HER HONOUR: This is an application to set aside a creditor's statutory demand issued in respect of a judgment debt on the basis of an offsetting claim. Two issues arise:
1. whether the affidavits filed within 21 days after the demand was served fulfil the requirements of section 459G(3)(a) of the Corporations Act 2001 (Cth) such that the court has jurisdiction; and
2. if so, whether these and subsequent affidavits establish an offsetting claim to the requisite standard.
In the result, I have found that the Court's jurisdiction has not been enlivened and thus do not need to consider the second issue.
[3]
Facts
By my count, three sets of legal proceedings pre-date the issue of the statutory demand and three proceedings have been issued since. What follows is drawn from the evidence relied on by the judgment creditor, Fearndale Holdings Pty Limited (administer appointed) (Fearndale), in opposition to this application rather than the evidence filed by the judgment debtor, Drama Unit Pty Limited, in support of its application to set aside the statutory demand.
Fearndale owned land in Luddenham on which there was a quarry. Fearndale leased the land to Epic Mining. In 2014, Gino Cassaniti of Consolidated Capital & Funding Pty Ltd lent money to Fearndale and was also involved in some way in trying to find a buyer for the land. In 2016, Mr Cassaniti introduced the property to his cousin, John Tabuso. Mr Cassaniti told Mr Tabuso that Fearndale had a mining lease in respect of the land, because Mr Cassaniti had found such a lease on Epic Mining's website, to which Mr Cassaniti was apparently told by Fearndale to refer for the approvals in place for the quarry. On 11 July 2016, Mr Tabuso incorporated Drama Unit for the purpose of pursuing an interest in the quarry. Mr Tabuso's wife, Mira Tabuso, was installed as sole director, secretary and shareholder of Drama Unit. In March 2017, Fearndale entered into a lease of the land to Drama Unit. Epic Mining continued to occupy the land as, apparently, it was anticipated that Epic Mining would continue to exploit the quarry site for a time and then Drama Unit would take possession.
In January 2018, the NSW Department of Planning & Environment wrote to Epic Mining advising that its Major Investigations Unit had been referred allegations of breach of the Mining Act 1992 (NSW) by Epic Mining, being that Epic Mining had posted a fraudulent mining authorisation on its website. This was the mining lease which Mr Cassaniti had seen and told Mr Tabuso about.
In May 2018, in the first proceedings Harpley v Consolidated Capital and Funding Pty Limited & Ors, orders were made for Fearndale to be joined, Timothy Cook to be appointed as administrator of Fearndale, Consolidated Capital & Funding to be repaid its loan on sale of the land and for a referee to be appointed to determine any other entitlement of Consolidated Capital & Funding to be paid from the proceeds of sale.
In May or June 2018, Michael Gerace was introduced to Drama Unit and its interest in the quarry through his friend Vince Macri, who told him that Mr and Mrs Tabuso were not in a position to run the quarry and asked whether he would be interested in the opportunity. Apparently, Mr Macri showed Mr Gerace the mining lease then under investigation. Mr Gerace says he assumed that the mining lease was genuine and decided to invest in Drama Unit. On 29 May 2018, Drama Unit sent a letter to the administrator of Fearndale seeking possession of the land. On 20 June 2018, Mrs Tabuso ceased to be a director and secretary of Drama Unit: Mark Collins and Clinton McKinnon became directors and Mr Collins was appointed secretary.
On 29 June 2018, Drama Unit provided a cheque for $28,000 in payment of rent under the lease. Also on 29 June 2018, Mr Collins and Mr McKinnon ceased to be officeholders of Drama Unit and Mrs Tabuso became director and secretary again. On 29 June 2018, Fearndale issued Drama Unit with three notices of breach of covenant under the lease. In July 2018, the administrator's solicitor wrote to Drama Unit's solicitor advising that no determination had been made as to the validity of the lease. The administrator did not propose to bank the cheque for rent and would return it. On 13 July 2018, the administrator's solicitors served notices of termination and advised that the administrator wished to sell the land. Drama Unit lodged a caveat.
On 25 October 2018, Mr Gerace and Mr McKinnon were appointed as directors of Drama Unit. They also became shareholders of the company together with Mrs Tabuso. On 25 October 2018, Drama Unit sought possession of the land. On 16 November 2018, Drama Unit commenced the second proceedings, Drama Unit Pty Limited v Fearndale Holdings Pty Limited (administrator appointed) & Anor in the Real Property List of this Court seeking to enjoin Fearndale from selling the land or issuing a notice of breach or termination of the lease. Some ten affidavits were filed in short order, including by Mr Gerace and Mr Cassaniti, in support of the relief sought. But, Mr Gerace says, it was not until late November 2018 that he became aware of the letter from NSW Department of Planning & Environment advising that the mining lease may have be false.
The second proceedings was heard by Black J on 29 and 30 November 2018 and, on 10 December 2018, his Honour gave judgment that Fearndale's efforts to terminate the lease were invalid: Drama Unit Pty Limited v Fearndale Holdings Pty Limited (administrator appointed) [2018] NSWSC 1895. On 29 January 2019, Fearndale issued four further notices of breach of covenant to Drama Unit. On 25 February 2019, Mr Gerace and Mr McKinnon ceased to be directors of Drama Unit. On 4 March 2019, Mr Gerace was appointed as a director of Drama Unit again. On 5 March 2019, Mr Gerace was examined by the administrator of Fearndale, including in relation to his recent removal and re-appointment as a director of Drama Unit. Mr Gerace explained that this had occurred without consultation with Mrs Tabuso but was done for the purposes of getting mining approvals for the quarry.
On 22 March 2019, Fearndale issued Drama Unit with a notice of termination of the lease and commenced the third proceedings, In the matter of Fearndale Holdings Pty Ltd (administrator appointed), seeking declarations that the administrator was entitled to terminate the lease. On 6 May 2019, Drama Unit filed an Interlocutory Process seeking leave to proceed against Fearndale in accordance with a Statement of Cross-Claim annexed to the Interlocutory Process. The proposed cross-claim pleaded, essentially, that Fearndale had held itself out as having a valid mining lease in respect of the land when it did not and sought declaratory relief, remedies under the Australian Consumer Law and abatement of rent by reason of there being no valid mining lease and its inability to take possession of land. Affidavits of Mr Gerace and Mr Cassaniti were sworn in support of the Interlocutory Process: Mr Gerace described how he came to be involved in Drama Unit and the quarry and when he became aware that the mining lease was said to be false.
On 7 May 2019, Black J made orders listing Drama Unit's Interlocutory Process for directions on 13 May 2019, leaving open the possibility that it would be determined that day, and confirmed the hearing date for the third proceedings on 17 May 2019. On 8 May 2019, Drama Unit served a Notice of Removal of Solicitor on its solicitor. On 9 May 2019, Drama Unit's solicitor filed a Notice of Ceasing to Act. On 10 May 2019, Fearndale filed a defence to the proposed cross-claim together with four affidavits addressing the allegations in the cross-claim and responding to the affidavits of Mr Gerace and Mr Cassaniti. On 13 May 2019, there was no appearance for Drama Unit and Black J dismissed the Interlocutory Process.
On 17 May 2019, Black J heard the third proceedings. Drama Unit appeared. On 4 June 2019, Black J gave judgment in the third proceedings declaring that Fearndale had validly terminated the lease and also gave judgment for Fearndale in respect of outstanding rent and outgoings in the amount of $376,047.82: In the matter of Fearndale Holdings Pty Limited (2019) 19 BPR 39,393; [2019] NSWSC 645. On 7 June 2019, his Honour's orders were entered and a statutory demand was issued in the amount of the judgment debt and served on Drama Unit.
On 21 June 2019, an appeal was lodged against the judgment of Black J (the fourth proceedings) and these (fifth) proceedings were commenced by filing an Originating Process and affidavit in support of Mr Gerace to the effect that there was a genuine dispute as to the debt given Drama Unit's appeal against the judgment of Black J. The mere existence of an appeal against a judgment debt does not give rise to a genuine dispute as to the existence of the underlying judgment debt, and this ground was not pressed.
[4]
Affidavit supporting the application
On 27 June 2019, that is, within 21 days of being served with the statutory demand, a second affidavit was filed on behalf of Drama Unit, being an affidavit by its solicitor, Damian Phair. It is this affidavit, rather than the first affidavit of Mr Gerace, on which Drama Unit relies in support of its application to set aside the statutory demand. Mr Phair deposed that Drama Unit would be filing a Statement of Claim, a draft of which was annexed, and that the amount claimed in the proposed Statement of Claim would offset and exceed that amount claimed in the statutory demand. Annexed to Mr Phair's affidavit was a Statement of Claim in, essentially, the same terms as the proposed Statement of Cross-Claim sought to be relied upon in the third proceedings, indeed, the footer to the Statement of Claim is that of the Cross-Claim noting it is "filed on behalf of the cross-claimant". A new paragraph had been added, referring to Black J's judgment in the third proceedings.
The Statement of Claim was unsigned, undated and unverified. The Statement of Claim, like the proposed Cross-Claim, described representations by Fearndale that there was a mining lease in place when there was not, and said that in reliance upon these representations, Drama Unit entered into a lease and incurred expenses which it otherwise would not have incurred. Fearndale is then said to have denied the existence of the lease such that Drama Unit was unable to obtain possession. The relief sought in the draft Statement of Claim was:
In the further alternative, the Lessee:
(a) seeks pursuant to s 236 of the Australian Consumer Law:
(i) the amount of rent that would otherwise be payable under the Lease; and
(ii) the expenses it has incurred in connection with the Lease,
as loss or damage that is has suffered because of the misleading and deceptive conduct of the Lessor as pleaded in paragraph 30 above;
(b) claims damages in the amount of the rent that would otherwise be payable for breaches of the Lease as a result of the Lessor taking the actions pleaded in paragraphs 24, 25, 26 and 29 above; and
(c) claims a set off of the amounts set out above against the amount of rent otherwise payable under the Lease.
[5]
Supplementary affidavits
On 9 August 2019, Drama Unit filed the Statement of Claim in the sixth proceedings, Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (administrator appointed). The Statement of Claim was verified by an affidavit of Mr Gerace who deposed that he was a director of Drama Unit and "I believe that the allegations of fact in the statement of claim are true". This verifying affidavit was read provisionally in these proceedings subject to Fearndale's objection on the basis of the Graywinter principle.
On 22 August 2019, Mr Gerace swore a further affidavit quantifying the damages sought in the sixth proceedings, said to exceed $3,864,487. Mr Gerace's second affidavit was also read provisionally in these proceedings subject to Fearndale's objection by reference to the Graywinter principle.
[6]
Law
A party seeking to invoke the Court's jurisdiction to set aside a statutory demand must make an application which complies with the requirements of sections 459G(2) and (3) of the Act. That is, the application for an order setting aside a statutory demand must be made within 21 days after the demand is served and, according to section 459G(3)(a):
(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 …
As Gummow J, with whom Brennan CJ, Dawson, Gaudron and McHugh JJ agreed, made plain in David Grant & Co Pty Limited v Westpac Banking Corporation (1995) 184 CLR 265 at 276; [1995] HCA 54, sections 459G(2) and (3) attach a limitation or condition upon the authority of the court to set aside the demand. Filing an affidavit as required by section 459G(3)(a) is an essential condition of a company's invocation of a right to apply to set aside the demand. See likewise Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd (2012) 87 ACSR 1; [2011] NSWSC 1343 at [33].
In Graywinter Properties Pty Limited v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452; (1996) 21 ACSR 581, Sundberg J considered the minimum requirements for an affidavit to qualify as a "supporting affidavit". His Honour considered that a mere assertion or bare claim was not sufficient; nor did the affidavit need to go into evidence but "may read like a pleading", exhibit correspondence, or "an affidavit verifying the pleadings in an action may qualify". At a minimum, his Honour considered that the affidavit must contain a statement of the material facts on which the applicant intends to rely. Further, at FCR 460; ACSR 588:
An applicant whose initial affidavit has satisfied the threshold test must be able to supplement the material, because while the "supporting" affidavit does not have to deploy the evidence, on the hearing only admissible evidence can be relied on …
This is referred to as the "Graywinter principle" and Fearndale relied on my decision in MCF Group Pty Ltd v G.J.B. Legal Pty Ltd trading as Byles Anjos Lawyers [2019] NSWSC 333 where I reviewed the authorities on the extent to which affidavits served after the 21 days can expand upon or propound further disputes or offsetting claims which may not have been readily apparent from the "supporting affidavit". The issue in this case is slightly different, being whether Drama Unit is entitled to rely on supplementary affidavits at all given the attributes of its "supporting affidavit".
[7]
Submissions
Drama Unit submitted that the draft pleading annexed to the affidavit filed within 21 days, together with the assertion that the quantum of the claim exceeded the amount of the demand, was sufficient to raise the issue of an offsetting claim for the purposes of Graywinter. It relied upon the passages from Black J's judgment in Infratel to which I have already referred. Drama Unit submitted that here, unlike in Infratel, there is a "conclusory statement" that the "amount of the claim is greater than the amount of the debt". The fact that the evidence is given on information and belief from an unnamed source is beside the point, because this is an application which is interlocutory in nature and thus section 75 of the Evidence Act applies. Nor is it to the point that the draft pleading was unverified because it alerted Fearndale to the fact that there was going to be an offsetting claim so as to invoke the section 459G jurisdiction. The affidavit, it was submitted by reference to my decision in MCF Group, "gets it over the line" such that the particulars of the offsetting claim could be supplemented by later affidavits.
Fearndale relied on Broke Hills Estate Pty Limited v Oakvale Wines Pty Limited (2005) 23 ACLC 1,266; [2005] NSWSC 638, where Gzell J considered that the affidavits supporting the application under section 459H(1)(b) of the Corporations Act must contain material from which a court can make an estimate of the amount of an offsetting claim: at [28]. However, this line of authority was not followed in Pravenkav Group Pty Limited v Diploma Construction (WA) Pty Limited (No 3) (2014) 46 WAR 483; [2014] WASCA 132 per Newnes andMurphy JJA and Edelman J at [43], [57]. To the extent that Fearndale submitted that Mr Phair's affidavit was deficient because it made no attempt to quantify the offsetting claim, I do not think it is consistent with more recent authority.
In respect of Mr Phair's affidavit, Fearndale submitted that the solicitor did not assert any personal knowledge of the factual matters described in the draft Statement of Claim: the only knowledge which he had was from an un-named source. The solicitor did not give evidence, even on information and belief, which sought to verify any of the factual assertions made in the draft pleading. The affidavit simply indicates that the solicitor has been advised by persons unknown that a Statement of Claim, a draft copy of which was attached, was to be filed and that the amount to be claimed when that proceeding was commenced would exceed the amount of the judgment debt. Nobody from Drama Unit, such as a director in office at the time or any employee or other person who might be able to speak with first-hand knowledge of the events described in the draft pleading, swore an affidavit verifying the proposed claim. Fearndale submitted that a statement that a client is proposing to make a claim is no evidence as to the merits of that claim. In Intag Microelectronics Pty Ltd v AWA Ltd (1995) 18 ACSR 284 at 288-9, Young J noted:
I agree … that "The mere fact that the plaintiff has filed process does not mean that the plaintiff has a claim in" the amount claimed. The claim must be one which the court can see, without looking too deeply at the issues that may arise, has some real chances of success.
At the time of Mr Phair's affidavit, of course, the Statement of Claim had yet to be filed.
[8]
Consideration
The affidavit filed within 21 days was not sworn by a director of Drama Unit but by its solicitor, who simply deposed:
I am advised which I verily believe to be true that:
(a) the Plaintiff will be filing a statement of claim in the Supreme Court of NSW, a draft of which is annexed hereto and marked "A".
(b) the amount claimed in the said statement of claim will offset and exceed the amount claimed in the creditor's statutory demand dated 7 June 2019.
The solicitor did not say who had advised him of this matter, and thus the affidavit did not meet the requirements of section 75 of the Evidence Act. I was asked to draw an inference that the solicitor was advised by Drama Unit, but such an inference does not get me very far as "the corporation itself is inanimate and therefore cannot act except through the intermediation of human beings": Ford, Austin & Ramsay's Principles of Corporations Law (Looseleaf, LexisNexis) at [7.070]. The directors of Drama Unit at the time were Mrs Tabuso and Mr Gerace: Mrs Tabuso had been a director for the life of company whilst Mr Gerace had only been a director since October 2018. I cannot infer whether Mr Phair was advised by Drama Unit through Mrs Tabuso or Mr Gerace (each able to give first-hand evidence in respect of different periods of time) or another authorised agent of the company.
In any event, all that the solicitor had been advised was that Drama Unit would be commencing proceedings against Fearndale and that the amount claimed in the proposed Statement of Claim would offset and exceed the amount claimed in the statutory demand. Although the affidavit contained a conclusory statement of sorts along the lines of Infratel, the solicitor did not squarely assert, on information and belief or at all, that Drama Unit was entitled to the amounts that would be claimed in such proceedings, nor on what basis. The fact that the annexed Statement of Claim was in draft, unsigned and unverified by a director of Drama Unit may not have been fatal if, consistently with the authorities to which I have referred, the solicitor had in the body of his affidavit set out the material facts on which Drama Unit intended to advance that claim, on information and belief or at all. The solicitor did not depose, for example, that he had been informed by an identified person (ideally a director of Drama Unit likely to know first-hand) that the facts in the draft Statement of Claim were correct.
[9]
orders
For these reasons, I make the following orders:
1. Dismiss the originating process filed on 21 June 2019.
2. Plaintiff to pay the defendant's costs of the proceedings.
[10]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 06 September 2019
As luck would have it, the Court of Appeal also gave judgment on the same day as MCF Group on the same subject: Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60. President Bell remarked that the continued use of the shorthand label "the Graywinter principle" is perhaps unfortunate or at least should be employed with caution as it has a tendency to distract attention from the language of the statute, has been modified by subsequent decisions, and was partly based on a Federal Court rule which has been repealed and has no current equivalent: at [40].
As to how the Graywinter principle has been modified over time, in Infratel Networks Pty Ltd v Gundry's Telco and Rigging Pty Ltd (2012) 92 ACSR 27; [2012] NSWCA 365, Young AJA, with whom Hoeben JA and Ward J agreed, adopted as the most authoritative of such decisions that of the Full Court of the Supreme Court of Western Australia in Financial Solutions Australasia Pty Ltd v Predella Pty Ltd (2002) 26 WAR 306; [2002] WASCA 51. His Honour cited [34] of Parker J's judgment (with whom Anderson and Scott JJ agreed):
… there is reason to hesitate and hold back from an acceptance … that … Graywinter reveal[s] a settled and universal principle, which must be satisfied by an affidavit before it can be accepted as ''supporting the application'' within the meaning of s 459G(3)(a) and as satisfying the jurisdictional requirement being considered. The statutory yardstick remains that the affidavit should support the application. The precise nature of the application may well influence what this requires.
Parker J's remarks in Financial Solutions were adopted by White J in Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd (2007) 61 ACSR 321; [2007] NSWSC 103 at [34], after his Honour's own consideration of Graywinter at [26]-[28]: (emphasis added)
[26] … The Graywinter principle is based upon an implication from the requirement in s 459G that an application to set aside a statutory demand be accompanied by an "affidavit supporting the application" which must be filed and served within 21 days after service of the demand. The implication is now firmly established. However, in my view, the implication is no more than that the grounds of the application to set aside the demand must be raised by the supporting affidavit.
[27] Exceptionally in this area of the law, an affidavit under s 459G may read like a pleading (Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund at 459). Thus, a supporting affidavit may raise a ground of dispute in a form which is inadmissible to prove the facts giving rise to the dispute, and those facts may be proved in a later affidavit filed and served outside the 21-day period. However, there is no requirement in s 459G that the supporting affidavit read like a pleading.
[28] The implication is now firmly established that the grounds for applying to set aside a statutory demand must be raised in the supporting affidavit, so that a ground which is not so raised cannot be relied upon. It is one thing to draw that implication from the requirement that an application be accompanied by a supporting affidavit. It is quite another to imply from the requirement that there be a supporting affidavit anything as to the precision with which such a ground must be expressed, other than that it be raised. Whether it is raised expressly, by necessary inference, or by a reasonably available inference, provided it is raised, in my view the requirements of s 459G are satisfied.
In Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2008) 214 FLR 393; [2007] NSWSC 1143, Barrett J was persuaded by Hansmar Investments and Austin J's judgment in POS Media Online Pty Limited v B Family Pty Limited (2003) 23 ACLC 533; [2003] NSWSC 147 that his earlier approach to the Graywinter principle had been too strict. His Honour concluded that a ground was "raised" if the ground was evident from the supporting affidavit, even if only because it could be discerned from some annexed document the content of which "reveals" it: at [25]. Similarly, in Hopetoun, Ward J extensively reviewed the authorities and concluded at [36]:
There need not be an explicit articulation in the supporting affidavit of the ground(s) on which the application to set aside is to be raised, provided the ground is raised expressly or by necessary or a reasonably available inference …
In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344, the Court of Appeal noted that evidence of an offsetting claim, "given the time period in which the affidavit must be filed, cannot and need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable": at [36]. The hearsay rule does not apply "with the same strictness as is required in a fully contested hearing of a principal dispute … hearsay evidence may be admissible provided evidence of the source of the hearsay is adduced": at [37]. The Court considered Graywinter and its subsequent consideration, including in Financial Solutions, Saferack, Hansmar Investments and Infratel. At [55]:
… the courts may allow evidence to be supplemented beyond what is raised in the initial affidavit containing the grounds upon which the application is made … Whether in the initial affidavit, or by a combination of that evidence and other evidence filed or adduced at the hearing, a party seeking to set aside a statutory demand must establish that there was a plausible contention requiring investigation …
Thus, the affidavit filed within 21 days must raise the grounds on which the applicant seeks to have the demand set aside. The grounds may be raised expressly, or by inference from the affidavit or documents annexed to it. The affidavit need not strictly conform with the requirements of the Evidence Act 1995 (NSW) and hearsay evidence may be admissible in accordance with section 75 of that Act. Some examples of how the Courts have assessed the "supporting affidavit" illustrate when an affidavit filed in the 21 day period satisfies the legislative requirement. In Hansmar Investments, Perpetual Trustee issued a statutory demand for money due under a contract for sale of land. The supporting affidavit was sworn by a director of Hansmar, who deposed that Hansmar had exchanged contracts to purchase the property (annexing the front page of the contract), had failed to comply with a notice to complete, had received a notice of default and notice that the vendor would re-sell the property, and that the vendor had re-sold the property at a lower price. White J was satisfied that the grounds of challenge to the statutory demand were sufficiently identified in the affidavit and arose by necessary inference from a combination of the text of the affidavit and the documents annexed to it: at [25].
In Hopetoun, JPR Legal obtained judgment for unpaid legal fees. A solicitor associated with the law firm had apparently misappropriated funds and Hopetoun contended that it had an offsetting claim for equitable compensation for breach of fiduciary duty and for causes of action assigned to Hopetoun. The supporting affidavit was sworn by Mr Taylor, a director of Hopetoun and group accountant of the group of companies of which Hopetoun was part. Mr Taylor's supporting affidavit appears to have comprised some 80 paragraphs and annexed the statutory demand and deeds of assignment. Mr Taylor deposed to various transfers of money into the solicitor's trust account, ledgers to which the sums were credited in the trust account, transfers out of the trust account, the entities to which the transfers were made, the solicitor's relationship with those entities, and that the transfers were made without consent or authorisation of Hopetoun. He stated the causes of action said to comprise the offsetting claims (at [47]). Ward J was satisfied that the material relied upon by Hopetoun, although it involved the drawing of inferences, went beyond mere assertion and sufficiently raised the grounds of breach of fiduciary duty and also set out the facts from which an offsetting dispute as to other invoices was discernible. It was less clear that the material disclosed by necessary or available inference one of the claims for breach of fiduciary but the facts asserted in the statutory demand annexed to Mr Taylor's affidavit, coupled with Mr Taylor's evidence, were sufficient to raise by reasonably available inference the existence of such a claim: at [71]-[73].
In Infratel, the Court of Appeal considered that Black J's view at first instance as to the adequacy of the "so-called supporting affidavit", which Young JA described as "so bare of detail", was unarguably correct: at [33], [37]. Details of the supporting affidavit are to be found in Black J's judgment: Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd (2012) 91 ACSR 170; [2012] NSWSC 943. Infratel held contracts with telecommunications companies to erect communication towers and had sub-contracted rigging work to Gundry's. Infratel refused to pay Gundry's invoices as defects had emerged with its work. Gundry's issued a statutory demand and Infratel applied to set it aside including on the basis that it had an offsetting claim for the cost of rectification. The supporting affidavit was sworn by Infratel's solicitor, Mr O'Neill. He deposed that loss arose from work performed for Telstra in respect of which unidentified rectification work was needed at an unidentified cost. Infratel submitted Mr O'Neill sufficiently identified an offsetting claim greater than that in the statutory demand in the following paragraph of his affidavit:
Infratel has been forced to rectify the NCRs at its own cost and expense to enable the sites to be completed and funds released by Ericsson.
His Honour considered that Mr O'Neill's affidavit was deficient as he said nothing as to the amount of costs and expense incurred so as to allow any determination as to whether that amount was greater than the amount of the debt, "nor does [his affidavit] contain even a conclusory statement that that amount is greater than the amount of the debt": at [28].
Finally, returning to Grandview, the statutory demand arose from the failure of Grandview to pay progress claims issued by Budget Demolitions under a contract for demolition and construction. The affidavit in support was sworn by a director of Grandview and annexed the contract, the construction schedule, a payment claim made by Budget Demolition and Grandview's response to it. The director deposed that Grandview had suffered loss by reason of Budget Demolition's failure to meet milestone dates for the works, causing Grandview to terminate its contract with Budget Demolitions and engage another contractor. At trial, Grandview contended that its offsetting claim included a claim to rectify the contract. Bell P, with whom Sackville AJA agreed, considered that the supporting affidavit did not set out any material facts that could sustain such a claim: at [39]. White JA, however, considered that the documents annexed to the director's affidavit were sufficient to raise such a claim. At [88]:
This was sufficient to raise the claim in the supporting affidavit required to be served within 21 days of service of the statutory demand. How the claim would later be supported as a genuine claim, whether by a plausible contention that the subcontract on its proper construction provided for the milestones as described in Annexure E, or for the payment of such liquidated damages, or that the contract should be rectified so to provide, could be raised by later submissions (in the first case) or further evidence and submissions (in the second).
The judgment of the President indicates that Sundberg J's conclusion in Graywinter - that the supporting affidavit must contain a statement of the material facts on which the applicant intends to rely - remains relevant.
Fearndale also relied on my decision in MCF Group at [71]-[79]. Fearndale submitted that the affidavit of Mr Phair suffered from an even greater problem than that considered in MCF Group as the pleading was not verified and the affidavit did not assert, on information or belief or otherwise, as to the truth of the factual assertions contained in the Statement of Claim. Accordingly, it was submitted that the affidavits filed and served within the 21 days did not qualify as a "supporting affidavit" within the meaning of section 459G(3) of the Corporations Act and thus the Court's jurisdiction has not been properly invoked and the application should be dismissed.
When authorities such as Hopetoun, Grandview and Hansmar Investments refer to the supporting affidavit raising the grounds of the application by necessary or reasonably available inference from documents annexed to the affidavit, the documents referred to were contracts, business records, contemporaneous communications or pre-litigation correspondence. That is, to the extent that the supporting affidavit did not raise the grounds or state the material facts, either on information and belief or at all, those material facts could be divined from documentary evidence of some reliable quality. Here, the solicitor did not annex documents of this kind such as the lease, the mining lease or the letter from NSW Department of Planning & Environment, but merely a draft, unsigned, unverified, unfiled pleading. The annexure was a series of draft assertions rather than anything concrete.
The supporting affidavit in MCF Group is illustrative. It was sworn by a director of MCF Group, Mr Selby, albeit one recently appointed and thus without first-hand knowledge of the facts said to form the basis of the offsetting claim. But annexed to Mr Selby's affidavit was a large number of documents including correspondence, affidavits and pleadings in other proceedings, from which the offsetting claim could be discerned (or in that case, discerned to be hopeless). Whilst this judgment should not be considered an invitation for applicants to 'dump' large quantities of paper rather than file a brief, coherent affidavit supported by key documents, the point is that Mr Phair's affidavit and its annexure did not, either in the body of the affidavit or its annexure, raise the grounds on which the applicant seeks to have the demand set aside, either expressly or by inference. The requirements of section 459G(3)(a) were not satisfied and thus the jurisdiction of the Court to set aside the statutory demand has not been enlivened.