Brownport Management Ltd v Aqua-Tech 21 Pty Ltd [2002] VSC 396

Supreme Court of Victoria|2002-09-11|Before: Hansen J

CORPORATIONS - Statutory demand - Application to set aside - Defects in demand and affidavit. PRACTICE AND PROCEDURE - Hearing before Master - Applicant elects to proceed on then affidavits - Appeal from Master - Application to rely on further affidavits - Whether special leave should be granted - Supreme Court Rules O 77.05(7)(b).

This is an appeal from orders made by the Senior Master on 26 June 2002 on an application under s 459G of the Corporations Act for an order that a statutory demand be set aside.

The applicant before the Senior Master, and the appellant before me, is Brownport Management Limited ("Brownport"). The respondent is Aqua-Tech 21 Pty Ltd ("Aqua-Tech") on whose behalf the statutory demand, dated 21 May 2002, was served on Brownport on 23 May 2002. Brownport's application to set aside the demand was filed on 11 June 2002. The application was returnable on 26 June 2002 and was heard by the Senior Master on that day, the parties having filed affidavits and being represented by counsel. The Senior Master ordered that:

(a) The statutory demand is varied by substituting for the sum demanded, $1,711,615.61, the sum of $1,511,615.61, and that the demand has had effect, as so varied, as from the time the demand was served on Brownport.

(b) Brownport pay Aqua-Tech's costs.

(c) The period for compliance with the statutory demand, as so varied, is extended to 4.00 pm on 19 July 2002.

Brownport duly appealed, by notice filed on 28 June 2002 (within the period of five days allowed by Rule 77.05(4) for appealing from a judgment or order of a Master) and returnable before me on 19 July 2002. On that day I fixed the hearing of the appeal for 31 July 2002, made some directions, and extended the time for compliance with the statutory demand to 4.15 pm on 31 July 2002. I heard the appeal that day and reserved my decision. I have further extended the time for compliance with the statutory demand until seven days after the determination of the appeal.

The statutory demand stated that Brownport owed Aqua-Tech $1,711,615.61 as the total amount of the debt described in a schedule appended to the demand.

The schedule stated that: "Attachment 'A' is a copy of the Mortgage executed by the Company and a summary of payments made and interest charged in relation to the mortgage of the Company which indicates that the total amount outstanding and payable by the Company to AQUA-TECH 21 PTY LTD as at 21st May 2002 is $1,711,615.61."

The attached mortgage is dated 22 September 2000. The relevant memorandum of common provisions was also attached. The mortgagor is Brownport. The mortgagee is described as Sunray Irrigation Services Pty Ltd, which was Aqua-Tech's name until 2 May 2000. The consideration stated in the mortgage was $2,045,641, which is the opening amount in the summary of payments and charges. An instalment of $500,000 was due on 7 July 2000, and the balance on 31 July 2001. There are provisions for interest to which counsel for Brownport directed some attention in his submissions. I refer to this below.

The attached summary listed in chronological date order the following: debit items with the amount, invoice number and description (which was "interest" in every instance bar one, which was "equipment $66,214.50"); credit items with the amount; and the running balance. The opening entry was 30 May 2000 with a balance of $2,045,641 and the final entry was 30 April 2002 with a debit for interest and a balance of the amount due of $1,711,615.61.

The affidavit in support of the demand was sworn by Graeme John Byron, the director of Aqua-Tech. He deposed, from his own knowledge, that the debt was due and payable. In para 3 he said that the indebtedness of Brownport (referred to in the affidavit as "the Company"):

"[I]s as a result of a Mortgage executed by the Company and dated 20th September 2000. Consideration for the Mortgage was by way of supply and installation of irrigation materials by the Creditor to Mondall Almond Project in the State of Victoria owned by the Company. Annexed to the Creditor's Statutory Demand for Payment of Debt is a true copy of the mortgage and a summary of payments and charges incurred pursuant to the Mortgage, resulting in an outstanding balance in the sum of $1,711,615.61."

A director of Brownport, David Pullar, swore two affidavits in support of the application to set aside the statutory demand. Two affidavits were sworn in opposition, one by Byron and the other by Aqua-Tech's solicitor, Michael Bruce Holcroft. These affidavits constituted the evidence before the Senior Master.

In the course of the hearing before the Senior Master the question arose as to whether Brownport wished to seek an adjournment to enable it to consider whether to file further affidavit material in support of the application to set aside the demand and, if so advised, to prepare and file such material. I was informed by counsel, and it was common ground, that the Senior Master offered Brownport that opportunity. However, Brownport, although represented by experienced counsel who, incidentally, did not appear for Brownport in the appeal before me, declined to take that course, preferring, instead, to proceed with the hearing. At the conclusion of the hearing, the Senior Master refused the application to set aside the statutory demand and made the orders to which I referred above.

The Appellant Seeks Leave to Rely on Further Affidavits

During the hearing before me on 19 July 2002, I was informed that Brownport wished to rely on affidavits sworn subsequent to the Senior Master's hearing in support of its application to set aside the statutory demand. Brownport had already taken the liberty of filing two such affidavits, one sworn by Pullar on 15 July 2002, and the other sworn by Robert Love, an irrigation consultant, on 16 July 2002. Counsel for Aqua-Tech objected to Brownport being permitted to rely on any such affidavits, pointing out that Rule 77.05(7)(b) precludes a party from relying on an affidavit not used before the Master unless the Judge gives special leave to do so. Brownport's counsel sought such leave but also intimated that leave would be sought to rely on further additional affidavits. I deferred ruling on the application for special leave until I had the opportunity, at the hearing, to consider all the additional affidavits in question, and thus have an appropriate understanding of the matter. On that basis, Aqua-Tech's counsel filed a further affidavit of Byron sworn on 18 July 2002 and I made a direction limiting the time for Brownport to file and serve further affidavits. As it transpired, Brownport filed an additional six affidavits, two more by Pullar, and the others by a horticultural consultant, Graham Johns, a former director of Brownport, Athol White, a recently-appointed director of Brownport, Chris Moss, and a civil engineer experienced in infra-structure projects, Glen Ryan.

On the appeal, the following issues were raised for determination:

(a) Whether special leave should be granted to Brownport to rely on the affidavits filed after the hearing before the Senior Master. If leave is granted Aqua-Tech would seek leave to rely on the further affidavit of Byron.

(b) Whether there is a defect or defects in the statutory demand or the affidavit in support and, consequently, whether the statutory demand should be set aside.

(c) Whether there is a genuine dispute about the existence or amount of the debt, or whether Brownport has an offsetting claim.

The Evidence before the Senior Master

The following appears from the evidence as it was before the Senior Master. On 7 April 2000 Aqua-Tech, in response to Brownport's request, submitted to Brownport a detailed design and quotation to supply, install and manage an irrigation system for an almond orchard which Brownport proposed to develop at Nangiloc in Victoria. The report stated that the area under consideration for orchard development is 303.6 ha, and that it had been determined to irrigate the area in ten shifts of 30.36 ha. It referred to technical matters, a suggested system and specifications. It suggested that Byron be appointed as project manager. In Section 11, the report stated that the principals of the project had determined that the total area for development be constructed in two stages, with Stage 1, of 182.0 ha, to be completed by 25 June 2000. Section 11 proceeded to describe, and provide a quotation for, the works in Stage 1 as follows:

"11. QUOTATIONS The following quotations include all material requirements, installation, testing and commissioning. 11.1. Rising Mainline $1,522,000 11.2. Internal Mainline 420,000 11.3. Internal Sprinkler Modules 1,139,000 11.4. River Pump Station 254,400 11.5. Relift Pump Station 242,040 11.6. Automation 64,320 TOTAL $3,641,760"

The quotation was immediately followed by Sections 12 and 13 in the following terms:

"12. PAYMENT TERMS The above quotations are based on the terms as detailed in the attached annexure. 13. SECURITY 13.1. Sunray Irrigation Services Pty Ltd., Trading as Sunray Irrigation will undertake the Rising Mainline and Internal Mainline components of the project and will not be seeking any security other than the 'Retention of Title' conditions, which will form part of this agreement. 13.2. Elders Ltd., Trading as Sunray Irrigation will undertake the balance of the project works, and will in addition to the 'Retention of Title' conditions, take advantage of the company's offer of a second mortgage over the property. Elders' financial representative will discuss these arrangements at a mutually convenient time."

The report was signed by Byron. Underneath his signature (on page 15) there appears the signature of Athol White for Brownport, and alongside it the signature of Byron for Sunray Irrigation.

It is clear on the evidence, and it was common ground before me, that the document constituted an agreement for the performance of works referred to in the report by Aqua-Tech. In his first affidavit Pullar produced the report, which he referred to as "a document", and quoted para 13.1 set out above which specified the items of the overall works to be undertaken by Aqua-Tech (then called Sunray Irrigation Services Pty Ltd). He did not otherwise depose to the making of the agreement or its terms. He did not, for instance, give any evidence which would bear on the issue of whether Aqua-Tech was the sole contracting party with Brownport or whether each of Aqua-Tech and Elders Ltd ("Elders") were contracting parties with Brownport for the performance of the works referred to respectively in paras 13.1 and 13.2 of the report, or otherwise.

In his answering affidavit Byron referred to that part of Pullar's affidavit in which Pullar produced the report and quoted para 13.1. Byron stated that para 13.1 "was a term of the original agreement". Byron also produced the annexure to "that original agreement" referred to in Section 12 set out above.

While it is common ground that Aqua-Tech contracted to carry out the Rising Mainline and Internal Mainline components of Stage 1 referred to in para 13.1, it seems, from at least para 13.2, that the balance of the project works for Stage 1 were to be undertaken by Elders. Aqua-Tech's counsel contended that Aqua-Tech contracted to undertake the works referred to in para 13.1 and Elders contracted to undertake the works referred to in para 13.2. There are indications in paras 13.1 and 13.2, and in Pullar's affidavit, that that may be the case. Those indications include the County Court Writ referred to below, in which Brownport has sued Aqua-Tech and Elders as having entered into the agreement and the statement of claim proceeding on the basis that they had both contracted with Brownport for all of the works. Notwithstanding this, Brownport's counsel stated that the agreement had not been signed by (or on behalf of) Elders and that Aqua-Tech was responsible for any defects in the works regardless of whether the actual part of the works in question had been performed by Aqua-Tech or Elders. In making this submission counsel advanced a position contrary to his client's pleading in the County Court case, seemingly contrary to Pullar's affidavit evidence, and which was otherwise not supported by evidence. In reality, the submission was an assertion seeking to avoid Aqua-Tech's submission that its contractual obligation was limited to performance of the works referred to in para 13.1. Pullar's affidavit did not include an evidentiary basis for the assertion. Nevertheless, I could not conclude on the present materials whether Elders was a contracting party.

It certainly seems clear from all of the evidence, and the contrary was not suggested by counsel for Brownport, that Brownport was to pay Aqua-Tech and Elders for their respective portions of the works. That doubtless explains the desire of Elders, stated in para 13.2, to take advantage of Brownport's offer of a second mortgage over the property and the statement that Elders' financial representatives will discuss the financial arrangements with Brownport.

While it is apparent from Pullar's affidavit that Aqua-Tech entered upon performance of its contract, he did not give any account, let alone an ordered and chronological account, of the works actually performed by Aqua-Tech and Elders respectively, including, for instance, any variations in the scope or content of the works or the price of those works. The affidavit concentrates on the mortgage. It seems that Brownport or its legal advisers considered that the reference to, and reliance on, the mortgage in the statutory demand might have been misplaced, to the extent that it constituted a defect that could, or should, cause the demand to be set aside. Further, as with the actual works themselves, Pullar did not give an account of the circumstances in which, or reasons why, Brownport provided the mortgage. However he did exhibit a letter from Aqua-Tech to Pullar dated 2 April 2000 and what he described as "some representative invoices regarding the Project". He produced these documents because they did not refer to a mortgage. In my view, it is immaterial that they did not refer to any mortgage. At least they served to provide some insight into the facts which Pullar otherwise avoided addressing.

The letter dated 2 April 2002 set out the amount owing to Aqua-Tech and a proposal for payment. The current debt was stated to be:

(a) Principal owing on pipeline $1,501,200.59

(b) Interest to 31 March 2002 89,043.83

(c) Irrigation equipment installed 44 ha 66,415.00

$1,656,659.42

(In the letter the total was incorrectly stated as $1,656,458.42.) The letter offered terms of nine payments of $100,000, each to be made on stipulated dates between 15 April 2002 and 31 December 2003.

There were four invoices, three dated 31 August 2000, and one dated 23 May 2000. The latter invoice refers to Elders and thus suggests that it was for Elders' work. Pullar makes no reference to the distinction between Aqua-Tech and Elders' work. Indeed his affidavit does not actually state whether the invoices were received from Aqua-Tech or Elders. I notice in that respect that the four invoices bear the same ABN number, which is not the ABN number of Aqua-Tech stated in the records of the Australian Securities and Investments Commission. I also notice that the ABN is, in fact, the ABN of Elders which is shown on the Elders' statutory demand documents in Exhibit MBH9 to Holcroft's affidavit sworn 21 June 2002. It thus appears that the four invoices were invoices of Elders raised in respect of its work and that they do not relate to work performed by Aqua-Tech.

Then, in para 8, almost at the end of his affidavit, Pullar said that for reasons "which are more particularly elaborated in the County Court Writ filed ... on 15 April 2002", Brownport "has suffered loss and damage as a result of the failure of Aqua-Tech to properly and satisfactorily perform the works relating to the Project some of the works being described in the invoices referred to in Exhibit DP5 to this Affidavit". He said that an expert had been engaged to verify the matters pleaded in the County Court Writ and had provided a report confirming the matters in the Writ regarding the deficiencies in the work performed by Aqua-Tech. He produced a report from the expert Robert Love of Cobram Irrigation, dated 11 June 2002.

Before referring to Love's report there are several matters to note. First, the County Court Writ had not been served. The reference to it in the affidavit was Aqua-Tech's first knowledge of it. A copy of the Writ was produced as an exhibit to Pullar's second affidavit which he swore for that purpose. Secondly, in his affidavit Pullar described events as though Aqua-Tech was the only defendant to the proceeding. But there were two defendants, Aqua-Tech and Elders. Somewhat unsatisfactorily, but, it might be inferred, designedly, Pullar did not give evidence as to the formation of the contract in terms of explaining the involvement of Aqua-Tech and Elders respectively. Nor did he, in his affidavit, distinguish between the contractual or other responsibilities of, and work performed by, Aqua-Tech and Elders respectively. Furthermore, the invoices in Exhibit DP5 are the invoices I referred to above. It is apparent from their terms that the invoices were for some particular materials and doubtless included some associated labour, being part of the overall "Project". The word "Project", as defined by Pullar in para 3 of his affidavit, means Stage 1. That the reference to the "Project" in para 8 is intended to be a reference to defects in Stage 1 as a whole, and not just Aqua-Tech's area of responsibility as referred to in para 13.1, is confirmed by the way in which the claim is presented in the County Court Writ. Thirdly, the County Court Writ was sent by post to Aqua-Tech on 18 June 2002, and received by it on 24 June 2002.

As mentioned, the County Court Writ was filed on 15 April 2002. The plaintiff is Brownport and the defendants are Aqua-Tech and Elders. In the statement of claim endorsed on the Writ Brownport alleges that in or about April 2000 the defendants entered into a written agreement with Brownport to provide a detailed design, and to supply, install and manage an irrigation system for an almond orchard to be developed by Brownport at Nangiloc. The tender document dated April 2000 is referred to in the particulars. According to the particulars, the document was signed for and on behalf of Brownport and the defendants. Then, terms of the agreement are pleaded. There are seven terms, each relating to a particular component of the Stage 1 works. Then, in successive paragraphs, it is alleged that each term was breached. There is also a further allegation that two waterings are required in a 24-hour period, which increases costs. The statement of claim concludes:

"14. By virtue of the matters pleaded herein the Plaintiff seeks as against the Defendants rectification, damages and such other orders as this Honourable Court sees fit. AND THE PLAINTIFF CLAIMS Damages including the costs of rectification work Such other Orders as this Honourable Court thinks fit".

I now refer to the affidavits of Byron and Holcroft. Byron stated that the contract works were undertaken, that by June 2000 Brownport was in arrears of the payment terms annexed to the quotation by $440,000, and that under those terms a further $918,155 was payable by 30 June 2000. He retained Holcroft who sent Brownport a letter of demand on 2 June 2000. That produced an immediate response. Athol White, then a director of Brownport, rang Byron and offered the security of a second mortgage over the subject land so that Byron would continue with the project and vary the agreed payment terms. On the same day Holcroft received a facsimile from White in which White confirmed that he would propose the following: Brownport to pay $500,000 at the end of June or thereabouts once it had declared a minimum subscription under a prospectus relating to the orchard project, and pay the balance of the money in accordance with a schedule, and provide the security of a second charge over the subdivision blocks plus an additional piece of land nearby.

On 5 June 2000 Byron and Holcroft met with White. White acknowledged that Brownport was indebted to Aqua-Tech and was in breach of the payment terms. It was agreed that Brownport would provide a second mortgage to Aqua-Tech and that the payment terms would be varied. Byron instructed Holcroft to consult Brownport's solicitors in relation to the mortgage.

Holcroft took up the matter of the mortgage with Brownport's solicitors, Andersen Legal. Holcroft submitted a draft for consideration. Later in June 2000, Andersen Legal sent a form of mortgage that Brownport was prepared to sign. On 28 June 2000 Holcroft received from Andersen Legal the original mortgage duly executed by Brownport. This mortgage was duly executed by Aqua-Tech and is the mortgage referred to in the statutory demand and Byron's supporting affidavit. In his affidavit Byron states that the consideration for the mortgage was Aqua-Tech agreeing to vary the terms of payment and providing additional irrigation materials to complete the contract.

Byron further states that in February/March 2002 he was engaged to provide further irrigation equipment to 44 ha of Brownport's land. These works were completed by 8 March 2002. It seems clear that the item in the summary attached to the statutory demand relating to equipment[1] refers to the provision of this further equipment. In the summary, the date of the item is 30 March 2002 and the invoice number is cited. Byron further states that neither in respect of these works nor the original works did he receive a complaint from Brownport regarding the appropriateness, or operation, of the irrigation system and the equipment he supplied. Neither Pullar nor any other director of Brownport ever denied that the debt of $1,711,615.61 was owed. He first became aware of the County Court Writ from the reference to it in Pullar's affidavit. That was the first complaint made concerning the works.

Holcroft gave similar evidence. He had had a number of meetings with Pullar, Moss and White, and telephone conversations with Pullar and James Ride, another former director of Brownport, and in none of these meetings or conversations had the debt been disputed or the performance or specifications of the irrigation system been questioned. Nor, at any time prior to the application to set aside the statutory demand, had Brownport or its legal representatives disputed the debt or made any complaint regarding the irrigation system.

In relation to the County Court Writ, Byron said that it would be defended and produced a letter to his solicitors in which he dealt with, and answered, each of the particulars of breach alleged in the Writ, and matters stated in Love's report dated 11 June 2002. In particular, he distinguished between matters that had been the responsibility of Aqua-Tech on the one hand and Elders on the other hand.

In his affidavit Byron asserted his belief that Brownport was insolvent, and in that respect stated that a representative of Elders Finance Ltd, which he said held a third mortgage over land belonging to Brownport, had informed him that Brownport was in default under the mortgage and had not made payments for a number of months. Byron had also been advised by Mr Jim Russell, on 14 June 2002, whose company had formerly been engaged as farm manager/consultant for Brownport, that he would no longer act, as Brownport could not pay his fee, and that he had no complaint with the irrigation system.

Holcroft's evidence sought to support the allegation of insolvency. He had served a statutory demand on Brownport for another client in December 2001. The debt claimed was $11,373.50 for work including pegging out and planting 11,908 trees between July and August 2001. The debt was the amount owing after a payment of $5,000 in October 2001. Holcroft stated that his client had informed him on or about 7 June 2002 that the debt remained outstanding. Holcroft also produced a copy of a statutory demand dated 12 December 2001 for a debt of $642,783.14 which Elders had served on Brownport. In a covering letter from the solicitors reference was made to Aqua-Tech having sought to enter into possession of Brownport's land the subject of the almond project pursuant to its mortgage, and it was stated that Elders had entered Brownport's property and marked goods that belonged to Elders. The letter enclosed the statutory demand and supporting affidavit "being served upon Brownport". Attached to the statutory demand is a schedule and a summary of Brownport's account with Elders. The amount claimed is stated to be owing for irrigation materials supplied by Elders to Brownport at the Mondall Almond Project. I should say, to make it clear, that the resolution of this appeal does not turn on the fact of these statutory demands or on what has or has not become of them.

As it happened, in October and November 2001 Holcroft had served on Brownport notices of default under the Aqua-Tech mortgage in which the amount of $1,542,417.48 was stated to be payable. In December 2001 Brownport responded that the amount demanded was incorrect (by $41,216.89), that there was an error in the land described as being subject to the mortgage, and requested a discharge. No payment was made.

Finally, Holcroft produced a certificate of debt pursuant to the mortgage which certified that, at 21 May 2002, the amount owing and secured by the mortgage was $1,711,615.61.

I was informed that Brownport submitted to the Senior Master that there were defects in the statutory demand and in the affidavit in support. It was submitted to him that the defects were such that the demand should be set aside under s 459J(1)(a) or (b). The Senior Master rejected Brownport's submission.

Brownport also submitted to the Senior Master that he should be satisfied under s 459H that there was a genuine dispute as to the existence or amount of the debt to which the demand related, or that Brownport had an offsetting claim. I was informed by counsel, and it is evident, that Brownport's submission was impeded by the absence of any evidence from Brownport as to the cost of rectifying Aqua-Tech's alleged breach of contract and evidence which otherwise quantified its claim against Aqua-Tech. No particulars of quantum were included in the County Court Writ and none had been provided. Nor were any contained in Love's report or in Pullar's affidavit.

The relevant monetary limit of the jurisdiction of the County Court is $200,000. Parties to litigation can consent to a higher monetary limit, or even to there being no limit to the amount recoverable in a County Court proceeding, but there was no evidence that Brownport had sought or obtained any such consent from Aqua-Tech. It had also been open to Brownport to seek the transfer of the proceeding to the Supreme Court, but it had not done so.

In these circumstances Brownport's alleged offsetting claim was not quantified. And, it must be remembered, Brownport had elected to press on with its application on the evidence as it then stood. It might be speculation, but perhaps Brownport considered that it would be to its benefit if its offsetting claim was for an unspecified amount. However that may be, for the purpose of the application, Aqua-Tech did not object to the Senior Master accepting the County Court Writ as identifying Brownport's claim and quantifying it in the amount of $200,000, being the maximum amount recoverable. Aqua-Tech was content for the Senior Master to proceed in that way, and concurred in him doing so, and in varying the amount claimed in the demand. Offsetting $200,000 against Aqua-Tech's debt produced the reduced amount of $1,511,615.61. It was on that basis that the Senior Master made the order, under s 459H(4), to vary the demand.

Aqua-Tech took the same approach before me. It did not concede that Brownport had a good claim. Indeed, it submitted the contrary. But for the purpose of the present application it was content to accept that the County Court claim quantified Brownport's claim to the extent of the limit of the jurisdiction.

At [10] I referred to Brownport's application for special leave to rely on further affidavits. If that leave is granted I would grant special leave to Aqua-Tech to rely on the further affidavit of Byron.

It is important to bear in mind the reason why the requirement of special leave was introduced. It was introduced to stop the mischief of a party using the hearing before the Master as a dry run and, depending on the result, appealing and, on the appeal, filing additional affidavits to bolster its case in light of the arguments presented to the Master and the Master's reasons for decision. This became all too common an occurrence. It could cause vexation to another party in terms of time and costs, and it could take up an unreasonable amount of a Judge's time when there might not have been an appeal if the case had been properly presented to the Master. In short, in many cases it constituted an unreasonable taking advantage of the fact that under Rule 77.05(7) an appeal is by re-hearing de novo.

I now refer to the further affidavits on which Brownport wishes to rely. Once I have identified the matters they deal with I will rule on the application for special leave.

As mentioned, Pullar has sworn a further three affidavits. The first was sworn on 15 July 2002. Pullar states that it is in reply to the affidavits of Byron and Holcroft, which were before the Senior Master, and that it supplements his previous affidavits. He swore the affidavit because "crucial information as to the loss and damage suffered by the plaintiff as a result of defects and delays in the installation of the irrigation system which the defendant agreed to supply to the plaintiff under the agreement dated 7 April 2000, which is the exhibit marked 'DP2' in my first affidavit, was not available for the plaintiff and me at the time of the hearing of this application at first instance before Senior Master Mahony on 26 June 2002".

Pullar stated that no complaint about the quality or performance of the irrigation system had been made to Byron or Holcroft as the "true position" had only emerged in the circumstances he deposed to. He was a horticultural consultant and in or about March 2002 he inspected the almond trees planted in 2001. It was evident that the trees had not grown very much since they were planted. It was evident that delays in installation and problems with poor water distribution were the cause. The system did not meet the requirement that 10.8 mm of irrigation water could be delivered to all almond trees in 21.6 hours per day. Furthermore, only 114 ha of the contracted 182.2 ha had been installed.

Pullar said that in early April 2002 he engaged Cobram Irrigation to review the system and report on any defects and deficiencies in the installation and the cost of rectifying such matters so as to meet the specifications in the contract. Mr Love of Cobram Irrigation provided a report dated 11 June 2002 which Pullar exhibited to his affidavit sworn on the same day. Pullar stated that Love's report set out the defects and deficiencies in the irrigation system supplied to Brownport. However, that report did not include any costings for the rectification of those defects and deficiencies, and he asked Love to report on those costings as well.

Pullar then said that he received a report from Love on 12 July 2002 which indicated that the cost of rectification of those defects was $1,878,488.70.

Furthermore, in mid-June 2002, Brownport engaged a horticultural expert, Graham Johns of Horticultural Developments Services Pty Ltd, to report on the extent of the losses of income suffered by the plaintiff in relation to its almond crop since the 2000 planting, as a result of inadequate drainage. On 10 July 2002 Johns provided a report which indicated that Brownport had suffered, and will suffer, losses of income totalling $1,865,466 as a result of the deficiencies in the system. Pullar said that the report was delayed because Johns had to wait until the end of June when the trees had lost their leaves.

Pullar then said that service of the County Court Writ had been withheld pending receipt of the reports from Love and Johns, "as well as other reports which had been commissioned but which were not yet finalised". He added that, once the statutory demand was served (as it was on 23 May 2002) Brownport had no choice but to serve the Writ (which it sent by post on 18 June 2002) despite the fact that it did not contain particulars of Brownport's loss and damage. Considering that Aqua-Tech owed it damages of approximately $3.7M, Brownport intended to amend the statement of claim to claim the whole of the loss from Aqua-Tech or, alternatively, Elders, which carried out part of the works which Aqua-Tech contracted to supply. I note that at present the statement of claim in the County Court Writ alleges that Aqua-Tech and Elders are liable as contracting parties with Brownport under one written agreement. They are not sued in the alternative. Finally, Pullar said that Brownport intended to apply to uplift the proceeding to the Supreme Court.

In these circumstances, Pullar stated, Brownport genuinely disputed the whole of Aqua-Tech's alleged debt, and had an offsetting claim which exceeded the debt.

I now refer to the other affidavits. The affidavits of Johns and Love were brief. They were consistent with Pullar's affidavit and they produced their reports dated 10 and 12 July 2002 respectively. Ryan's affidavit was also brief. He expressed the opinion that the system installed fell short of that quoted in terms of infrastructure, plant and performance. Substantial upgrading was needed for the system to be capable of delivering the quoted figure of 10.8 mm per day. Parts of the orchard received little or no water. He also queried a part of the quotation which proposed a reduction in the rising mainline.

The remaining affidavits of Pullar, White and Moss were directed at Aqua-Tech's evidence of a lack of complaint about the irrigation system. They expressed a reliance on Byron, as to the works being satisfactory, and some other matters it is not necessary to detail. In part these affidavits answered Byron's further affidavit sworn on 18 July 2002.

Byron's further affidavit provided much elaboration, commencing with the fact, as Byron stated, that Aqua-Tech's debt "relates to the provision, installation, testing and commissioning of a rising main and the installation of secondary mainlines with air release valves". None of Brownport's answering affidavits took issue with that statement. He also produced a defence of Aqua-Tech dated 17 July 2002, which he affirmed as true and correct, and which he had instructed his solicitors to file in the County Court proceeding. His affidavit explained, and took issue with, a number of matters, including the reports of Love and Johns. While they are matters of substance it is appropriate to proceed to the issue of whether Brownport should have special leave to rely on its further affidavits.

In my view special leave should be refused. There are several reasons for this conclusion.

First, the present proceeding is the very sort of case for which the requirement of special leave was introduced. It is a case in which the applicant for relief, represented by solicitors and experienced counsel, elected to press on before the Senior Master, deliberately refusing the opportunity to adjourn the proceeding to consider whether it ought to file further affidavits to establish a genuine dispute and an offsetting claim.

Secondly, that election was made in the context, clearly exposed by the proposed further affidavits, but obvious enough from Pullar's affidavits filed before the Senior Master, of an awareness of defects in the irrigation system, and with knowledge that advice on quantum was required.

Thirdly, the subject matter of the further affidavits in respect of which special leave is now sought, in particular that with which Love and Jones are concerned, is the very matter which Pullar and Brownport's legal advisers had in mind from at least the time of preparation of the County Court Writ which was filed in April 2002. The subject-matter is not something new, or of a kind that was not or could not have been in contemplation when the case was before the Senior Master.

Fourthly, Brownport provided no evidence to explain why it had elected to proceed before the Senior Master rather than adjourn to obtain the additional affidavit evidence to establish a genuine dispute or an offsetting claim, and on which further affidavits it now seeks to rely to establish those very matters. Merely making the application for special leave does not constitute evidence, let alone an explanation. The further affidavits do not explain the course adopted or why special leave should now be granted. Brownport's position was put in sharp perspective by its counsel when he said, at the end of his submissions, that:

"... [A]lthough these reports were not put in before the Master and perhaps ought to have been, nevertheless as a matter of justice with fairness, they ought to be admitted."

"The material is compelling and ought to be admitted on that basis alone."

Yet these statements do not explain (and are not evidence of) why Brownport pressed its application before the Senior Master. The course adopted by Brownport is to eschew providing any explanation to the Court and to hope that the Court, whether or not affected by reading the further affidavits, will grant special leave as an act of mercy or because it is supposed that a court is required to afford a party an opportunity to say whatever the party wants to say at whatever time it wants to say it regardless of its prior opportunity to do so in accordance with the procedures of the Court and its deliberate conduct in that regard. Doubtless, each case must be considered in light of its own facts, and a conclusion reached as to the exercise of the discretion which is appropriate in all the circumstances, including the evidence proposed to be relied on.

The present application concerns affidavits which depose to matters of substance. All of the affidavits were in contemplation when the case was before the Senior Master, and only a short adjournment of no more than one month would have been sufficient to place the material before the Senior Master. In these circumstances the absence of any explanation for the course adopted leads to the inference, which I draw on the balance of probabilities, that Brownport deliberately and knowingly chose to chance its arm with the affidavits as they then were, considering it was to its advantage to do so. This is the very sort of situation that the requirement of special leave is directed at avoiding.

In Dudley E King Lino Typers Pty Ltd v Tozer Kemsley and Millgrove Aust Ltd[2] Southwell J, in dealing with an appeal from orders of a Master, refused to grant special leave to rely on further affidavits on the ground that there was no evidence to support the application for special leave. That consideration is, alone, sufficient reason to refuse special leave in this case. The additional factors of a deliberate and knowing course of action emphasise the significance of this consideration and further militate against a grant of leave. I take account of all that was submitted by counsel, and the proposed further affidavits, but conclude that, in the circumstances, the appropriate resolution of the application is to refuse special leave.

As such, I refuse to grant Brownport special leave to rely on any affidavits additional to those relied on before the Senior Master. Consequently, Aqua-Tech does not press its application to rely on the further affidavit of Byron.

Pursuant to a direction I made on 19 July 2002, Brownport filed and served a list of defects in the statutory demand and Byron's verifying affidavit. The list was supplemented by some further items in Brownport's written submissions. As it transpired, counsel did not argue every item of defect, but I consider each in turn. In doing so, I bear in mind the definition of "defect" in s 9 of the Act as including an irregularity, a misstatement of an amount or total, a misdescription of a debt or other matter, and a misdescription of a person or entity. I was referred in the course of submissions to Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd[3] which is one of the cases in which the construction and application of paragraphs (a) and (b) of s 459J(1) has been considered. In that respect I was also referred by counsel for Brownport to Topfelt Pty Ltd v State Bank of New South Wales Ltd.[4]

Brownport's list commenced with a group of four items claimed to be defects in the statutory demand. I deal with these in turn.

The first two items contend that the statutory demand does not relate to or specify a debt as distinct from a security. There is no substance in the point. While the mortgage is referred to and a copy is annexed, there is clearly a claim for a debt and the summary sheet states an opening balance which is the amount of the advance or other valuable consideration specified in the mortgage and which, by the mortgage, Brownport promised to pay. I might add that the submission seemed to overlook the fact that the mortgage contained both a personal promise to pay, and granted a security interest in respect of land.

The third point is that the summary of payments and interest begins with a debit balance without specifying what the debit balance is in respect of. Again, the debit balance is the amount stated in the mortgage as the amount of the advance or other valuable consideration. In itself, that indicates a transaction or events which have produced that amount. The summary attached to the demand records a payment of $415 on 30 April 2000 which is one month prior to the opening balance (and over four months prior to the date of the mortgage). Further, the summary records a payment of $400,000 on 7 July (the mortgage having provided for a payment of $500,000 on that date) which is over two months prior to the date of the mortgage. It is clear that the mortgage was entered into or at least dated some time after the occurrence of relevant transactions between the parties and that the opening balance in the statement, being the amount of the advance or consideration specified in the mortgage, was a commencement point known to the parties and used by them for the purpose of the mortgage. Moreover, Byron's supporting affidavit states that the consideration for the mortgage was the supply and installation of irrigation materials by Aqua-Tech to Brownport's almond project. There is no denial of the provision of such materials, or a purported performance of the agreement between Brownport and Aqua-Tech, indeed, that is common ground. Nor does Brownport put Aqua-Tech's claim in issue, save by raising allegations of defects in the works and contending that it has an offsetting claim. Brownport does not challenge actual items charged by Aqua-Tech.

The fourth point is that the summary of payments and interest is inconsistent with the mortgage because it begins with a debit balance which is nearly four months prior to the date of the mortgage. For the above reasons, I am of the view that this does not constitute a defect in the demand.

Two further defects are claimed in Brownport's written submission. The first is that the item for equipment in the summary of charges appears to be a claim in respect of a second alleged debt which is not referred to in the demand. Brownport's counsel said that this was a confusing aspect of the demand, that Aqua-Tech should have clearly said what the amount was and how it arises under the mortgage. For these reasons, counsel raised the question of whether the item for equipment concerned a second debt. It is true that by its description this item stands in a different category to interest on the opening and successive balances, but it is part of the amount which goes to produce the debt claimed. In that respect, it is to be noted that Brownport has not disputed the debt, or the equipment item, as distinct from alleging defects in the works and raising an offsetting claim. Putting that to one side, in addition to a description of the amount, the date and invoice number for the equipment item are stated in the summary, thus providing Brownport with information to enable it to check the item. I do not consider that the terms of the item in the statement indicate that the item is a separate debt and should have been treated as such. Moreover, by clause (1)(a) of the memorandum of common provisions (attached to the mortgage and the statutory demand) Brownport agreed to pay "the moneys hereby secured" which expression was defined in cl 31(1)(f) to include all sums of money which it "may now or hereafter be indebted or liable or contingently indebted or liable to [Aqua-Tech] in any amount or on any account whatever including interest".

The other point was that the mortgage had not been properly completed in that a lower rate of interest had not been specified. As a result, it was submitted, it was not possible, having regard to the mortgage and the summary of payments and interest, to work out precisely how interest had been calculated or, for that matter, to know at what rate interest should be calculated. It is correct that the lower rate was not specified in the mortgage. It is also the fact that the rate that has been applied by Aqua-Tech in calculating the interest charged and debited at the end of each month in the summary of payments and interest has not been stated, but it is readily calculable from the summary. The case is distinguishable in that respect from Topfelt.

Next in Brownport's list of defects are a group of three defects which are described as "Non-Crucial Defects".

The first of these points was that the summary of payments and interest is not listed sequentially in date order, including a payment prior to the opening balance, and does not provide a precise calculation of interest charges. In fact, only one item is out of sequence, according to its date, and that is the first date, which is one month later than the second date. The second date is the item for $415 referred to above. But the reason and logic of the sequence is obvious. The first item is the amount specified in the mortgage and is the opening balance, whereas the second item is a payment which is credited against that balance. All other items are in correct date sequence. No relevant confusion could have been caused by this presentation. As to the interest, in respect of each item there is a date, invoice number, and amount which is debited to the running balance. The basis of calculation is readily able to be checked. For these reasons and the reasons already discussed, I do not consider that a defect is established. If there was a defect, it must surely be correct for Brownport to describe it as non-crucial.

The second non-crucial defect was that the demand referred to the Corporations Law in its heading and two paragraphs. There was no reference to the Corporations Act which was in operation when the demand was served. Notwithstanding the inclusion of this point in a group of non-crucial defects, counsel submitted that the consequence of referring to the former legislation was that the demand was not a statutory demand under the Corporations Act. In other words, it had no effect at all. It was not a case of a mere defect, the demand was not a statutory demand under the Act. It should be noted that apart from this point the demand was presented in the proper form.

Subsequent to the hearing, counsel for Brownport brought to my attention the decision of Barrett J in Quitstar v Cooline.[5] In a judgment delivered on 10 May 2002, Barrett J considered and rejected the same argument based on the reference to the superseded legislation. I adopt with respect, and without setting it out, the reasoning of Barrett J. It would be an absurdity to suppose that the use of the word "Law" instead of the word "Act" in the context of identical legislative provisions constituted anything more than, at most, a defect and, being a defect, that it might cause substantial injustice within the meaning of s 459J(1). As Barrett J said[6]:

"The ground of appeal based on that misdescription, in which a common law pleader of the eighteenth century would likely have taken considerable pride, is without merit."

The third non-crucial defect was that the prescribed form contains notes at the end, but these were omitted from the demand. Counsel for Brownport abandoned this point.

Counsel for Brownport then turned to seven defects in Byron's affidavit verifying the statutory demand.

The first point is that the affidavit neither states the nature of the debt nor describes it. The second point is that the debt referred to in the affidavit does not correspond with any debt described in the schedule to the demand. Counsel submitted that the statements in para 2 of the affidavit were not sufficient for these purposes.[7] What counsel meant, as I understood it, was that whereas the demand claimed a debt pursuant to a mortgage, the affidavit referred to the supply and installation of materials. Hence, the submission seemed to be that the affidavit did not verify the debt claimed in the demand. Perhaps the submission was also that the affidavit was vague or uncertain as to the nature of the debt and that it could not be said to verify the debt claimed in the demand. However it be put, in my view the attack on the affidavit was without substance. I find that para 2 is consistent with the demand. The schedule attached to the demand referred to the attached summary of payments and interest in relation to the attached mortgage. Para 2 of Byron's affidavit stated that the debt "is as a result of" the mortgage. It then went on to state that the consideration for the mortgage was the supply and installation of irrigation materials, and the mortgage was identified, together with the statement that the payments and charges were incurred pursuant to the mortgage. It is clear, in my view, that the affidavit does verify the debt in the demand. In referring to the transaction which gave rise to the consideration for the mortgage, the affidavit does no more than provide a succinct statement of the consideration for the mortgage and, in doing so, some explanation to identify more precisely the circumstances in which the debt has arisen. There is no substance in the two points.

The third and fourth points may be taken together. Counsel for Brownport contended that the affidavit does not state the source of Byron's knowledge of the matters deposed to, and that he does not state his belief as to the non-existence of a genuine dispute. In my view, these points are untenable. In the affidavit, Byron states that he is the director of Aqua-Tech, is cognisant of the facts in the matter, and that he knows the facts deposed to of his own knowledge. He further states that there is no genuine dispute about the existence or amount of the debt to which the statutory demand relates.

The fifth point is that in para 2 Byron refers to a mortgage dated 20 September 2000, whereas the mortgage attached to the demand is dated 22 September 2000. That meant, it was submitted, that the affidavit had not verified the mortgage, as it had not referred to the mortgage attached to the demand. It is correct that the mortgage is dated 20 September 2000. Byron identifies that mortgage as the mortgage in question, and there is no evidence to suggest that Brownport has suffered any injustice or prejudice as a result of Byron saying that it was executed two days later. Certainly there is no suggestion that another mortgage was executed by the parties on 22 September 2000, or at any other time, or that there is any reason why the date of the mortgage would cause Brownport confusion and uncertainty. Moreover, the mortgage is attached to the demand and identified by Byron. There can be no confusion or uncertainty.

The sixth point is that there is no statement of account accompanying the affidavit which is referred to in para 3 of the affidavit. This point is quite facile. The reference in para 3 to "the statement of account referred to above" is plainly a reference to the summary of payments and charges referred to in para 2 and attached to the demand.

The seventh point is that arguably the heading or title to the affidavit refers to a court proceeding. The point seems to be that the format of the affidavit contravened Rule 5.2(1) of the Corporations Law Rules. In my view it does not.

In conclusion, Brownport has failed to establish that the demand has any of the alleged defects. Furthermore, even if any of the matters did constitute defects I find that none of them will cause Brownport substantial injustice if the demand is not set aside. I reach these conclusions whether the alleged defects are considered as a whole or individually.

I further conclude, in relation to the affidavit, that none of the defects relied on are established as defects, and certainly do not (whether considered as a whole or individually) constitute a reason for setting aside the demand.

For these reasons, the application to set aside the demand under s 459J fails.

I conclude by referring to three issues raised in counsel's submissions, neither of which has been necessary to decide. Each was raised by a submission of counsel for Aqua-Tech. The first submission was made in the course of opposing Brownport's application for special leave to rely on the new affidavits. In part, counsel for Aqua-Tech opposed the application on the basis that the allegation of future economic loss was a new matter and that special leave must be refused insofar as the affidavits related to that matter.[8] Counsel for Brownport submitted that the economic loss claim was comprehended by the claim in the County Court Writ and that the new affidavit merely supplemented the material in the original affidavits.

The second submission concerned the amount which might be allowed for Brownport's offsetting claim. This submission turned on Aqua-Tech's contractual obligation being limited to the para 13.1 works. On that premise, and analysing the alleged breaches in the County Court Writ, and the affidavit evidence (including, as I understand it, the further affidavits), it is seen that most alleged defects related to work in Elders' area of responsibility. Counsel submitted that the aspect of the claim for which Aqua-Tech could be responsible concerned the rising mainline and that, at its best, the claim represented just over $1M. Even if the debt was reduced to, say, $1M, the demand still claimed an amount well in excess of the statutory minimum.

The third submission was that if Brownport's further affidavits were admitted, it could be seen that Brownport's stance lacked bona fides, and that the alleged offsetting claim lacked genuine substance. It was submitted that it should be found that there was not a genuine dispute and no genuine offsetting claim within the meaning of s 495H(1)(a) and (b).[9]

In the conclusions I have reached, and having regard to the evidence before me on the appeal, which is the same as the evidence that was before the Senior Master, it is apparent, in my view, that the orders made by the Senior Master reflect an appropriate disposition of the matter. In saying that, I am conscious that the appeal is by re-hearing de novo but, applying my mind to the matter independently of the Senior Master's decision, I conclude as he did. The appeal will be dismissed.

[2] Supreme Court of Victoria, No 7585/82, 22 June 1988 at 6.

[8] See Andrew R Keay, McPherson The Law of Company Liquidation, LBC Information Services, 4th ed (1999), p 73; Eden Bay Pty Ltd v Bennett & Co (1997) 15 ACLC 1634 at 1636-7; D & S Group of Companies Pty Ltd v O'Connor Investments Pty Ltd (1997) 15 ACLC 1794 at 1798; Aspermont Limited v Robash Pty Ltd (1998) 16 ACLC 485 at 488-489. See also Missay Pty Ltd v Seventh Cameo Nominees Pty Ltd (in liq) [2000] VSC 397.

[9] See Jemzone v Trytan Pty Ltd [2002] 42 ACSR 42 at [17].

At a glance

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Judgment (106 paragraphs)

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Cases Cited (2)