11 In LSI Australia Pty Ltd v LSI Holdings [2007] NSWSC 1406, (2007) 25 ACLC 1602, Austin J said, at [54], that a demand must identify to a reasonable director of the recipient the general nature of the debt sufficiently to permit assessment of whether it is genuinely disputed:
A statutory demand is required by Form 509H to "describe" the debt that is claimed. If the demand is so vague or ambiguous that it fails to identify, to a reasonable person in the shoes of a director of the debtor company, the general nature of the debt to a sufficient degree that the director can assess whether there is a genuine dispute as to the existence or amount of the debt or an offsetting claim, then there is a lack of something necessary for completeness, and therefore a defect in the demand.
12 In the present case, I do not think that the demand is ambiguous. It is quite clear that in order to comply with it, the company must pay $67,715.86. However, the particularisation of the debt is defective, in the sense that it does not make clear how that sum of $67,715.86 is comprised. It refers to requests itemised in reports of outstanding commissions and brokerage said to be annexed; although those documents were apparently not annexed, they were served together with the verifying affidavit at the same time, but they did not total $67,715.86. Even having regard to those documents, it would not have been clear to a reasonable person in the position of a director of the company, how the total was comprised. I do not think that the mind of such a person would automatically have gone to GST as the explanation for the difference. Accordingly, I am satisfied that in failing adequately to describe the debt, there was a defect in the statutory demand.
13 However, that is not the end of the matter, because the Court is authorised to set aside a statutory demand in the case of a defect only if substantial injustice would be caused unless the demand is set aside; otherwise, the Court must not set aside the statutory demand merely because of a defect. In LSI, Austin J found that there would be substantial injustice if the demand were not set aside, because of the application of the Graywinter principle in the circumstances of that case. It was central to the finding of substantial injustice that the omission of certain matters from the demand led to the company failing to assert in its supporting affidavit a ground on which it would otherwise have wished to rely to impugn the demand. His Honour said, at [57]:
The vague and ambiguous statutory demands, neither of which identify to a reasonable observer the true nature of the alleged debts, have put LSIA's director, Mr Hughes, in the position of not having realised the true claims asserted against his company and therefore not realising the potential relevance of the indemnity, and consequently have led to his failure to put forward the indemnity ground in the affidavits supporting the applications. Unless the court sets aside the statutory demands, LSIA will in those circumstances suffer the substantial injustice of having the presumption of insolvency raised against it in any subsequent winding up proceedings.
14 In A R Pilot Pty Ltd v Gouriotis Barrett J, having found that there was a defect in a demand which was ambiguous because it contained different demands for $6,486 and $8,646, said that there would be substantial injustice because the company, having reasonably paid the lesser of the amounts demanded, which appeared to be consistent with earlier correspondence, would be prejudiced by an adverse presumption of insolvency unless it then paid the unexplained balance. The injustice in that was plain enough. His Honour said, at [32]:
As to the question of substantial injustice, the position is that the plaintiff has paid the smaller of the two amounts referred to in the demand, being the amount that is consistent with the prior correspondence and the understanding of the position that was engendered on the part of the plaintiff by the defendant's solicitors. For a company that has taken that course in the particular context to be exposed to the possibility of an adverse presumption for the purposes of winding up proceedings, unless it pays some unexplained balance not dealt with the prior correspondence, would clearly be a source of substantial injustice.
15 The explanation of the defect in the present case is, as it transpires, an unexpressed claim for GST. If it were the position of Canon that it disputed that GST was payable, and being unaware that GST formed part of the claim had failed to raise that dispute, then there would be an indisputable case of substantial injustice for the purpose of s 459J(1). However, it raises no such issue. I cannot see how it would be substantially prejudiced by the defect identified.
16 The claim for prejudice was articulated in Ms Chalmers' affidavit as being the need to plead and particularise the various offsetting claims that Canon wishes to propound. That is not the type of substantial injustice that is contemplated by s 459J, because it is not an injustice related to the defect, or the failure to set aside the notice on account of the defect. Mr Chippindall did not suggest that any other technical defects in the creditor's statutory demand gave rise to substantial prejudice. In my view, although the demand is defective in the way in which I have described, and although there is also admittedly a genuine dispute as to a substantial part of the debt claimed, the defect is not such that substantial injustice would be occasioned unless the demand is set aside, and the genuine dispute can be addressed under s 459H.
17 So far as s 459J(1)(b) is concerned, the nature of that jurisdiction was described by Young CJ in Eq, as his Honour then was, speaking for the Court of Appeal, in Meehan v Glazier Holdings [2005] NSWCA 24, (2005) 53 ACSR 229 where his Honour said: