Faji (Australia) Constructions Pty Ltd v AC Professional Accounting Pty Ltd; Faji

1 In each of these proceedings, which were heard together, the plaintiff company makes application under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand served on it by the defendant, a company that conducts an accountancy practice at Hurstville. 2 In one proceeding, the plaintiff is Faji (Australia) Construction Pty Ltd. In the other, the plaintiff is Faji (Australia) Trading Pty Ltd. I shall refer to them as "Construction" and "Trading" respectively. When referring to them together I shall call them the "Faji companies". 3 It seems to be common ground that the defendant was retained to provide accounting services to the Faji companies and did so over a number of years. The debt the subject of each statutory demand is a debt for professional fees. In the case of Construction, the debt is in the sum of $2,750 and relates to a fee account rendered on 11 February 2007. In the case of Trading, the debt is in the sum of $2,539 and relates to a fee account rendered on 12 February 2007. In each case, the fee is expressed to be for the preparation of financial statements, associated reports and an income tax return for the year ended 30 June 2006. 4 The affidavit supporting the s 459G application is, in each case, an affidavit of Mr Yu, a director of each of the Faji companies, sworn on 6 June 2008. From that affidavit, the plaintiff seeks, in each matter, to make out a case of genuine dispute as to the existence of the debt within s 459H(1)(a). Each plaintiff also relies on s 459J(1)(b). I shall deal first with the genuine dispute ground. 5 Mr Yu says in his affidavit of 6 June 2008 that his daughter, Jenny, assists with the bookkeeping for both of the Faji companies. He says in relation to each of the memoranda of fees on which the defendant relies that he is informed by Jenny and verily believes that the relevant Faji company "does not appear to have within its books and records a statement of account for unpaid fees" of the relevant description. This hearsay statement falls demonstrably short of proving non-receipt of the memoranda of fees. 6 Mr Yu also refers to complaints he made to Mr Chen, the principal of the defendant, about the quantum of fees for similar work in earlier years. Those complaints were made before the fees now in question were rendered. They cannot conceivably establish the existence of any dispute about the fees now in question; nor can it be concluded that there was arguably a contractual promise of the defendant to reduce future fees. 7 Mr Yu next refers to "errors" made by the defendant in the balance sheet of Construction for the year ended 30 June 2003 mentioned in a letter prepared by the defendant in September 2006 for the Migration Review Tribunal in connection with pending applications concerning Mr Yu and his wife. The letter corrects a discrepancy of about $3,000 in a loan account item of the order of $200,000. The basis on which that matter of minor adjustment or correction is said to call for some fee refund or adjustment is not explained. 8 There is some suggestion in Mr Yu's affidavit that loan transactions between Mr Chen and Mr Yu somehow gave rise to a right of the Faji companies to some concession in relation to fees to be charged by the defendant company. But the respective companies were not parties to these loan arrangements. Indeed, a written acknowledgment of 15 September 2006 signed by Mr Yu makes it clear that the individuals were the parties to the loan transactions and that Mr Yu accepted at that point that he was indebted to Mr Chen in the sum of $10,000. 9 There were Local Court proceedings about the loan transactions. The matter never proceeded to a final hearing. The parties to those proceedings were the individuals. 10 Mr Yu originally said that he did not instruct the defendant to prepare financial statements and tax return for the year ended 30 June 2006 but he ultimately did not persist with that evidence. 11 The grounds of alleged genuine dispute articulated by the Faji companies within the period of 21 days referred to in s 459B(3) are thus that there is no record of receipt of the relevant fee note; that there had been complaints about the quantum of fees in earlier bills; that no credit was given for errors referred to in the 13 September 2006 letter prepared for the Migration Review Tribunal; and that some discount was due because of the loan transactions. Eventually, the plaintiffs did not dispute that the defendant actually did the work for which the fees in question are claimed. 12 I cannot find that there exists in either case a genuine dispute about the existence of the particular debt; that is, the debt of $2,750 in the case of Construction, and the debt of $2,539 in the case of Trading. 13 I turn, therefore, to s 459J(1)(b) aspect of the case and the proposition that there is "some other reason" - that is, a reason other than genuine dispute or offsetting claim within s 459H or "defect" in the demand that will be productive of "substantial injustice" if the demand is not set aside (s 459J(1)(a)) - why the court should order that the statutory demand be set aside. 14 In advancing the case under s 459J(1)(b), the Faji companies concentrate on the affidavit under s 459E which accompanied each statutory demand. The affidavit should be set out in full: "On 22 May 2008 I Dominic Oliveri, Solicitor of Oliveri Attorneys Suite 449, Level 5, 311-315 Castlereagh Street Sydney in the State of New South Wales, affirm: 1. I am the solicitor for the creditor referred to in the schedule of the accompanying demand. I have knowledge of the facts stated in the attached statutory demand. 2. I believe that the amount of $2,539.20 being the debt specified in the accompany demand, is due and payable by the debtor to the creditor. 3. I believe these matters to be true. 4. I believe there is no genuine dispute about the existence or amount of the debt referred to in paragraph 2. Sworn this 22nd day (sgd) D Oliveri of May 2008 at Sydney Before me: (sgd) W Chen Wendy Chen Solicitor" 15 The affidavit is thus the affidavit of a solicitor who says that he is the solicitor for the creditor referred to "in the schedule of the accompanying demand". I take it that this is a reference to the creditor referred to in the demand itself, since the schedule as such does not identify a creditor. 16 The Faji companies make two submissions in relation to the affidavit. The first is that it is not, in truth, an affidavit at all. If that is so, I am satisfied that, on the authority of Portrait Express (Sales) Pty Ltd v Kodak Australasia Pty Ltd (1996) 20 ACSR 746, a decision of Bryson J, the s 459J(1)(b) ground will be made out and an order setting aside the statutory demand will be warranted. An assurance by way of affidavit as required by s 459E(3) is a central component of the entitlement of a company served with a statutory demand and a central component of the responsibility of the serving party towards that company. 17 The proposition that the document is not an affidavit turns on this: the introductory part of the document uses the word "affirm" to describe what the solicitor is doing in relation to the content of the numbered paragraphs, while the jurat is: "Sworn this 22nd day of May 2008 at Sydney Before me" with the signatures of the solicitor making the statements and the solicitor before whom, according to this jurat, the document was sworn, also appearing.

18 The plaintiff submits that there is a fundamental and irreconcilable inconsistency between the use of the word "affirm" and the use of the word "Sworn", in that an affidavit must be "sworn", that is, made on oath, except in the circumstances stated in s 12 of the Oaths Act 1900, in which event an affirmation may be made instead of an oath. The simple point is that the statements must be made on either oath or affirmation; and there cannot be some form of amalgam of the two. 19 It was submitted on behalf of the defendant that, in this respect, the document before me is relevantly identical with the document that arose for consideration in Fastlink Calling Pty Ltd v Macquarie Telecom Pty Ltd [2008] NSWSC 299; (2008) 217 FLR 366. I accept that submission. The problem there was that the operative words in the body of the documents were "do solemnly declare" and the jurat contained the word "sworn". 20 I regard this case, like that, as appropriately dealt with in the way described in paragraph 30 of the earlier judgment: " I turn now to the deficiencies in the document signed by Ms Jebril. The first is the use of the operative words 'do solemnly declare' in the place where Form 40 contemplates use of the words 'say on oath' or 'affirm'. The word "declare" does not signify that the deponent swears or that the deponent affirms. These are the only alternatives contemplated by the Oaths Act for an affidavit. But Ms Jebril's document itself resolves the doubt or ambiguity. The words 'SWORN at Greenacre' show that she made her statements on oath. The use of the words 'do solemnly declare' therefore cannot stand in the way of a conclusion that the document is an affidavit sworn by Ms Jebril." 21 In this case, too, the words, "Sworn this 22nd day of May 2008 at Sydney" - words after which appears the signature of the solicitor before whom the document was signed - show that the deponent made the substantive statements on oath, having been sworn by the solicitor. The use of the word "affirm" therefore cannot stand in the way of a conclusion that the document is an affidavit duly sworn. 22 The second submission made by the Faji companies in relation to s 459J(1)(b) goes to the actual content of the numbered paragraphs of the affidavit which I have already quoted. 23 Having regard to that content, it is clear that the deponent solicitor does not identify the source of the knowledge which he considers enables him to make the statements he makes. It may be that he had a copy of the memorandum of fees referred to in the schedule to each statutory demand. But that would have given him no insight into the dealings between the Faji companies and the defendant. Beyond actual sight of the invoices or memoranda of fees, he could only have relied on what he was told by someone - quite possibly Mr Chen; so that when he says, for example, that he believes that the amount specified in the demand is due and payable, he can only be reporting something that he was told by someone else, namely, that the amount became due and payable and that it has not been paid. His own belief cannot be anything but a reflection of someone else's belief communicated to him. 24 In paragraph 3 of the document the solicitor says, "I believe these matters to be true". Again, his position as a solicitor could not be expected to give him independent knowledge of anything enabling him to say that. 25 In paragraph 4, he deposes to a belief on his part that there is no genuine dispute about the existence or amount of the debt. That presupposes an insight on his part into communications and discussions between the principals (that is, the defendant company and each of the Faji companies) from which the absence of allegations of dispute by the Faji companies is entirely absent. As with the earlier statements, he can have known nothing of these matters except what he was told by his client. 26 In the Portrait Express case (above) at p.758, Bryson J saw fit to observe that the court must "register clearly and appropriately the importance of the requirement of verification of demands". 27 In B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433, McLelland CJ in Eq referred to the requirements that are now imposed by a combination of Rule 5.2(a) of the Supreme Court (Corporations) Rules 1999 and paragraphs 4 and 5 of Form 7 prescribed by those rules. After referring to the specifications in predecessor rules concerning affidavits for s 459E(3) purposes, his Honour said at pp.435 to 436: "It is important in this regard to bear in mind that the relevant matters include not only a belief as to the existence and amount of the debt, but also a belief as to the absence of any genuine dispute about the existence or amount of the debt. The express requirement in the rule that the person making the affidavit depose to his or her belief that there is no genuine dispute is a significant mechanism for filtering out cases where there is in fact such a dispute, so as to prevent such cases from reaching the court on such an application as the present, with a consequent waste of time and resources. This mechanism would be substantially weakened unless a person likely to have personal knowledge of the existence of a dispute if there is one makes the affidavit. A statement of a belief that there is no genuine dispute based solely on hearsay is unlikely to have anything like the same degree of reliability. I therefore do not regard what has occurred in the present case as a merely technical breach of the rules." 28 These observations of McLelland CJ in Eq caused me to say in Standard Commodities Pty Ltd v Société Socinter Départment Centragel [2005] NSWSC 254; (2005) 54 ACSR 489 at [13]: "McLelland CJ in Eq regarded the hearsay nature of the statements in the affidavit as constituting 'some other reason' for setting aside the statutory demand under s 459J(1)(b). His Honour expressed a like opinion in L M & W J Taylor Pty Ltd v Armour Timber & Trading Pty Ltd , above. In Hamilhall Pty Ltd (in liq) v A T Phillips Pty Ltd (1994) 54 FCR 173 ;(1994) 15 ACSR 247, Branson J referred to the need for the s 459E(3) affidavit to be made by someone who could depose to the relevant matters from his or her own knowledge. In Delta Beta Pty Ltd v Vissers (1996) 20 ACSR 583, Nicholson J said, in relation to an accompanying affidavit made by a solicitor, that 'the hearsay assertions of the deponent bring to the statutory demand a verisimilitude to which it is not entitled'. His Honour regarded this as a sufficient 'other reason' to set aside the demand under s 459J(1)(b)." 29 The affidavit in this case makes it clear that the deponent did not have first-hand knowledge of the matters to which he deposed. The sworn assurance that the recipient of a statutory demand is entitled to expect as to the essential substance of the demand, the existence of the debt, its quality as a debt due and payable, and the absence of genuine dispute about its existence or amount, was denied the Faji companies in this case. No one who might have been expected to have first-hand knowledge of those matters - for example, a company officer with access to the books and records of the defendant company - was put forward by the defendant company to give that sworn assurance. 30 If a person claiming to be a creditor of a company is to obtain through service of a statutory demand the benefit of a presumption of insolvency under s 459C(2)(a), it is essential that that person provide the company with all the information that must be provided in connection with the service of the statutory demand. If important elements of that information are of a hearsay nature, without any assurance of their having been inquired into and verified by someone with actual knowledge, that entitlement is denied. This is sufficient to make good the ground under s 459J(1)(b) on which the plaintiff relies. 31 Although the genuine dispute ground has not been established, each of the Faji companies has shown an entitlement under s 459J(1)(b) to have the demand served on it set aside. 32 In each proceeding, I order that the statutory demand served by the defendant on the plaintiff be set aside.

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