Finlay v Taylor Finlay v Taylor [2010] NSWSC 193 | Case summary

1 HIS HONOUR: Matter 290479/2009 (formerly 4514/09) is the hearing of an application under the Corporations Act 2001 to set aside a statutory demand served by the defendant on the plaintiff dated 24 August 2009. The description of the debt and the demand is as follows: "SCHEDULE Description of the debt Amount of Debt The principal sum of $750,000 being due and owing by the Company to the Creditor in respect of a Loan Facility Agreement dated 27 September 2005 $750,000" 2 As can be seen there is a loan facility agreement for $750,000 going back to September 2005. That facility agreement is in evidence and the repayment date under the facility agreement is 26 September 2010. 3 The facility agreement provides that it is to apply in respect of advances in accordance with the terms of the agreement and cl 5.1 of the agreement provides for the repayment of the amount on the final repayment date which, as I have said, is 26 September 2010 as appears from the schedule to the agreement. 4 The primary claim of the plaintiff is that the affidavit in support of the demand is deficient and that the proceedings ought to be set aside under s 459J(1)(b). It also suggests that the proceedings are an abuse as there is already litigation involved in Queensland in which the parties and a number of different parties are contesting what might be the same underlying indebtedness in some other transaction. 5 The affidavit in support of the demand is in the following terms: "Affidavit Accompanying Statutory Demand Taylor and Co Projects Pty Ltd A.C.N. 122 567 757 Creditor Finlay Australia Pty Limited ACN 056 368 748 Debtor Company I, Liana Maree Taylor of Unit 4, 55 O'Brien Street, Bondi Beach in the State of New Wales, Sole Director of the Creditor, state on oath: 1. I am the Sole Director of the Creditor Named in the Statutory Demand, which this Affidavit accompanies, relating to the debt owed by Finlay Australia Pty Limited ACN 056 368 748. 2. I am authorised to swear this Affidavit on behalf of the Creditor. 3. The Debtor Company entered into a Loan Facility Agreement with Cyonara Snowfox Pty Ltd A.C.N. 079 510 795 (formerly Zonebar Pty Ltd) on 27 September 2009. 4. The Debtor Company is in default of the Loan Facility Agreement. 5. The rights pursuant to the Loan Facility Agreement were assigned to the Creditor pursuant to a Deed of Assignment dated 17 August 2009. 6. The principal sum outstanding pursuant to the Loan Facility Agreement assigned to the Creditor for which payment is now due and has not been made by the Debtor Company is $750,000. 7. The debt of $750,000 mentioned in the statutory demand is due and payable by the debtor company. 8. I believe that there is no genuine dispute about the existence or amount of the debt." 6 As is apparent from that affidavit there has been an assignment of the debt to the present defendant who issued the statutory demand, namely, Taylor & Co Pty Ltd. That assignment was a week or so before the demand was served. 7 The statements as to how the amount might be due and payable are only contained in para 7 and there is nothing in the evidence before me which would suggest that there has been a default under the agreement which would accelerate the repayment date. The principal problem in this case occurs in respect of the failure of the affidavit to comply with the terms of the Corporations Act rules and form 7 prescribed by those rules. Form 7 contains a paragraph as follows: "State the source of the deponent's knowledge of the matters stated in the affidavit in relation to the debt or each of the debts, eg 'I am the person who, on behalf of the creditor(s) , h ad the dealings with the debtor company that gave rise to the debt', 'I have inspected the business records of the creditor in relation to the debtor company's account with the creditor'". 8 The failure to include that in this particular case has importance. The matter was heard before me on 10 December 2009 and at that stage Miss Taylor, the deponent of the affidavit, was going to be called for cross-examination. She was not called on a concession which was made on behalf of the defendant, who was then represented, that the affidavit was sworn simply on information and belief and that she had no direct knowledge of the matters set out in the affidavit. This is, of course, probably obvious from the fact she is an officer of the assignee. There is nothing to suggest she had anything to do with the original agreement back in 2005 or had any other knowledge. 9 The importance of the knowledge of the person who has to swear the affidavit was set out as long ago as 1994 by McClelland CJ in Eq in B & M Quality Constructions Pty Ltd. Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433 at 435 where he said the following: "The requirement of that rule, as to the identity of the person making the affidavit accompanying the statutory declaration, is designed to serve the public interest as well as to protect the company against unwarranted demands, by endeavouring to ensure, within practical limits, that the person who must put his or her oath or solemn affirmation to the relevant matters (and thereby risk a conviction for perjury if a knowingly false statement is made) is the person associated with the creditor who is most likely to have direct knowledge of those matters. It is important in this regard to bear in mind that the relevant matters include not only a belief as to the existence and amount of the debt, but also a belief as to the absence of any genuine dispute about the existence or amount of the debt. The express requirement in the rule that the person making the affidavit depose to his or her belief that there is no genuine dispute is a significant mechanism for filtering out to 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."

10 The appropriateness of this has also been dealt with in Saferack Pty Ltd v Marketing Heads Australia Pty Limited[2007] NSWSC 1143, a decision of Barrett J in which his Honour reinforces the critical part that the requirements for affidavits play in the whole process of the service of statutory demands. If one has people who, in fact, do not have any knowledge of the matter, that process can be completely subverted. Particularly in this case where, on the face of it, and the face of the documents, there is a loan which is not repayable and there is no evidence of any attempt to accelerate the loan. 11 I have been referred to HL Diagnostics Pty Ltd v Psycadian Ltd [2005] WASC 234 where it is suggested an assignee had adequately verified the indebtedness of the original debt. Notwithstanding that I think the matters that are referred to by McLelland CJ in Eq and also confirmed by Barrett J in the judgement I have referred to are the matters which I should follow and, in my view, it would completely subvert the statutory demand process for this demand to be verified in the way that Miss Taylor has sought to do here. 12 In the circumstances I am satisfied there is some other reason to set aside the demand and, accordingly, I set aside the statutory demand served by the defendant on the plaintiff dated 24 August 2009. In those proceedings I order the defendant to pay the plaintiff's costs. 13 In 290874/09 (formerly 4892/09) there was a demand in similar terms to that served between the same parties in proceedings number 290479/09. The affidavit in support in this case is sufficient as it contains the relevant clauses and is within time. There are the same problems with the affidavit as occurred in the other proceedings and in addition there is evidence that the defendant, making no admissions, consents to an order setting aside the statutory demand and undertakes to pay the reasonable costs of the plaintiff as may be agreed or determined on assessment. In the circumstances I set aside the statutory demand dated 21/09/09. I order the defendant to pay the plaintiff's costs. I order the exhibits be returned

Finlay v Taylor Finlay v Taylor

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