BETWEEN : FOUR SEASONS CONSTRUCTION PTY LTD (ACN 078 019 226)

Corporations Law - Application to set aside a statutory demand - Whether affidavit in support of application sufficient - Whether application properly on foot - Sufficiency of affidavit accompanying statutory demand - "Substantial compliance" with rules - Whether form of affidavit leads to substantial injustice

Corporations Law, s 9, s 459E(3), s 459H(1), s 459J(1), s 459J(2)

Supreme Court Rules (WA), O 81G r 5(1), O81G r 31

B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1995) 13 ACLC 88

Classic Ceramic Importers Pty Ltd v Ceramica Antiga SA (1994) 12 ACLC 334

Dromore Fresh Produce v W Paton (1997) 15 ACLC 424

Edge Technology Pty Ltd v Lite-On Technology Corp [2000] NSWSC 471

Harkness v Bell's Asbestos & Engineering Ltd [1967] 2 QB 729

John Holland Construction & Engineering Pty Ltd v Kilpatrick Greene Pty Ltd (1994) 12 ACLC 716

Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; (1993) 11 ACLC 1062

Portfolio Project Pty Ltd v Oakes Building Co Pty Ltd (1987) 5 ACLC 911

Prime Link Aust Ltd v JLRE Pty Ltd (1997) 15 ACLC 1283

Sacon Constructions v Concrite Quarries (1997) 15 ACLC 1303

Scanhill Limited v Century 21 Australasia Pty Ltd [1993] FCA 618; (1994) 12 ACLC 111

Sentinel Financial Management Pty Ltd v Entercorp Finance Pty Ltd (1997) 15 ACLC 20

Southern Canola Producers Pty Ltd v Painter Griffith & Associates Pty Ltd (1997) 15 ACLC 956

Spencer Constructions Pty Ltd v G & M Alridge Pty Ltd [1997] FCA 681; (1997) 15 ACLC 1001

Verte Pty Ltd v Grisbrook (1997) 15 ACLC 1306

Z-tek Computers v Aus.Linx International (1997) 15 ACLC 1233

1 MASTER SANDERSON: This is an application by the plaintiff to set aside a statutory demand. The plaintiff brought the application on two separate grounds. First, it was said that there was a defect in the demand and it should be set aside under s 459J. Alternatively, it was said that there was a genuine dispute in relation to the debt the subject of the demand and the demand ought be set aside under s 459H. For its part, the defendant said that the affidavit filed in support of the application was not a sufficient "supporting affidavit" within the terms of s 459G(3). It was submitted that in light of the deficiencies in the supporting affidavit there was no application under s 459G properly on foot and there was no jurisdiction to make an order setting aside the statutory demand.

2 In my view the proper way to approach this matter is first to determine whether or not there is an application properly on foot. This in turn requires consideration of the affidavit filed in support of the application. The affidavit is sworn on 20 July 2000 by Peter Mavlian, who describes himself as "project manager". Because of the importance of the affidavit I will quote it in full:

"1. I am the sole shareholder and formerly a Director of the Applicant. I am authorised by the present Director of the Applicant to make this Affidavit on behalf of the Applicant and I have personal knowledge of all the matters referred to in my Affidavit.

2. I make this Affidavit in support of an Application by the Applicant to set aside the statutory demand which was served on the Applicant by the Respondent on the grounds that the claim by the Respondent for the payment of $168,331.99 is not only disputed by the Applicant but such dispute is already the subject of an Arbitration between the parties and ancillary proceedings in this Honourable Court.

Annexed hereto and marked with the letter 'A' is a copy of the Respondent's Notice of Demand and Affidavit in support.

3. The claim by the Respondent for $168,331.99 is a claim for damages by the Respondent arising out of a contract between the Applicant and the Respondent for the construction of land fill facilities in Red Hill in the said State.

4. The Applicant and the Respondent entered into a written contract on the 2nd day of December 1997. Various disputes arose between the Applicant and the Respondent which were referred to Arbitration on the 30 day of July 1998. Both parties were ordered to provide a Scott Schedule setting out their respective claims and counter claims in the Arbitration. Under the Scott Schedule the Applicant claimed against the Respondent $414,488.85 and the Respondent counter-claimed $168,331.99 which is now the subject of the Respondent's Notice of Demand. The Arbitration is still proceeding and the Arbitrator has yet to publish his answers.

5_._ On the 7th day of April 1999 the Respondent applied to this Honourable Court by Originating Summons for Orders that the Applicant be required to give security for costs in the Arbitration and Master Sanderson ruled on the 21st day of May 1999 that the Applicant provide $10,000.00 by way of security and this Order was complied with by the Applicant. While reviewing the matters in issue Master Sanderson noted in his Judgment that the issues between the parties were both complex and technical.

6. Subsequently by a Chamber Summons dated the 3rd day of September 1999 the Respondent sought further Orders for security for costs. A few days later, on the 13th day of September 1999 the Respondent applied for Orders pursuant to Section 44 of the Commercial Arbitration Act 1985 for removal of the Arbitrator and pending the appointment of a replacement Arbitrator that all further proceedings in the Arbitration be stayed. These Applications have not yet been disposed of.

7. I subsequently applied to this Honourable Court for leave to represent the Applicant and after a hearing before the Honourable Justice Hasluck on the 19th day of June 2000, I was given leave to appear on behalf of the Applicant at the hearing of the abovementioned Applications.

8. Annexed hereto and market with the letter 'B' is a copy of the Honourable Justice Hasluck's Judgment which was delivered on 13th day of July 2000 which sets out in some detail the previous history of the proceedings between the Applicant and the Respondent which demonstrate very clearly that there is a genuine dispute between the Applicant and the Respondent which are the subject of proceedings both by Arbitration under the Commercial Arbitration Act and in this Honourable Court. I verily believe that the Statutory Demand which was served by the Applicant in the circumstances detailed in this my Affidavit in clear knowledge of the existence of those proceedings constitutes an abuse of the process of this Honourable Court as it has already clearly been demonstrated that a genuine dispute does exist between the parties which is the subject of those existing proceedings.

9. I also seek leave to refer to my various Affidavits sworn the 7th day of April 2000 and filed in the proceedings in this Honourable Court in action No. ARB/8/1/1999 as further evidence of the existence of a genuine dispute between the parties.

10. I therefore seek an Order from this Honourable Court that the Statutory Demand be set aside and that the Respondent should pay the Applicant's costs of this Application on an indemnity basis."

3 The requirements of a supporting affidavit have been considered in a number of cases, beginning with Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] FCA 822; (1996) 14 ACLC 1703. In that case Sundberg J of the Federal Court put the position in the following terms (at 1708 - 1709):

"In order to be a 'supporting affidavit', an affidavit must say something that promotes the company's case. An affidavit which merely says 'I am a director of the company but am too busy at present to make a full affidavit, and I will do so later' would not support the application. It would in no way advance, further or assist the company's cause, which is to have the notice set aside. At the other extreme, the affidavit need not detail, in admissible form, all the evidence that supports the contention of a genuine dispute. That evidence must be available at the hearing of the application to set aside, because the application is for final and not interlocutory relief.

...

An affidavit which exhibits an exchange of correspondence between the parties or between their solicitors from which it appears that a claim is made and rejected for reasons given can qualify as a supporting affidavit. And an affidavit verifying the pleadings in an action may qualify."

4 Nothing in the body of Mavlian's affidavit actually gives any real indication of the nature of the dispute between the parties. All that can be gleaned from the evidence is that the claim is in respect of damages consequent upon the construction of landfill facilities in Red Hill and that there is an arbitration on foot. But there is nothing said by Mavlian that would indicate how the claim arose, what defence has been raised to it, how the evidence of the parties stands at present and the progress of the arbitration. Without more, I would be inclined of the view that the affidavit is insufficient and the application is not presently on foot.

5 But annexed to the affidavit as annexure "B" is the decision of Hasluck J dealing with the question of whether Mavlian ought be permitted to represent the plaintiff in certain proceedings relating to the arbitration and at the arbitration itself: Eastern Metropolitan Regional Council v Four Seasons Constructions Pty Ltd [2000] WASC 178. His Honour's reasons go into some detail as to the nature of the dispute between the plaintiff and the defendant and the proceedings that have taken place to date (see par 1 to par 19). In fact, his Honour's reasons are one of seven separate decisions handed down in proceedings between the plaintiff and the defendant. Two of these decisions have been decisions of the Full Court. In each case the court has outlined the facts and the nature of the dispute between the parties. A reading of these decisions makes it plain the nature of the parties' respective positions and the matters in dispute. For present purposes, those decisions can be put to one side. I am satisfied that by annexing a copy of Hasluck J's reasons to his affidavit Mavlian has outlined the nature of the dispute between the parties so that an application can properly be regarded as on foot.

6 I now turn to the plaintiff's submission that the affidavit which accompanied the statutory demand and which was served with the statutory demand did not comply with the rules, was in all senses inadequate and justified the statutory demand being set aside under s 459J. Section 459J is in the following terms:

"(1) On an application under s 459G, the Court may by order set aside the demand if it is satisfied that:

(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or

(b) there is some other reason why the demand should be set aside.

(2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect."

7 The word "demand" is not itself defined in s 9 of the Corporations Law. A "statutory demand" is defined as meaning:

"(a) a document that is, or purports to be, a demand served under s 459E; or

(b) such a document as varied by an order under subsection 459H(4)."

8 Section 459E(1) allows a person to serve a demand on a company. Subsection (2) deals with the contents of such a demand. Section 459E(3) requires that a demand be accompanied by an affidavit. The subsection is in the following terms:

"Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that:

(a) verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and

(b) complies with the rules."

9 It is clear then that the statutory demand procedure as set out in s 459E has two component parts. There is the demand and there is the accompanying affidavit. If both of these documents are served on a company and provided the demand complies with the Corporations Law and the affidavit complies with the Corporations Law and the Corporations Rules, then there has been service of a statutory demand. Although service of both documents is required to invoke the statutory demand procedure, it is nonetheless the demand which is by virtue of s 9, the statutory demand. Thus, in the present case, s 459J(1) has no application. It is not alleged by the plaintiff that there is a defect in the demand. It is alleged that there is a defect in the affidavit. The plaintiff's application falls to be determined under s 459J(b). Nonetheless, any order made under that subsection is to be conditioned by s 459J(2).

10 The Corporations Law, by s 9, defines "defect" in relation to a statutory demand to include:

"(a) an irregularity; and

(b) a misstatement of an amount or total; and

(c) a misdescription of a debt or other matter; and

(d) a misdescription of a person or entity."

11 In Topfelt Pty Ltd v State Bank of New South Wales Ltd [1993] FCA 589; [1994] 12 ACLC 15, Lockhart J considered the operation of s 459J(2) as it related to a "defect" in the statutory demand. His Honour said (at 24 - 26):

"The definition of 'defect' is an inclusive definition, so one must construe the term initially according to its ordinary meaning and then introduce into it, if it is otherwise not included, the deemed statutory connotations. According to its ordinary usage a 'defect' means a lack or absence of something necessary or essential for completeness; a shortcoming or deficiency; an imperfection. A defect according to ordinary understanding is not necessarily something which is of a minor nature, it may be either major or minor.

...

The new Part 5.4 of the Corporations Law does not recognise two regimes: one dealing with documents that suffer from major defects such that they cannot be described as statutory demands for the purposes of Part 5.4 of the Corporations Law, and another dealing with documents that suffer only from minor defects and are capable of being saved from invalidity by the operation of s 459J(2). This is a distinction which the Parliament has sought to avoid and which for many years bedevilled the law and practice relating to bankruptcy notices.

...

The test applied by the courts in determining the validity of bankruptcy notices traditionally has been to consider validity primarily from an objective viewpoint and ask the question whether a debtor could be misled by a defect in the notice; but this approach has been modified in recent years by examining the question of validity from the position of the particular debtor to whom the notice is addressed. ... This modification is central to the regime of Part 5.4 of the Corporations Law because the emphasis is there placed upon substantial injustice being done to a particular debtor company if the demand is not set aside where the question arises on the hearing of the company's application to set it aside. Nevertheless, the courts will be confronted at times with cases, sometimes undefended, where there are glaring and substantial defects in the form of statutory demand. Is the Court to ignore them? The answer may be that defects of this kind may be considered by the Court and relied on to dismiss the application to wind up, but only in cases where the defects are of such a kind that the Court is satisfied that substantial injustice has been caused that cannot be remedied otherwise than by dismissing the application."

12 The question then is whether the affidavit filed with the demand has defects and if so, whether these defects are such that not to set aside the statutory demand will result in substantial injustice. Because not only the contents but the form of the affidavit accompanying the statutory demand is in issue, I will quote it in full. It appears as annexure "A" to Mavlian's affidavit:

"AFFIDAVIT UNDER SECTION 459E OF

THE CORPORATIONS LAW

IN THE SUPREME COURT)

OF WESTERN AUSTRALIA)

EASTERN METROPOLITAN REGIONAL COUNCIL

Creditor

and

FOUR SEASONS CONSTRUCTION PTY LTD

ACN 078 019 226

` Debtor

I, Gavin Kenneth Watters of 226 Great Eastern Highway, Belmont, in the State of Western Australia, Chief Executive Officer being duly sworn make oath and say as follows:-

1. I am the Chief Executive Officer of the Creditor and am authorised by the Creditor to make this affidavit on its behalf.

2. To my knowledge, the amount of $168,331.99 is due and payable by the Debtor to the Creditor.

3. This debt is money payable by the Debtor to the Creditor pursuant to an agreement made on 2 December 1997 relating to the Red Hill Landfill Facility."

13 Order 81G r31 of the Supreme Court Rules deals with affidavits accompanying a statutory demand. The rule is in the following terms:

"For the purposes of section 459E(3) of the Law, the affidavit accompanying a statutory demand relating to a debt, or debts, owed by a company must -

(a) be in accordance with Form 7 and state the matters mentioned in that Form;

(b) be made by the creditor or by a person with the authority of the creditor or creditors; and

(c) not state a proceeding number of refer to a Court proceeding, in any heading or title to the affidavit."

14 The affidavit in the present case does not conform with Form 7 in a number of respects. First, Form 7, not surprisingly, does not have a heading which refers to "The Supreme Court of Western Australia" and does not provide for the insertion of an action number. Secondly, par 1 of the accompanying affidavit is not in accord with par 1 of Form 7. However, the discrepancy is relatively minor - the accompanying affidavit does not refer in par 1 to the statutory demand and does not indicate that the affidavit and the demand are linked. Thirdly, the accompanying affidavit does not provide any indication of how the deponent is aware that the debt is due and payable by the plaintiff to the defendant. Form 7 gives the following as an indication of what the deponent should say: "I am the person who, on behalf of the creditor, had dealings with the debtor company that gave rise to the debt.". It is plain that what is intended is that the deponent should give some indication of how it is that he or she knows the amount of the debt. That has not been done in the accompanying affidavit. Finally, the deponent of the accompanying affidavit has not sworn that he believes there is no genuine dispute about the existence or amount of the debt. Such a statement is included in Form 7.

15 It is worthy of note that O 81G r 31 is couched in mandatory language. It is said that the affidavit "must" comply with subr (a), (b) and (c). However, O 81G r 5(1) is in the following terms:

"It is sufficient compliance with this order in relation to a document that is required to be in accordance with a form in Part 1 of the Seventh Schedule if the document is substantially in accordance with a form required or has only such variations as the nature of the case requires."

16 The question then is whether the accompanying affidavit substantially complies with Form 7. The expression "substantial compliance" generally arises in cases of statutory interpretation. Where a statute, properly construed, is mandatory in its terms, there must be strict compliance with its provisions. However, when the statute is directory in nature, substantial compliance may be sufficient. In this case, there is no question of statutory interpretation. Rule 5 makes that plain. It is a question of fact whether or not there has been substantial compliance with the rules: see Woodward v Sarsons [1875] LR 10 CP 733 per Lord Coleridge CJ at 745; Cullimore v Lyme Regis Corporation [1962] 1 QB 718 per Edmund-Davies J at 728. To an extent, because each case is dependent upon its facts, the decided cases are of little assistance. In some cases where there has been virtually no compliance with the statutory requirements the court has, nonetheless, held what has been done is sufficient: see Chanter v Blackwood [1904] HCA 2; (1903) 1 CLR 39. In Scurr v Brisbane City Council [1973] HCA 39; (1973) 133 CLR 242, Stephen J looked at the likely consequences of what had been done as against what might have followed if there had been compliance. The facts of that case, as taken from the headnote, were as follows:

"A company which conducted retail stores applied to the Brisbane City Council for town planning consent to the erection of a large drive-in discount store on land owned by the council which until then had been used as a showground. In purported compliance with its obligation under the City of Brisbane Town Planning Act, s 22, 1964-1971(Q), the council caused notice of the application to be advertised. The advertisement did not precisely identify the site of the proposed building and it contained a minor misprint. It stated that the purpose of the building as 'a shop (Target Discount Shopping Centre)' and included the further description, 'No machinery. The building will be of ONE storey.' There were no other particulars in the advertisement. After considering a large number of objections, the council notified the company and the objectors that it proposed to grant consent. Some of the objectors appealed to the Local Government Court against the proposal."

17 Stephen J, delivering the opinion of the court, was satisfied that s 22 of the City of Brisbane Town Planning Act was a directory enactment and not mandatory. It was clear that the Brisbane City Council had not complied with the terms of the Act. The question was whether or not there had, in the circumstances, been substantial compliance by the City with the terms of its enactment. His Honour concluded (at 254):

"The paucity of information contained in the advertisement is not to be explained by any lack of information available to the council; the council was, in this instance, supplied with quite detailed information concerning the proposed shopping centre even if attention be restricted solely to what appeared in Myer's formal application. This included the precise location of the site, its area, the identity of the applicant, the height and other dimensions of the building, its estimated cost, the estimated number of employees and the very large number of motor cars provision for the parking of which was to be made. The advertisement could and, if it were to serve the function which the legislation intended, should have provided considerably more by way of particulars than it did."

18 It is apparent from a reading of his Honour's decision that he looked carefully at the purpose the legislation was designed to achieve. An examination of the statute demonstrated that the purpose of the advertisement was to fully alert local residents to the nature and extent of any proposed building work to allow an objection to that work to be fully formulated. Armed, as it was, with all the necessary information, the council had simply failed to provide enough detail to allow an objection to be properly formulated. On this basis, his Honour concluded that there had not been substantial compliance with the requirements of the statute.

19 The purpose of the accompanying affidavit in the statutory demand procedure is twofold. First, the corporation is advised that the debt is outstanding and is assured that the party serving the demand has no doubts that the debt is owed. Secondly, and perhaps more importantly, when the matter comes before the court, either on an application to set aside a statutory demand or on a winding-up application, the Court, by reference to the accompanying affidavit can be sure the party issuing the demand has taken steps to satisfy themselves that the debt is outstanding. This may have particular importance on an uncontested winding-up. But even on a contested application to set aside a statutory demand, if there is compliance with the rules in relation to the accompanying affidavit, the court can be satisfied that there is a sound basis on which to begin. The respondent should say there is a debt, that it is still owed and about which there is no genuine dispute. It is then up to the applicant to show that the demand ought be set aside either because there is a genuine dispute or for some other reason. An accompanying affidavit which refers to the deponent's belief that there is no genuine dispute about the debt is important if the issues between the parties are to be clearly delineated.

20 In my view, the accompanying affidavit did not substantially comply with the rules. In reaching that conclusion, I am mindful of the five separate defects which I have referred to above. In particular, I regard the failure of the deponent to swear that there was no genuine dispute between the parties is a significant omission which, if standing alone, may not have justified the conclusion that there was not substantial compliance but, taken with the other defects in the affidavit, is sufficient to conclude in this case that there has not been substantial compliance with the rules.

21 Having determined that the accompanying affidavit does not comply with r 31 or indeed substantially comply with r 31, that in turn means that the affidavit does not satisfy the requirements of s 459E(3)(b). The question then is whether the demand should be set aside under s 459J(1)(b) or whether this is a "mere defect" which is to be excused under s 459J(2). In the Topfelt (supra) decision, Lockhart J commented that the regime under Pt 5.4 might encourage sloppy drafting of statutory demands. However, the omissions in the affidavit in this case are, I think, more than sloppy drafting. In particular, the form of the affidavit gives no indication whether or not the deponent turned his mind to the question of whether there is a genuine dispute in relation to the debt the subject of the demand. I see this as a fundamental issue and one which gives rise to a substantial injustice. I am not satisfied that it is a mere defect and this, in my view, provides, to use the words of the statute, "some other reason why the statutory demand ought be set aside".

22 At the hearing of this application, the plaintiff submitted if I was satisfied that there was an application properly on foot, it should be granted an adjournment to allow it to put before the Court further material in relation to the question of whether or not there was a genuine dispute. Having determined that the demand ought be set aside under s 459J, there is now no need for any further adjournment. Accordingly, I would dismiss the application.

23 I will hear the parties as to the precise form of orders and as to costs.