MATTER : Section 459G, s 459H and s 459J of the Corporations Law of Western Australia

Corporations Law - Application to set aside statutory demand - Defect in affidavit verifying demand - Whether demand to be set aside under s 459J - Contents of affidavit O 81G r 67(3) - Leave to include hearsay material in affidavit - Order made nunc pro tunc - Application under s 459G - Offsetting claim under s 459H - Whether hearsay evidence admissible

AZED Developments Pty Ltd v Frederick & Co Ltd (In Liq) (1994) 14 ACSR 54

Besser Industries (NT) Pty Ltd v Steelcon Constructions Pty Ltd [1995] FCA 1163; (1995) 129 ALR 308

Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178

Ebert v The Union Trustee Co of Australia Ltd [1960] HCA 50; (1960) 104 CLR 346

Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 25 ACSR 675

Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund [1996] FCA 822; (1996) 21 ACSR 581

Guss v Johnstone [2000] HCA 26

Janssen-Cilag Pty Ltd v Pfizer Pty Ltd [1992] FCA 437; (1992) 37 FCR 526

Jesserson Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 13 ACSR 787

Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449

Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 158 ALR 333

Scanhill Pty Ltd v Century 21 Australia Pty Ltd [1993] FCA 618; (1993) 12 ACSR 341

Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294

Warea Pty Ltd v Waterloo Industries Pty Ltd (1986) 66 ALR 537

Zenaust Imports Pty Ltd v Alembic Chemicals Works Co Ltd (1998) 28 ACSR 465

1 MASTER SANDERSON: This is an application to set aside a statutory demand. The application is brought on two separate grounds. First, it is said that there is a defect in the affidavit verifying the demand and the demand should therefore be set aside. Reliance is placed on s 459J. Further, and in the alternative, it is said that the applicant has an off-setting claim against the respondent. The application on this ground is made under s 459G and falls to be determined under s 459H.

2 To understand the nature of the application it is necessary to say something of the facts. The respondent issued a statutory demand directed to the applicant which is dated 7 February 2000. As is required by s 459E(3) of the Corporations Law, the demand was verified by affidavit. The affidavit is sworn by Nunzio Anthony Joseph Gumina ("Gumina") and is found as Annexure "BJM-1" to the affidavit of Bruce John Monteath sworn 29 February 2000. The first three paragraphs of the affidavit identify the parties and the deponent states that he believes the applicant is indebted to the respondent in the sum of $109,305.50. The remainder of the affidavit reads as follows:

"4. By an agreement executed on or about 19 March 1997 and stamped 18 June 1998 made between the Creditor as trustee of the NAJ Family Trust No 2, the Debtor as Trustee for the Gabstone Trust and me ('the Agreement'), the Debtor agreed inter alia to pay to the Creditor by way of bank cheque to Ferrier Hodgson (made payable to Ferrier Hodgson's Trust Account) the sum of $200,000 being the Purchase Price for the purchase by the Debtor of the Creditor's share in the Partnership as defined in the Agreement.

5. Under the Agreement, the Debtor agreed to pay the Purchase Price in the following manner:

(a) By the payment of $50,000 (less the sum of $6,803.35 due to the Debtor) on the date of the signing of the Agreement by the Creditor;

(b) By the payment of a further sum of $50,000 within 60 days after the Settlement Date as defined in the Agreement as being the latter of:

(i) the date the Liquor Licence referred to in the Agreement was transferred by the Creditor to the Debtor; or

(ii) the date that the order referred to in Clause 17.1 of the Agreement was obtained from the Family Court of Western Australia;

or any later date agreed to in writing be [sic] the parties;

(c) By the payment of $100,000 within 12 months of the Settlement Date.

6. Under the Agreement the Debtor further agreed to pay to the Creditor interest at the Prescribed Rate (defined in the Agreement to mean the Reference Interest Rate (expressed as a rate per annum) from time to time applied by the Australian and New Zealand Banking Group as published in the Australian Financial Review from time to time), effective on the 21st day of each month on the balance of the Purchase Price payable, such interest to be calculated on a monthly basis on the 21st day of each month and computed on a non-compounding basis from the Settlement Date until the actual date of payment.

7. By agreement in writing between the Creditor and the Debtor it was agreed that the Settlement Date was 23 November 1998.

8. I am informed by Martin Jones of Ferrier Hodgson and verily believe that the Debtor has failed and refused to pay the final installment of $100,000 referred to in paragraph 5(c) herein which became due and payable on 23 November 1999.

9. I am further informed by Martin Jones of Ferrier Hodgson and verily believe that from 21 December 1998 to 20 November 1999 (both dates inclusive) the Prescribed Rate was 7.95% per annum, and from 21 November 1999 (inclusive) to present the Prescribed Rate has been 8.25% per annum.

10. I therefore verily believe that the interest payable on the outstanding sum of $100,000 from 23 November 1998 to 21 January 2000 is in excess of but say $9,305.50.

11. I therefore verily believe that the amount of $109,305.50 specified in the accompanying demand is due and payable by the Debtor to the Creditor.

12. I verily believe there is no genuine dispute about the existence or amount of the debt referred to herein to which the accompanying demand relates."

3 The applicant submits that this affidavit does not comply with the Corporations Law as conditioned by the Corporations Rules found in O 81G of the Rules of the Supreme Court. (It is to be noted that this application fell to be determined under the provisions of O 81G as they stood prior to 1 June 2000.) Section 459E(3) 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

4 The word "rules" is defined in s 9 of the Corporations Law to mean the Rules of the Supreme Court. In other words, the affidavit accompanying the demand must verify the debt and comply with the provisions of O 81G. Rule 67 deals with the form of affidavits in support of a statutory demand. Rule 67(3) reads as follows:

"Unless the Supreme Court orders to the contrary, an affidavit referred to in paragraph (1) must be made by a person who can depose to the indebtedness of the company from his own knowledge."

5 Section 459J of the Corporations Law, upon which the applicant relies, is in the following terms:

"(1) On an application under section 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 because of a defect."

6 The applicant submitted that the affidavit of Gumina was defective because he could not depose to the indebtedness of the respondent from his own knowledge. A reading of par 8 and par 9 of Gumina's affidavit makes it plain that, in verifying the indebtedness of the respondent to the applicant, Gumina is relying upon what he has been told by Martin Jones of Ferrier Hodgson. The applicant submits that these two paragraphs are clearly hearsay and fall foul of the requirements of r 67(3). It is not said that there is a defect in the demand itself, but in the affidavit accompanying the demand. That, in turn, means that any order made should be made under s 459J(1)(b). It is not then necessary for the applicant to show that substantial injustice will be caused by the defect because that is only required when the defect is in the demand.

7 In support of his submission, counsel for the applicant relied upon the decision of Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746. The facts in this case (so far as they are relevant to this application) taken from the headnote, were as follows:

"The demand included amounts which were not in fact due and payable until after the date of the demand. In addition, the affidavits verifying and demands stated that the amounts were due and payable and were in the form of an affidavit to be filed in the Supreme Court of New South Wales. The affidavits also failed to comply with the Supreme Court Rules in that they did not state the deponent's source of knowledge, that the deponent believed the matters to be true, nor that he believed that there was no genuine dispute about the existence or the amount of the debts."

8 Bryson J took the view that the affidavits were defective and that the demands ought be set aside under s 459J. His Honour said (at 758):

"I see a clear distinction between a defect in a demand as a ground for setting aside the demand, and a defect in an affidavit purportedly verifying the demand as a ground for setting aside the demand. An affidavit which is incorrect has a different and higher order of importance to a demand which is incorrect. There are some deficiencies in procedure which the court should not allow to be successful, whether or not they have any high practical significance in terms of justice between the parties in the instant case. ... it seems to me that the opportunity ought to exist for the court to register clearly and appropriately the importance of the requirement of verification of demands. I cannot see the requirement of verification, and the responsibilities in relation to it which fall both on the officer swearing the verification and on the creditor as no more than another form to fill in, errors in which the debtor can have put right on application to the court."

9 It is apparent from the facts that in Portrait Express, his Honour was dealing with an altogether different and rather more serious error than is the case here. As I have indicated above, Gumina's affidavit deals in some detail with the debt and the way it arose. In the Portrait Express case the affidavit in support of the demand was drawn in a sloppy, slapdash fashion. While I would agree with his Honour's statement of principle I am not satisfied that, in this particular case, defects in the affidavit are such as to warrant the demand being set aside.

10 Counsel also relied upon the decision of Austin J in Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11. In his reasons, his Honour dealt with the distinction which might be drawn between s 459J(1) and s 459J(2). His Honour referred to the decision of the Full Federal Court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 and said (at 15):

"In that case, the Full Court of the Federal Court of Australia (Northrop, Merkel and Golberg JJ) noted the distinction drawn by s 459J between a defect 'in the demand', which is only to be set aside if substantial injustice will be caused by the defect unless the demand is set aside, and any other defects, including a defect in relation to the demand rather than in the demand itself. On the Full Federal Court's view, defects in relation to the demand are to be dealt with under s 459J(1)(b) and 459J(2), rather than under s 459J(1)(a), and therefore it is not necessary for the debtor to prove that substantial injustice will be caused unless the demand is set aside. Of course, as a differently constituted Full Federal Court pointed out in Equuscorp Pty Ltd v Perpetual Trustees WA Limited (1997) 25 ACSR 675, the 'other reason' for the purposes of s 459J(1)(b) may itself involve substantial injustice if the notice is not set aside, but it need not do so."

11 On this formulation of the test the question is whether there is, in the circumstances of this case, "some other reason why the demand should be set aside". The applicant says that reason is the failure to comply with the provisions of r 67(3). In Kezarne (supra), his Honour dealt in some detail with the decision of McLelland CJ in Equity in B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433 and the Portrait Express case. His Honour concluded that there was no real difference in the statements of principle to be found in these cases. His Honour concluded (at 18):

"In my opinion, if (contrary to Bryson J's view) s 459J(2) extends to the defects in the affidavit, the reasoning in these paragraphs is still applicable. The court should not act under s 459J(1)(b) unless, in Bryson J's words, there is some good reason relevant to the purposes for which that provision exists - or in the Full Federal Court's words in Spencer Constructions, a reason relevant to the 'legislative intent'. Disregard of the court's rules with respect to verification raises issues which go beyond a 'mere' defect of the kind referred to in s 459J(2), for the reasons set out by Bryson J."

12 It is worthy of note that Austin J then went on to set out six separate areas where the affidavit in support of the demand was defective (see 19). Reading his Honour's decision it is apparent that, as in the Portrait Express case, the affidavit in support of the demand was carelessly drawn. Once again, it seems to me to be of an altogether different order of magnitude from the defects in this case. I am not satisfied that, on the particular facts of this case, the defects in the affidavit are such as to justify the demand being set aside.

13 If I am wrong in that conclusion I would be prepared to order, pursuant to r 67(3), that Gumina's affidavit can contain statements of information and belief. The question which arises under r 67(3) is whether leave can be granted nunc pro tunc so as to allow the hearsay material in the affidavit, in effect, retrospectively. In the circumstances, it is difficult to see why this should not be possible. It would be most unusual if an application was made under r 67(3) to allow hearsay material in an affidavit before the statutory demand was served. Of course, there is no reason why such an application should not be made and it is possible to imagine circumstances where the making of such an application was prudent. But there is also no reason either in law or as a matter of principle why an application should not be made when the question before the court is whether the statutory demand ought be set aside. In reaching that conclusion, I am conscious that the jurisdiction to make an order nunc pro tunc is to be exercised cautiously and only where there is something exceptional in the facts to justify the making of such an order: see Kuwait Airways Corporation v Iraqi Airways Co & Anor (No 2) [1994] 1 WLR 985; Bingham & Ors v England (1996) 17 WAR 226 per Kennedy ACJ at 234 - 240.

14 Based on the foregoing, it seems to me that the proper order I should make in this case is to refuse to set aside the application under s 459J. That leaves for determination the question of whether the demand ought be set aside under s 459G.

15 In support of the application to set aside the statutory demand the applicant filed two affidavits of Bruce John Monteath ("Monteath"), the first sworn 29 February 2000, the second sworn 3 May 2000. Dealing with the first of these two affidavits, the first three paragraphs identify the parties and annexe the statutory demand. Paragraphs 4 and 5 provide some background to what is said to be the off-setting claim. Paragraph 6 of the affidavit contains the essentials of the applicant's claim. The respondent objects to par 6 on the basis that it contains hearsay material and is inadmissible. To properly understand the arguments of the applicant and the respondent, I will quote par 4 to par 6 of Monteath's first affidavit:

"4. The applicant and respondent were, at all material times, the joint lessees of premises known as Old Papa's located at 17 South Terrace, Fremantle (the 'Premises') pursuant to a lease dated 30 January 1996 and stamped 30 May 1996 (the 'Lease'). Camisa Nominees Pty Ltd, Fieldgate Enterprises Pty Ltd, and Corado Pizzale and Maria Pizzale were joint lessors under the Lease (the 'Lessors').

5. I verily believe that the applicant has a genuine claim against the respondent by way of counterclaim, set-off or cross-demand (the 'Offsetting Claim').

6. The Offsetting Claim arises out of representations made by Mr Gumina, in his capacity as director of the respondent, purportedly for and on behalf of the applicant, to Mr Gumina's accountant, Mr John Osborne, for the purpose of communication thereof by Mr Osborne to the representative of the Lessors, Mr Paul Bafile, which have caused losses to the applicant. These representations made by Mr Gumina were to the effect that the respondent and applicant, as lessees of the Premises, agreed a compromise to reinstate the Lease following purported service of a notice of default by the lessors, but without the two 5-year options which were in the original Lease. These representations were made without the authority of the applicant. As a result of these representations, the applicant and Lessors have been in dispute and engaged in successive proceedings in the Supreme Court of Western Australia which have caused the applicant losses and which, but for the representations, would not have eventuated. In the first of those proceedings, the Lessors relied on Mr Osborne, on behalf of the applicant, having agreed to compromise issues under the notice of default on the basis of reinstatement of the Lease without the two 5-year options. Those proceedings (CIV 1034 of 1999) were settled, but at substantial costs to the applicant and on terms which have now given rise to further disputes and further proceedings now pending in the Supreme Court (CIV 2346 of 1999) in which the applicant has had to obtain an interlocutory injunction to restrain termination of the lease."

Paragraph 7 of the affidavit makes reference to five documents. Three of these are letters passing between various parties. The remaining two documents are copies of statements of claim issued in proceedings referred to in par 6. Objection was taken to par 7 on the basis that it contained hearsay material. I am not satisfied this is the case. I think what can be said with respect to par 7 is that the deponent is producing the documents to attest their existence, not to establish the truth of what is contained within the documents. On this basis I would not strike out par 7. But that still leaves the question of whether or not par 6 in its present form is admissible.

16 Before dealing further with this question of the admissibility of evidence, it is worthy of note that it is difficult to see how Monteath or the applicant could provide direct evidence of the matters referred to in par 6. Mr Gumina is a director of the respondent and is hardly likely to provide the applicant with an affidavit dealing with matters referred to in par 6 of Monteath's affidavit. Mr John Osborne was the accountant for Gumina and has, himself, been sued by the applicant. The lessor's representative, Mr Bafile, might be able to give evidence as to what was said to him by Osborne or Gumina, but that says nothing about the authorisation of Osborne by Gumina to make representations. The applicant is in a difficult position.

17 From time to time the question has arisen as to whether or not an application to set aside a statutory demand are proceedings which are interlocutory or final. The answer to that question is important in at least two respects. First, in relation to any appeal, if the relief is final an appeal lies as of right. If the application is interlocutory, then leave to appeal is required. This question was determined by the Full Court in Asian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59. The court concluded that the relief sought was final and consequently an appeal would lie as of right. In reaching this conclusion the court followed the New South Wales case of A-Pak Plastics Pty Ltd v Merhone Pty Ltd (1995) 13 ACLC 896.

18 The second, and perhaps equally important question, is whether on an application to set aside a statutory demand an affidavit can contain statements of information and belief. Part 9 of O 81G, dealing with application for winding up by the court and within which r 67 is to be found, is silent on the question. That leaves r 3, a general catch-all provision which applies the Rules of the Supreme Court where specific provision is not made within O 81G. Order 37 r 6(1) requires that any affidavit filed in proceedings "must be confined to such facts as the deponent is able of his own knowledge to prove". Order 37 r 6(2), which deals with interlocutory applications and allows statement of information and belief will only be applicable if the proceedings are interlocutory in nature. In Mibor Investments Pty Ltd v Commonwealth Bank [1994] VicRp 61; [1994] 2 VR 290 Hayne J concluded that the proceedings were interlocutory and statements of information and belief were consequently admissible. That case has consistently been followed in this jurisdiction. However, after the Asian Century Holdings decision it appears that that approach may be wrong and only evidence admissible under O 37 r 6(1) can be relied upon.

19 In the Mibor Investments Pty Ltd case (supra) Hayne J did leave open the possibility of treating evidence in an application on the basis that it was interlocutory, despite the fact that for the purposes of an appeal the proceedings may be regarded as final: see 295. His Honour referred to Cowie v State Electricity Commission of Victoria [1964] VicRp 103; [1964] VR 788 and to the earlier English decision of Gilbert v Endean [1878] 9 Ch D 259, per Cotton LJ at 268. In Cowie, Gowans J refers to two English decisions: Rossage v Rossage & Ors [1960] 1 All ER 600 and Re J (An Infant) [1960] 1 All ER 603. The Full Court in the Asian Century Holdings decision was dealing with the question of whether or not an order made under s 459G was final or interlocutory for the purposes of appeal and was not directly concerned with rules of evidence. On the basis of what Hayne J said in the Mibor decision it is, as counsel submitted, at least arguable that Asian Century Holdings does not determine what evidence may be adduced in support of an application such as the present. Furthermore, in the Asian Century Holdings decision, having decided that proceedings at first instance were final and not interlocutory, the court went on to consider the evidence without determining that any of it was inadmissible - that, despite the fact at first instance I have approached the matter on the basis the proceedings were interlocutory.

20 It is I think possible to decide this case without finally determining what evidence is admissible in an application such as this. Counsel for the applicant submitted that, properly viewed, par 6 did not seek to actually prove anything. What it sought to do was to give evidence of the nature of the dispute between the applicant and the respondent with a view to establishing that there was indeed a genuine dispute. Counsel pointed out that it is necessary for an applicant to show that there is a genuine dispute in the sense that there is a serious question to be tried. It is not for an applicant to establish its case, even to the extent of showing that it has a prima facie case. It was submitted that the evidence in its present form was sufficient. The counter argument, put with some force by counsel for the respondent, was that the evidence, however viewed, was inadmissible and the only proper course was that it should be ignored.

21 I am satisfied that the approach adopted by the applicant is the correct approach in a case such as this. What Monteath has done is sworn that there is a dispute and he has given an outline of the nature of that dispute. The sworn evidence does not establish, and need not establish, whether the claim by the applicant against the respondent will be successful. All that Monteath is seeking to do is to establish the dispute is genuine. In my view, par 6 is admissible for that purpose and in the context of these proceedings.

22 The second affidavit of Monteath sets out amounts which would make up the off-setting total under s 459H(2). The total amount of the off-setting total is just over $110,000. That would mean, if the applicant establishes it has a genuine off-setting claim, the substantiated amount would be greater than the admitted total, meaning the statutory demand should be set aside. Counsel for the respondent accepted that if I concluded there was a genuine off-setting claim then the evidence established that it was greater than the admitted total and the demand should be set aside. Counsel, however, disputed that there was an offsetting claim and submitted there was no serious question to be tried.

23 Counsel for the respondent went into some detail in criticising the evidence in support of the applicant's offsetting claim. It was submitted that there was no evidence that Gumina made representations, as alleged, to Mr Osborne. It was further submitted that there was no evidence that Mr Osborne communicated the alleged representations to Mr Bafile. Further, it was said that there was no cause or connection between the alleged representations and any dispute with the lessors which gave rise to the alleged losses. The submissions made on behalf of the respondent required a detailed analysis of the evidence such as it is and the Supreme Court actions as represented by the two statements of claim annexed to Monteath's affidavit. Without analysing the respondent's submissions in detail, it is sufficient if I say that I am satisfied on the balance of the evidence that there is a serious question to be tried. This is not the appropriate forum to make any findings of fact or determine any issues as between the parties. If I were to accept the respondent's submissions that is what I would be called upon to do.

24 In all the circumstances, I am satisfied that the statutory demand ought be set aside. I will hear the parties as to the precise form of orders.