Hooker Cockram Ltd v Minesco P/L [2001] VSC 356

6. The plaintiff in each proceeding is a company engaged in building construction and is known as Hooker Cockram Limited ("Hooker"). The defendant in each proceeding is a company engaged in the supply of prefabricated aluminium cladding, particularly panels, and is known as Minesco Pty Ltd ("Minesco").

9. Hooker was engaged by a third party to construct the Melbourne Airport Hotel for a cost of approximately $37,000,000. Minesco successfully tendered to supply to Hooker a façade package for the hotel. The tender culminated in a sub-contract agreement dated 12 January 2000 ("the agreement"). It provided for the supply and installation of aluminium panels by Minesco for Hooker at a cost of over $3,600,000. Subsequently, Hooker constructed the hotel and Minesco supplied the requisite aluminium panels for the building.

12. Hooker alleged that a number of variations and consequential charges arose under the agreement. Thereafter, Minesco disputed the variations and charges and a revised sum said by Hooker to be payable by it under the agreement. Discussions ensued between Hooker and Minesco. Some moneys were paid by Hooker to Minesco in March 2001. Ultimately, Hooker withheld $136,181 ("the first sum"), and $44,148 ("the second sum"), as retention moneys purportedly under the agreement. Hooker withheld the retention moneys in relation to purported incomplete and delayed works under the agreement said by Hooker to be the fault of Minesco.

15. Correspondence passed between Hooker and Minesco without satisfaction to either party. Minesco forwarded by ordinary post two separate statutory demands pursuant to s.459E of the Corporations Act 2001. The first demand, dated 12 July 2001, was for the sum of $136,181, being the first sum, and supported by an affidavit of one Tarcisio Cremasco sworn on 9 July 2001. The second demand, dated 12 July 2001, was for the sum of $44,148, the second sum, and supported also by an affidavit of Tarcisio Cremasco sworn 9 July 2001.

18. Hooker issued two separate proceedings to set aside each of the statutory demands pursuant to ss.459G, 459H and 459J of the Corporations Act. At first instance, the proceedings went before the Senior Master for determination. The statutory demands were ordered to be set aside in each matter. Minesco appealed against each of the orders of the Senior Master under Order 77.05 of Chapter 1 of the Rules of the Supreme Court. Hence, the appeal came before me as a hearing de novo in accordance with Order 77.07 and, as a consequence, Hooker had the carriage of the applications to set aside the statutory demands.

21. Hooker relied upon three grounds to set aside the statutory demands. First, that there was a genuine dispute between it and Minesco about the existence or the amount of the debt to which the statutory demands related. Secondly, that Hooker had an offsetting claim against Minesco. Thirdly, the fact that service by Minesco on Hooker of the statutory demands was made on the same day in contravention of the Corporations Act.

24. There was a preliminary threshold point raised by Hooker. The point was that the service of the two statutory demands constituted service of multiple demands on Hooker instead of one demand for both of the debts alleged by Minesco relating to the same matter. As a consequence, it was asserted that the statutory demands constituted an abuse of the statutory procedure and fell within the category of "some other reason" why the demand should be set aside pursuant to s.459J.

27. It is necessary to consider the regime contained in Part 5.4 of the Corporations Act concerned with winding up and insolvency. Section 459C(2) provides that a court must presume that the company is insolvent if during or after the three months ending on the day when the application for winding up was made the company failed to comply with a statutory demand. For present purposes, s.459E of the Act is significant. It provides:

"Creditor may serve statutory demand on company

459E (1) [Demand where debt due and payable and at least statutory minimum] A person may serve on a company a demand relating to:

(a) a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum; or

(b) 2 or more debts that the company owes to the person, that are due and payable and whose amounts total at least the statutory minimum.

459E (2) [Requirements of demand] The demand:

(a) if it relates to a single debt - must specify the debt and its amount; and

(b) if it relates to 2 or more debts - must specify the total of the amounts of the debts; and

(c) must require the company to pay the amount of the debt, or the total of the amounts of the debts, or to secure or compound for that amount or total to the creditor's reasonable satisfaction, within 21 days after the demand is served on the company; and

(f) must be signed by or on behalf of the creditor.

459E (3) [Accompanying affidavit] 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

45. Section 459F of the Corporations Act provides that if at the end of the period for compliance the demand is still in effect and has not been complied with the company is taken to have failed to comply with the demand at the end of the relevant period. Section 459G provides that a company may apply to the Court for an order setting aside a statutory demand served on the company but such application may be made only within 21 days after the demand is served. Section 459H of the Corporations Act empowers the Court to set aside the demand, to vary the demand and to declare that the demand has no effect. Section 459J empowers the Court to set aside a demand on the grounds of substantial injustice or some other reason. It provides:

459J (1) [Power to set aside demand] 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.

459J (2) [Mere defect not ground to set aside] Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect."

53. In relation to the preliminary point it was argued on behalf of Hooker that s.459E(1) of the Corporations Act permitted a creditor to serve a statutory demand in relation to a single debt but that multiple demands could not be served in relation to the same and related debts. Consideration of sub-section (1) reveals that a creditor may serve "a demand" in relation to "a single debt" or "a demand" in relation to "2 or more debts that the company owes to the person". Sub-section (2) of s.459E requires that "the demand" specify "the debt" and "its amount" if it relates to "a single debt" and, if it relates to "two or more debts" to specify "the total of the amounts of the debt". Sub-section (3) of s.459E provides that unless "the debt" or "each of the debts" is a judgment debt the demand must be accompanied by an affidavit that complies with the rules and verifies that "the debt" or "the total amounts of the debts" is due and payable. The words of the section and their meaning are plain.

56. Section 459E contemplates that a creditor may serve one statutory demand in relation to a single debt or one statutory demand in relation to multiple debts. Section 459E(1) provides that a person "may" serve a statutory demand and then proceeds to set out that the demand can be by way of a demand relating to a single debt or a demand relating to two or more debts. In so far as the sub-section uses the expression "may" it allows a creditor to exercise a discretion to serve a statutory demand. The expression is confined to whether or not to serve a demand. The discretion or election does not extend to a discretion to serve a demand relating to a single debt or separate demands for two or more debts. In my view, it could not be said that there is an election by a creditor to serve a demand relating to a single debt or two or more debts provided for by the expression "or" between paragraphs (a) and (b) of s.459E(1). The conjunctive "or" exists between the two alternative scenarios: one demand where there is a single debt or one demand where there are two or more debts.

59. I observe that the Senior Master in Sentinel Financial Management Pty Ltd v Entercorp Finance Pty Ltd (1997) 15 ACLC 201 was concerned with circumstances where seven separate demands were served by a creditor. Four of the demands were addressed to one company, "Sentinel", and three demands were addressed to another company, "Homerton". The Senior Master formed the view that the wording of s.459E(1) of the Corporations Act indicated a requirement that there be one demand for all debts owing to a creditor.

62. In Sentinel, the Senior Master observed (at 202):

"In contemplating the case of a creditor claiming more than one debt, the legislature clearly had a choice. It could have provided that there should be a separate statutory demand for each debt or one demand for all. By s.459E(1) it clearly chose the latter. The reason for this is obvious. Although there have always been conditions to be fulfilled, eg, that the debt demanded be for a sum certain not less than a specific amount, a purpose of the statutory demand procedure has been, and is, to provide a simple and inexpensive means of identifying, and, similarly, achieving the winding up of, insolvent companies. To have opted for a procedure requiring a separate demand for each debt would have been conducive to the frustration of this purpose and the imposition of unnecessary expense and complexity."

66. I agree. The purpose of the legislation, in particular its simple and inexpensive approach of achieving the winding up of insolvent companies, underlies the scheme of the legislation with respect to insolvency.

69. Indeed, so much was recognised in the Explanatory Memorandum to the legislation wherein it was stated that Division 3 of Part 5.4 of the then Corporations Law, now the Corporations Act, in which s.459G is found was " ... intended to be a complete code for the resolution of disputes involving statutory demands".[1] In a different context the High Court in David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1994-95) 184 CLR 265 appeared to approve of such approach.[2] Furthermore, it is instructive to observe the observation of Gummow J in David Grant (at 270) -

"The provisions of the new Part 5.4 constitute a legislative scheme for quick resolution of the issue of solvency and the determination of whether the company should be wound up without the interposition of disputes about debts, unless they are raised promptly."

73. Furthermore, as was observed by the Senior Master in Sentinel (at 203), support for this construction of s.459E(1) is provided by s.459G(1):

"The corollary of the dichotomy in s.459E(1) is that the application provided for by s.459G(1) is an application to set aside 'a statutory demand'. Again, the legislature might have provided for one application to set aside multiple statutory demands. It may be assumed with confidence that it did not because it elected to provide for the act of consolidation by enacting s.459E(1)(b). If that provision be observed, one application to set aside a demand for '2 or more debts' is all that is required. This is so whether (as in these cases) each of the debts demanded exceeds the statutory limit, or not."

77. Relevantly, in the bankruptcy jurisdiction the courts have taken a contrary view with respect to reliance upon aggregate judgment sums in a single bankruptcy notice. In a number of authorities where a bankruptcy notice for an aggregate amount based on two or more separate judgments was relied upon the notice was held to be a nullity and void: see Re Bond; ex parte Hongkong Bank of Australia Limited (1991) 33 FCR 426; G.P.W. Aussi Exports v Latin (1998) 85 FCR 324; Mercantile Mutual Custodians Pty Ltd v O'Brien [2000] FCA 1627; (2000) 179 ALR 618.

80. These authorities were largely based upon principles expressed by the English Court of Appeal in Re Low; ex parte Argentine Gold Fields (1891) 1 QB 147 where Lord Escher, MR, in whose judgment Lopes and Kay LJJ concurred, said:

"In the section itself one debt only is spoken of, and the rule and the form of notice carry out the same idea. That this was intentional appears from a comparison with s.6, sub-s.(1)(a), where in a case where two or more creditors may join in an act this is expressed in terms. The power to join two or more judgment debts in one notice could equally have been expressed, and, as it has not, I think it must have been meant that only one judgment debt should be the subject of each bankruptcy notice. Another reason for coming to the same conclusion is that otherwise there would be taken away from the debtor a right that he undoubtedly has to satisfy one of the notices, or to raise a counterclaim, set-off, or cross-demand to it, and so prevent its being used for the presentation of a bankruptcy petition."

84. Of course, under s.459E of the Corporations Act the provision in sub-s.(1) is cast in entirely different terms to the Bankruptcy provision.

87. In the present case, the debts arose out of the same agreement between the parties. It was not open to Minesco to serve multiple demands under the legislation where the debts arose out of the same transaction. It follows that Hooker has made out its preliminary point. Even if this were not so, the question would be open as to whether it was oppressive on the part of Minesco to serve two statutory demands in relation to the same agreement. There will be cases where service of multiple demands of itself would constitute oppression and otherwise provide justification for the exercise of the discretion under s.459J of the Corporations Act. It will be a question of fact in those circumstances as to whether a creditor is entitled to demand a single debt by a company or two or more debts. The difficulty a court faces in determining a submission of oppression or abuse of process where a creditor elects to serve two or more demands in relation to two or more debts rather than using a single demand is that the court can risk becoming immersed in a determination of the nature of the debt and its genuineness or otherwise. The Court of Appeal, by way of obiter, has expressed the view recently that courts should be cautious not to become embroiled in such determinations where it may risk an expression of a point of view as to the subject debt: see Spacorp Australia Pty Ltd v Myer Stores Limited (2001) VSCA 89, (unreported judgment of the Victorian Court of Appeal delivered 14 June 2001 per Brooking and Charles JJA at paras [4] and [5]).

90. The fact that the two demands were served necessitated Hooker having to issue two separate proceedings by way of originating process to set aside each of the statutory demands. I observe that the affidavits relied upon in each of the proceedings are virtually identical. Necessarily, this course has required Hooker to embark upon duplication of proceedings and costs. As already observed, bearing in mind the caution expressed by the Court of Appeal in Spacorp, I have hesitation in venturing further. Each case will be one for the Court to form a view upon the basis of the affidavit in support and any affidavit in opposition. I am satisfied in this case that the fact of service of two separate demands constituted in the circumstances, oppression, for the purposes of s.459J. It follows, therefore, that if I was required to do so I would exercise the discretion to set aside the statutory demands in each proceeding pursuant to s.459J on the basis of oppression.

93. In the event it was necessary to do so I turn to consider whether there is a genuine dispute between the parties in any event. Having considered the matters contained in the affidavits filed on behalf of Hooker and the affidavits upon which Minesco relied I am satisfied that there is a dispute between the parties in each proceeding concerning a building contract. It seems to be a genuine dispute and I say no more: see Spacorp, supra; also Mibor Investments Pty Ltd v Commonwealth Bank [1993] FCA 455; (1993) 11 ACLC 1,068. Furthermore, if it was necessary to do so I am satisfied on the affidavits of Hooker that it has an off-setting claim that exceeds the subject debt in each proceeding.

96. In light of my findings it is unnecessary to consider the complaint by Hooker with respect to service of the statutory demands.

99. In these circumstances, therefore, I am satisfied that the statutory demands in both instances should be set aside. It follows that the appeals against the Senior Master should be dismissed.

[1] Explanatory memorandum to the Corporate Law Reform Bill 1992, para. 688.

[2] Per Gummow J (at 269-270) with whom Brennan CJ and Dawson, Gaudron and McHugh JJ agreed with respect to the citation of the Law Reform Commission Report No. 45, General Insolvency Inquiry ("the Harmer Report"), in particular, para 688 of that report.