BETWEEN : HORIZON STAR PTY LTD (ACN 009 344 174)

Corporations - Director's duties - Authority to issue statutory demand - Whether a director has authority without a meeting of directors being held - Application to set aside notice of statutory demand - Content of affidavit in support

Corporations Act 2001 (Cth)

AW & LM Forrest Pty Ltd v Beamish [1998] NSWSC 442; (1998) 146 FLR 450

Complete Windscreen Service Nominees Pty Ltd v Nielsen & Moller Windscreens Pty Ltd (1995) 13 ACLC 1766

D & S Group Companies Pty Ltd v O'Connor Investments Pty Ltd (1997) 15 ACLC 1794

Daewoo Australia Pty Ltd v Suncorp Metway Ltd [2000] NSWSC 35; (2000) 18 ACLC 212

Danish Mercantile Co Ltd v Beaumond [1951] Ch 680

East v Bennett Brothers Ltd [1911] 1 Ch 163

Greer v Kettle [1938] AC 156

MacKay v Brice (1979) 25 ALR 597

Marketing Specialists International Pty Ltd v Famadu Pty ltd (1988) 6 ACLC 938

Mibor Investments Pty Ltd v Commonwealth Bank [1994] VicRp 61; (1994) 2 VR 290

Petersen v Moloney [1951] HCA 57; (1951) 84 CLR 91

Poliwka v Heven Holdings Pty Ltd (1992) 10 ACLC 641

Re Action Waste Collections Pty Ltd (1976) 2 ACLR 641

Re London Flats Ltd [1969] 2 All ER 711

Robowash Pty Ltd v Robowash Finance Pty Ltd [2000] WASCA 409; (2001) 19 ACLC 393

Sharp v Dawes [1876] 2 QBD 26

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

Wallington v Kokotovich Constructions Pty Ltd (1993) 11 ACLC 1207

1 MURRAY J: I have had the advantage of reading in draft the reasons to be published by McKechnie J. I agree with them and have nothing to add to them. I too would allow the appeal and set aside the statutory demand dated 25 June 2001.

2 Although the document was a statutory demand within the meaning of the Corporations Law because it purported to be such: s 9, definition of "statutory demand", it ought to have been set aside under s 459J(1)(b) because it was a nullity.

3 The learned Master found that it had not in fact been issued by and served upon the appellant by the respondent. The document was not, in the relevant sense, signed by Mrs Franke "on behalf of the creditor": s 459(2)(f). There had been no board meeting and, as a director of the respondent, she was not otherwise authorised to exercise the respondent's powers: s 198A(2) and s 198D.

4 In my opinion, the points raised by the respondent by way of its notice of contention could not lead to the dismissal of the appellant's application to set aside the statutory demand. They are technical points incapable of demonstrating the necessary irremediable substantial injustice: s 467A.

5 WHEELER J: I am in agreement with the reasons of McKechnie J, save for one matter, which affects the way in which I would dispose of the appeal.

6 In my view, the affidavit of Mr Paiker sworn 31 July 2001 is not capable of correcting the affidavit of Mr Reimers sworn 19 June 2001. It is, at most, simply an expression of a view that Mr Reimers was in error in swearing, as he did, that the demand annexed to his affidavit was the relevant statutory demand. If there is error, it could be corrected by Mr Reimers' further affidavit deposing to his error, and correcting it.

7 It seems to me therefore that the error, while curable, has not been corrected.

8 In those circumstances, while I would allow the appeal, I would remit the matter to the Master, so that the appellant may apply to bring further material before him, if it wishes to do so. I express no view as to whether such an application ought to succeed.

9 This appeal from the decision of Master Bredmeyer refusing to set aside a notice of statutory demand raises two points for consideration. A further point is raised in the respondent's notice of contention. The facts are fully set out in the Master's judgment: Horizon Star Pty Ltd v Carina Holdings Pty Ltd [2002] WASC 23. The first point challenges the authority by which the notice of demand came to be signed by Mrs Franke on behalf of Carina Holdings Pty Ltd. The second point raises arguments as to why the Master was in error in failing to find there was a genuine dispute. I can quickly dispose of the second point.

10 In view of the deed of transfer of shares executed by Mr Reimers on or about 19 February 2001, the Master was correct in holding there was no genuine dispute about the debt. The deed acknowledged that loans were advanced by Carina Holdings Pty Ltd to Horizon Star Pty Ltd. The deed also acknowledged that the loans were required to be repaid if the conditions precedent were not met. Those conditions were not met. I agree also with the Master's conclusion that the failure of the accounts to 31 December 2000 to show any liabilities to Carina Holdings in no way detracts from the significance of the subsequent deed where the loans are admitted.

11 That leaves for consideration the authority point.

12 The issue is dealt with by the Master at [26]:

"I fail (sic) to consider a submission of the plaintiff which logically should have been considered earlier, namely, that Mrs Franke, one of the two directors of Carina, had no authority from Carina to instruct a solicitor, Mr Kevin Staffa, to issue the statutory demand on behalf of Carina against Horizon. Mr Reimers says he is the other director of Carina (they, incidentally, each own one share) and that no meeting of the board of directors of Carina was held to authorise the issue of the statutory demand. It is true that no meeting of the board of Carina was held to authorise the issue of the statutory demand. But I consider that there is no merit in the argument that the demand is thereby invalid. Mr Reimers is the only director of Horizon which is said to owe Carina $145,700, a debt admitted by Carina in a deed. If a directors' meeting of Carina was held to consider ways of collecting the debt, Mr Reimers would have a clear conflict of interest and would have to withdraw from the meeting. He cannot use his position as a director of Carina to cause advantage to another entity such as Horizon or to cause detriment to Carina: see s 182(1) of the Corporations Law. To do so is a criminal offence: see s 184(2) of the Law. I consider there is no invalidity in the demand issued."

13 There were two directors of Carina Holdings, Mrs Franke and Mr Reimers. On 25 June 2001, Mrs Franke signed the demand in her capacity as director. In the accompanying affidavit she deposed:

"1. I am a director of Carina Holdings Pty Ltd (ACN 094 038 589) ('Creditor') and I am authorised to make this affidavit on the Creditor's behalf."

14 The Master accepted that no meeting of the board of directors of Carina Holdings was held authorising the issue of the statutory demand.

15 The short submission by the appellant is that there was no authority to issue the statutory demand on behalf of Carina Holdings. In consequence, the statutory demand is a nullity and must be set aside. In the circumstances of this case the submission must be accepted.

16 The issue of authority is a question of fact: Dennis Hanger Pty Ltd v Kanambra Pty Ltd [1992] FCA 56; (1992) 10 ACLC 284.

"... Reimers arranged for a new company, Carina, to be incorporated in about August 2000, as the vehicle for the proposed purchase of a 50 per cent interest in Horizon. Horizon paid for the costs of incorporating Carina. It was a $2 company. Philip Reimers was to own one share and Mrs Franke, who was Atkins' de facto wife, was to own the other share. Both Mrs Franke and Mr Philip Reimers were made directors. "

18 The company did not appear to trade. The statutory demand was issued in respect of advances made by Carina Holdings to Horizon Star; in other words the statutory demand concerns the very matter for which the company had been formed.

19 Mrs Franke's statements of authority were prima facie evidence of the facts: Deputy Commissioner of Taxation (Vic) v Players Entertainment Network Pty Ltd (1988) 6 ACLC 902. However, the prima facie evidence of authority was displaced by the finding of the Master that no meeting was held to authorise Mrs Franke to issue the demand. This finding is in accord with the evidence of Mr Reimers in an affidavit dated 19 July 2001, par 6. Mrs Franke swore an affidavit on 15 August 2001 which she wished to rely upon in the proceedings. Although she deposed to the fact that she was authorised to make the affidavit on Carina Holdings' behalf, she did not respond to or refute Mr Reimers' assertions that she was not authorised to issue the statutory demand.

20 Mrs Franke had no ostensible authority to act on behalf of Carina Holdings. Her only function was to participate in proceedings of the Board: Northside Developments Pty Ltd v Registrar General [1990] HCA 32; (1989-90) 170 CLR 146 per Dawson J at 205; Smith v Henniken-Major & Co (A Firm) (2002) 3 WLR 1848. The Master may be right in his surmises as to what might have occurred if a meeting had taken place. However, the fact remains that no meeting was held and in consequence no authority was given to Mrs Franke to issue the notice of statutory demand.

Notice of contention: Incompetence of proceedings

22 Horizon Star has filed a notice of contention as follows:

"3. Horizon Star's Application to set aside Carina's creditor's statutory demand was incompetent because:

a) section 459G(1) of the Corporations Law required the Application (including a supporting Affidavit) to be filed within 21 days of the date of service of the statutory demand; and

b) Horizon Star failed to file an adequate Application within that timeframe because the Affidavit filed in support (Affidavit sworn 19 July 2001) failed to annexe a copy of the creditor's statutory demand sought to be set aside.

4. The Affidavit filed by Horizon Star in support of the Application to set aside Carina's statutory demand did not disclose grounds on which the Master could conclude that there was a genuine dispute as to the existence of the debt the subject of the creditor's statutory demand and required by section 459G."

23 The matter arises in a curious way. Horizon Star filed an application to set aside the statutory demand on 19 July 2001 on the grounds appearing in the accompanying affidavit. The application correctly described the statutory demand as being dated 25 June 2001. The accompanying affidavit was that of Phillip Whitney Reimers, also sworn on 19 July 2001. By par 3, Mr Reimers deposes:

"I annex as annexure 'A' a copy of the statutory demand and supporting affidavit that was served on Horizon on 29 June 2001."

24 It appears that there was an earlier notice of statutory demand. Annexure A is a notice of that statutory demand for $145,700 signed by Mrs Franke dated 12 June 2001, the affidavit accompanying that statutory demand being also dated 12 June 2001.

25 On 31 July 2001, Mr Paiker, the solicitor for Horizon Star, swore an affidavit as follows:

"2. On 19 July 2001 when the plaintiff, Mr Philip Whitney Reimers, swore his affidavit in support of his application to set aside the statutory demand I inadvertently caused a copy of the defendant's statutory demand dated 12 June 2001 to be annexed to the plaintiff's affidavit.

3. I annex as annexure 'A' a copy of the statutory demand and affidavit by Janice Irene Franke dated 25 June 2001 which should have been annexed to the plaintiff's affidavit.

4. I apologise to the court for any inconvenience and request that the Court read the plaintiff's affidavit sworn on 19 July 23001 as if annexure 'A' to this affidavit were properly annexed to that affidavit."

26 He then annexed the statutory demand of 25 June 2001 and the affidavit of same date. Mr Paiker does not depose that he had the authority of Mr Reimers to make an apparent correction to the affidavit.

27 Carina Holdings argues, in essence, that strict compliance with the 21 day rule is required: David Grant & Co Pty Ltd v Westpac Banking Corp [1995] HCA 43; (1995) 184 CLR 265. The affidavit of Mr Paiker was outside the time and it is not open for the appellant to expand its case in this way.

28 By s 467A of the Corporations Act the Court must not dismiss the application merely because of a defect or irregularity in connection with the application unless substantial injustice has been caused that cannot otherwise be remedied.

29 I do not consider substantial injustice has been caused. In the present case, the application was filed and served within time: Corporations Act, s 459G(3). The mistake was rectified.

30 In David Grant there was no application filed at all.

31 The issue is whether there was a defect in the application which is able to be corrected. If so, did Mr Paiker's affidavit correct it? Does it raise new matters or merely expand the existing matters? Horizon Star argues that, while it accepts that it cannot expand the case, it was open for it to amplify and clarify its claim.

32 The procedure is certainly irregular, to say the least, and displays a casual attitude to the solemnity of an oath. Mr Reimers has never sworn that he has made any mistake in his affidavit.

33 It may be accepted that an affidavit supporting the application to set aside a statutory notice of demand must contain, as a minimum, a statement of material facts on which Horizon Star intends to rely to show a genuine dispute.

34 It may also be accepted that the affidavit may be supplemented outside the 21 day period but new matters cannot be raised: Graywinter Properties v Gas & Fuel Superannuation [1996] FCA 822; (1996) 14 ACLC 1703, followed in Energy Equity Corp Ltd v Sinedie [2001] WASCA 419; see also Meadowfield Pty Ltd v Gold Coast Holdings Pty Ltd (in liq) [2001] WASCA 360.

35 In the present case, Mr Reimers' affidavit comprehensively stated the material facts upon which Horizon Star intended to rely to show a genuine dispute.

36 The notice of statutory demand annexed to Mr Reimers' affidavit was dated 12 June 2001. It was apparently withdrawn and the statutory demand of 25 June 2001 was issued. Each statutory demand purported to be issued by Carina Holdings and signed by Mrs Franke. Each claimed the same sum as a debt: $145,700. The debt in each case was said to arise from loans.

37 In all the circumstances, I do not consider Mr Paiker's affidavit raised "new" matters outside the parameters of the application to set aside the notice of statutory demand.

38 Nor do I consider Mr Reimers' affidavit was so defective in its annexure of the wrong notice of statutory demand that it, for that reason, failed to show a genuine dispute about the debt. The real issues were squarely raised.

39 There was a defect which was corrected well before the hearing.

40 Issue was joined at the hearing, successfully on the part of Carina Holdings.

41 The matter comes directly within the Corporations Act s 467A.

42 There is no injustice caused, let alone substantial injustice.

43 I would allow the appeal, set aside the orders in the Master's Court and in lieu order that the statutory demand was made without authorisation on behalf of Carina Holdings Pty Ltd.