JSBG Developments Pty v Kozlowski

CATCHWORDS : CORPORATIONS - STATUTORY DEMAND - Application to set aside a Statutory Demand - whether Demand can be set aside for "substantial injustice" or "some other reason" - whether defects including omission of required warning produced injustice or "some other reason" to set aside Demand - whether defects amounted to "mere defect" for s 459J(2). - COSTS - INDEMNITY BASIS - Whether Plaintiff should bear costs of the proceedings on the indemnity basis where application had no prospects of success.

LEGISLATION CITED : - Building and Construction Industry Payments Act 2004 (Qld) - s 29, s 31 - Corporations Act 2001 (Cth) - s 459E, s 459G, s 459J, s 509H

• B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433 CASES CITED : - JSBG Developments Pty Ltd v Kozlowski (2009) 74 ACSR 531 - Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11 - Randall Pty Ltd v Chepan Pty Ltd (2009) NSWSC 783

PARTIES : JSBG Developments Pty Ltd (Plaintiff) Wlodzimierz Antoni Kozlowski (Defendant)

COUNSEL : G.S. McDonald (Plaintiff) T.O. Bland (Defendant)

SOLICITORS : B.R. Golledge (Director of Plaintiff) Lou Baker & Assoc (Defendant)

1 This is an application under s 459G of the Corporations Act 2001 (Cth) to set aside a Statutory Demand. The Demand was served on or about 24 August 2009. An Originating Process was filed on 10 September 2009 and it was supported by an affidavit of a director and shareholder of the Plaintiff, Mr Golledge. 2 Mr Golledge, after deposing that he is a director and shareholder of the company and authorised to swear the affidavit on behalf of the Plaintiff, gives the basis for setting aside the Statutory Demand in his affidavit as follows: "6. I say that the Demand is defective for many reasons, including: a. Paragraph 459E(2)(e) was amended in 2006 as part of amendments of the Corporations Regulations 2001. b. The correct Form 509H was not used by the Defendant. c. The Demand does not contain the warning prescribed by the regulations to be on the Form. d. The Supporting Affidavit does not contain reference to the complete Adjudication Decision including Additional Comments by the Adjudicator. e. The assertion the Adjudication Application was Unchallenged is Incorrect 2.(c) f. The names of the second and third defendants are incorrectly spelt in the certificate of search and accompanying application form from the Supreme Court of Queensland.

7. In addition to the defects in the Statutory Demand, I dispute that any debt is due by the Plaintiff to the Defendant.

8. As a director of the Plaintiff, I have not acknowledged the balance of any transactions between the Plaintiff and the Defendant."

That is the whole of the evidence adduced by the Plaintiff within the time limit required by s 459G in order to set aside the Statutory Demand. 3 Mr G. McDonald of Counsel, who appears for the Plaintiff, acknowledges that paragraph 7 of Mr Golledge's affidavit is not sufficient in itself to establish a genuine dispute for the purposes of s 459G. That is because the assertion that the debt is disputed is entirely devoid of any particulars which could lead the Court to conclude that the dispute is genuine. Likewise, Mr McDonald concedes that paragraph 8 in itself does not contain any ground evidencing a genuine dispute or otherwise constituting a reason for setting aside the Statutory Demand. Accordingly, Mr McDonald's submissions focus on alleged defects in the Statutory Demand which Mr Golledge sets out in paragraph 6(a) to (f) of his affidavit. 4 Before dealing with those alleged defects, I should draw attention to two matters. The first is that Mr Golledge filed and served a second affidavit dated 26 November 2009 in which he explains the circumstances in which he received the Statutory Demand and came to file the Originating Process in his affidavit in support thereof. The affidavit of 26 November cannot, of course, be relied upon to put forward grounds for disputing the debt which are not discernible from Mr Golledge's affidavit of 10 September 2009. However, it is pertinent to note some aspects of that second affidavit. 5 Mr Golledge says that on or about 26 August 2009 he received a copy of the Statutory Demand, then he consulted Mr McDonald of Counsel: "… about the dispute between the Plaintiff and the Defendant. I did not seek detailed advice on the Statutory Demand. I sought advice on the action which could be taken to set aside the judgment debt which was appeared [sic] to be the basis of the Statutory Demand. I was guided to the Corporations Act regarding the formalities of a Statutory Demand.

6. I made my own enquiries about the form of the Statutory Demand which was used by the Defendant. It was my opinion that the form used by the Defendant appeared to be an incorrect form.

7. On or about 5pm on Wednesday 9 September, 2009 I decided to make this Application to set aside the Statutory Demand. Due to various commitments the Application needed to be prepared, filed and served by me on behalf of the Plaintiff on 10 September 2009.

8. By that time, I did not have sufficient time to include such detail in the supporting Affidavit that contains all of the information which sets out the details of the Plaintiff's dispute with the Defendant. I did not appreciate the urgency and enormity of the task involved. I was concentrating on the commencement of litigation against the Defendant in Queensland to Set Aside the Judgement Debt. In this regard, an application was filed in the Queensland Supreme Court on or about 13 October 2009 seeking the interim Order of a Stay of the Judgement." 6 The second matter to which reference should be made is that one commences with the injunction in s 459J(2) that it is not any defect in the Statutory Demand which requires it to be set aside. If a Demand is to be set aside under s 459J it must either be shown that there is a defect which will cause substantial injustice or that there is some reason apart from a mere defect why the Demand should be set aside. 7 I now turn to the defects which Mr Golledge sets out in paragraph 6 of his affidavit. As to paragraph 6(a), there is not shown in Mr Golledge's affidavit why amendment to s 459E(2)(e) has had the slightest effect on the justice of the case. He does not say that he was misled in any particular. He does not say that the Statutory Demand is statutorily invalid. There is simply a reference to a statutory amendment, with no consequences. That is not a ground for setting aside the Statutory Demand. 8 In paragraph (b) it is asserted that the correct form of s 509H was not used. Again, the affidavit does not say in what particular aspect non-compliance with the correct form of s 509H had any impact whatsoever on the Plaintiff. 9 Mr McDonald, in the course of his submissions, has pointed to the content of the affidavit accompanying the Statutory Demand. The affidavit is sworn by Mr Kozlowski on 23 August 2009. He says that he is a creditor of the Plaintiff. Paragraph 2 of the affidavit then commences, "I have searched my records and believe it to be true that", and then he sets out a number of statements of fact, the most material of which is that Mr Kozlowski annexes a certified copy of a judgment of the Supreme Court of Queensland in proceedings 4799 of 2009 in which it is certified that an Adjudication Certificate pursuant to s 31 of the Building and Construction Industry Payments Act 2004 (Qld) was filed as a judgment debt in those proceedings. 10 Accordingly, the essence of the affidavit accompanying the Statutory Demand is that the creditor relies upon a judgment debt entered in the Supreme Court of Queensland. Paragraph 2 of the affidavit accompanying the Statutory Demand goes on to make other statements of fact, such as that the debt arises from an unchallenged adjudication application and that Mr Kozlowski is informed that Mr Golledge was provided with a copy of the adjudication determination. Mr Kozlowski also says the debtor has failed to pay or compound the debt in accordance with s 29 of the Building and Construction Industry Payments Act of Queensland. He says, in paragraph (i): "I do not believe that there is a genuine dispute about the existence or amount of the debt to which this Demand relates." 11 It is true that the statements as to the adjudication application being unchallenged and as to Mr Golledge receiving a copy of the adjudication determination are superfluous to the requirements of an affidavit accompanying the affidavit pursuant to s 459E of the Corporations Act. It may be that those facts are challenged. However, that does not in itself have as a consequence the invalidity of the Statutory Demand. The Demand relies upon a judgment debt. If the Demand is to be set aside for a defect, it must be shown that the defect has produced some consequence which results in injustice or some confusion or there is some reason of principle that the Statutory Demand ought not to be allowed to proceed in that form. For example, if a Statutory Demand is accompanied by an affidavit sworn by somebody who does not have the requisite direct knowledge or source of knowledge to make the assertion that the debt is owing and that there is no genuine dispute then, ipso facto, the Demand should be set aside: see, for example, Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11 and B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433. Nothing of that character arises in this case. 12 The Defendant says: "I have searched my records (and) believe it to be true that: The debtor is indebted to me in the sum of $817,251.31 … I do not believe that there is a genuine dispute about the existence or amount of the debt to which this Demand relates." 13 Mr McDonald submits that what the affidavit should have said, in accordance with the form prescribed by the Corporations Rules, is that Mr Kozlowski has searched his records "and from reading those records I believe", et cetera. Further, he says, that the statement, "I do not believe that there is a genuine dispute about the existence or amount of the debt to which this Demand relates" should have read, "I believe that there is no genuine dispute" et cetera, and the variance in this form of words is a defect of such character as warrants the setting aside of the Statutory Demand. For reasons which I think must be self-evident from the submission, I regard it as entirely without substance. The source of knowledge is made expressly plain in the affidavit and the basis of belief as to absence of a genuine dispute is also made expressly plain. This is not the sort of variance in compliance with a form which results in any defect at all, let alone a substantial defect or one which may cause injustice. 14 The next basis upon which the Demand is said to be defective is that "it does not contain the warning prescribed by the regulations to be on the form". What is referred to is the absence of the warning that proceedings to set aside the Statutory Demand should be commenced within 21 days after service or the debtor may be precluded thereafter from disputing the debt or trying to set the Statutory Demand aside. It is true that the Demand does not contain the warning presently required to be on the form. However, as was made plain by White J in Randall Pty Ltd v Chepan Pty Ltd (2009) NSWSC 783 at [13]ff, the mere absence of the warning in itself is not sufficient to warrant setting aside a Statutory Demand. One must show that the absence of the warning in some way produced an injustice or at least constituted a reason under s 459J(1)(b) to set aside the Demand. There must be facts shown in a particular case to justify the Court in coming to the conclusion that the absence of a warning, being a defect, is of the character required by s 459J(1)(a). 15 There is no such evidence in this case, either in Mr Golledge's first affidavit, or in his second affidavit. Indeed, it appears from the second affidavit that Mr Golledge took legal advice about the Statutory Demand, even though he says it was not detailed advice. Nevertheless, it is legitimate to assume that if Mr Golledge had wanted to explore the consequences of service on his company of a Statutory Demand, he had ample opportunity to ask his legal advisor. 16 There is nothing in his affidavit which says that the absence of a warning box on the Statutory Demand actually misled him into thinking that he had longer than 21 days after service of the Demand to respond in full and to set out the grounds of opposition; there is nothing to justify the Court in concluding that substantial injustice has resulted from the defect. Accordingly, I cannot find that the absence of a warning box constituted a ground for setting aside the Demand under s 459(J)(1)(a). 17 Likewise, nothing has been demonstrated to warrant the setting aside of the Statutory Demand for that reason pursuant to s 459J(1)(b). It seems to me that all that has been shown is that there is a mere defect in the Statutory Demand by reason of the absence of a warning so that s 459(J)(2) would apply. 18 Paragraphs 6(d) and 6(e) of Mr Golledge's affidavit refer to the adjudication decision of the adjudicator and that the affidavit accompanying the Statutory Demand states the application to have been unchallenged. 19 Whether or not the application was challenged is not to the point and does not in itself show any reason for setting aside the Statutory Demand. The Statutory Demand is founded upon a judgment debt, not upon the adjudication or the fact that it was challenged or unchallenged. The assertion that the adjudication application was unchallenged may not be true but more must be shown before that circumstance affords a ground for setting aside the Statutory Demand. There must be shown to be a basis for saying that, notwithstanding the entry of judgment in favour of the creditor, nevertheless there is a genuine dispute between the parties which is open for this Court to consider. 20 As to paragraph 6(f) which refers to incorrect spellings of names, if there is any error, no consequences have been shown such as that Mr Golledge has been misled or confused in that he did not know which parties were being referred to. There is no evidence to that effect, even in his second affidavit. 21 I should add in conclusion that Mr McDonald has referred to the difference between the date shown in the Statutory Demand as the date of the affidavit in support, namely 24 August 2009, and the date of the affidavit itself which shows it was sworn on 23 August 2009. There is no evidence that the discrepancy in the date of this affidavit as shown in the Statutory Demand and shown in the affidavit itself has had the slightest effect in causing any confusion to the Plaintiff, misleading it in any way or raising any ground of injustice. The discrepancy seems to me to fall classically within the categorisation of a mere defect. 22 In conclusion therefore I find that no ground has been shown which warrants the setting aside of the Statutory Demand and the Originating Process is dismissed. Costs

23 The Defendant seeks an indemnity costs order against the Plaintiff in respect of the whole of the costs of these proceedings. 24 The Plaintiff submits that it should have its costs, at least up to the determination of preliminary questions in its favour by Barrett J on 27 October 2009: JSBG Developments Pty Ltd v Kozlowski (2009) 74 ACSR 531. 25 In my opinion there should be an indemnity costs order against the Plaintiff in respect of the whole of the costs of these proceedings. There was no prospect of success in this application right from the start. The affidavit of Mr Golledge filed in support of the Originating Process failed to demonstrate any ground upon which the Statutory Demand could be set aside. That inevitable conclusion was made plain by the Defendant's solicitors to the Plaintiff by letter dated 18 September 2009 wherein the Defendant foreshadowed an application for an indemnity costs order. The Plaintiff did not take up the suggestion to have the proceedings dismissed by consent. 26 Again, on 12 October 2009, before the preliminary question was argued before Barrett J, the Defendant's solicitors wrote to the Plaintiff offering to consent to the Plaintiff's dismissal of its Originating Process, on terms that the Plaintiff pay the Defendant's costs to date assessed at $8,000. That offer was declined. 27 In my opinion, determination of preliminary questions ought never to have been necessary because the Originating Process ought never to have been filed. Further, it ought to have been dismissed on the Plaintiff's own application as soon as the fatal flaws were pointed out to the Plaintiff by the Defendant's solicitors in September. 28 For all of these reasons, it seems to me that the Defendant has been put to totally unjustified costs in defending these proceedings from the beginning. In those circumstances it is proper to order that the Plaintiff pay the Defendant's costs of the proceedings on the indemnity basis. I so order.

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