Supreme Court of Victoria|1998-09-25

The applicant's case is that the demand should be set aside because -

(a) it was not for a sum which was due and payable - that sum at the time of service of the demand being, the applicant contended, the foreign currency sum of the judgment;

(b) the respondent had no power unilaterally to impose on the applicant the exchange rate asserted by it in the schedule to the demand;

(c) in any event, the respondent was barred from serving a statutory demand based on the judgment when it had not obtained the leave required by the rules of court to issue a warrant of execution in respect of a judgment expressed in a foreign currency; and

(d) there were other defects in the demand which warranted its being set aside.

With a letter dated 28 May 1998 the solicitors who acted for the respondent in the County Court proceeding served on the applicant by its solicitors in that proceeding a copy of the judgment as authenticated. A copy of the letter and of the enclosure was also sent to a director of the applicant. The letter purported to state the effect of the judgment as at 28 May 1998, by adding to the sum of the Lire specified in the judgment amounts in Lire for "statutory interest" from 4 September 1996 to 31 May 1998 (sic).[2] The total thus reached was Lire 125,386,976. The letter went on to "note that the exchange rate of the Italian Lira has been constant lately and today the rate is Lire 1066 for every AU$1.00". On this basis, it was said that the amount owing by the applicant under the judgment was $118,242.80. After making allegations that the applicant was taking steps to dissipate its assets and was being sued by other creditors, the letter concluded by requiring payment by 1 June 1998 "of $118,242.80 (or the appropriate amount in Italian Lire plus costs of $619.00)" under pain of the respondent's taking "further legal steps as are deemed appropriate". The evidence did not indicate that there was any answer to this letter either from the solicitors to whom it was addressed or the director to whom the copy was sent.[3]

The statutory demand was dated 11 June 1998 and was served on the applicant on 15 June 1998. It was generally in the prescribed form,[4] but paragraph 1 read simply, "The Company[5] owes [the respondent] of Via Neruda, 27, 51100 Pistoia, Italy[6] (`the Creditor')." Thus, in contrast with the prescribed form, the respondent failed to specify the sum owed or to refer to a schedule detailing the sum owed. The remaining paragraphs of the statutory demand were in the usual form where the demand is for payment of a judgment debt; and, in particular, paragraph 2 stated: "The amount is due and payable by the Company." The demand specified as the address of the respondent for service of an application to set aside the demand that of a firm of Melbourne solicitors other than the firm which had acted for the respondent in the County Court proceeding; and the demand was duly signed by the "new" solicitors. There was a schedule to the demand, as follows:

"Amount owing pursuant to Order of His Honour Judge Lewis of the County Court of Victoria made 6 April 1998:-

(a) 102,400,001 Italian Lira (sic) (@ 1104.2209

Italian Lira = $1.00 Australian) $92,735.06

(b) Costs 619.00

(a copy of the Judgment is attached)[7]

This proceeding was commenced on 2 July 1998. The deponent of the supporting affidavit, after exhibiting the statutory demand and a copy of the letter dated 28 May 1998, and noting the discrepancy between the sums apparently demanded in those documents, stated that "(t)he demands served by the creditor through its Solicitors differ in the sum of $24888.74 and I say that the Company is confused as to what is the exact amount to be paid under the judgment debt and dispute that either of those amount (sic) demanded are correct".

The respondent filed an affidavit made by its solicitor (a member of the firm which signed and served the demand). In answer to the plea of confusion in the affidavit filed and served by the applicant, he deposed that he had received instructions that "the Respondent would accept the amount specified" in the demand "in full and final settlement of its judgment", and on 13 July 1998 had written to the applicant's solicitors in this proceeding[8] to advise them of this. Mr Rodbard-Bean of Counsel for the respondent - in my view, correctly - did not seek to rely on this offer as significant to the issues raised for determination.

The evidence was concluded by a further affidavit of the respondent's solicitor. He deposed as to the sum demanded as follows:

"On the day of issue of the Statutory Demand, namely 11 June 1998, I caused enquires (sic) to be made with the Bank of Bendigo Limited at its International desk, in relation to the exchange rate applicable that day for the exchange of Italian Lira into Australian Dollars. I was informed that the relevant exchange rate on that day was 1104.2209 Italian Lira equals one (1) Australian Dollar."

Mr Ruta of Counsel for the applicant objected to the admissibility of that paragraph. It is clearly hearsay; and, although this is an interlocutory proceeding,[9] not in the form in which, under the Rules of Court,[10] hearsay is admissible in such a case.[11] Having regard to the conclusion to which I have come, however, its admission into, or omission from, the evidence is not crucial. For the purposes of these reasons, I shall treat it as if it were admissible.

The motion came on for hearing on 22 July 1998. After it was part heard, it became apparent that the statutory demand gave rise to some questions upon which further research by counsel would be of value. Accordingly, I ordered an adjournment. By the time the hearing resumed, on 21 August 1998, I had the advantage of written outlines of submissions by both counsel which they developed during the oral argument. I take this opportunity to record my gratitude to them for the assistance they have given me.

Mr Ruta relied somewhat faintly on the inadequacies of paragraph 1 of the statutory demand to which I have referred.[12] Mr Rodbard-Bean submitted that, albeit defects in the demand, they had not occasioned the applicant "substantial injustice" and, therefore, could not justify the setting aside of the statutory demand under s 459J(1)(a) of the Corporations Law.[13] I accept that submission because I consider that the affidavit of the applicant's director makes it clear beyond question that the difficulty he deposed to having was caused, not by the deficiencies of paragraph 1, but by the specification of Australian dollars in the schedule and, in particular, in a different sum of Australian dollars, based on a different exchange rate, from that earlier demanded by the respondent's solicitors in the County Court proceeding.[14]

Mr Ruta's second objection to the statutory demand arose out of the inadequacies of paragraph 1. It was that, given the omissions from paragraph 1, paragraph 2 in asserting that "(t)he amount is due and payable", was meaningless. Mr Rodbard-Bean relied on the same argument as he put with respect to paragraph 1, and I accept it for the same reasons.

In my view, Mr Rodbard-Bean also enjoyed success in resisting Mr Ruta's argument that the respondent was barred from serving a statutory demand based on the judgment when it had not obtained the leave required by the rules of court to issue a warrant of execution in respect of the judgment. The argument was based on Rule 68.02(1)(f) of the County Court Rules of Procedure in Civil Proceedings 1989, which provides that "a warrant of execution[15] to enforce a judgment shall not be issued without the leave of the Court ... where the judgment is for a sum in a currency not Australian dollars". It was common ground that notwithstanding the liberty to apply reserved by order of Judge Lewis, the respondent had not sought such leave. In these circumstances, Mr Ruta submitted that the judgment debt was not "due and payable" and, therefore, would not support the statutory demand.[16] In other words, although the debt was a judgment debt, it was at the time of service of the demand unenforceable. For the significance of this unenforceability, Mr Ruta referred me to a number of the observations of Ormiston, J (as he then was) in Re Elgar Heights Pty Ltd.[17] That case concerned the provisions of s 364(2)(a) of the Companies (Victoria) Code, but I believe it is correct that the effect of the judgment was that the corresponding words used in that section[18] were synonymous with "due and payable"; and the passages to which Mr Ruta referred me support this.

In his response to this argument, Mr Rodbard-Bean put it that "the issuing[19] of a statutory demand is a form of execution";[20] and sought to distinguish what he termed "recoverability" - by which he alluded to the state of being "due and payable" - from what he termed "enforceability" - by which he meant susceptibility to a form of execution of a judgment. He maintained that the judgment debt was "due and payable" at the time of service of the demand although his client was without the necessary leave to enforce it by warrant of execution. Further, he pointed out that warrant of execution is but one form of enforcement of a judgment for which the County Court Rules provide. He referred to Rule 66.02 (1) which provides that a judgment for the payment of money other than into court may be enforced not only by warrant of execution, but also by attachment of debts, attachment of earnings, a charging order, appointment of a receiver and, in certain circumstances, committal and sequestration. More importantly, Rule 66.02(3) expressly provides that Rule 66.02(1) does "not affect any other means of enforcement of a judgment for the payment of money".

As I have already indicated, I consider that Mr Rodbard-Bean's argument was correct. That the respondent was not in a position to cause a warrant of execution to issue for the judgment debt did not mean that the judgment debt was unenforceable. It was only unenforceable by that means. Further, that it was unenforceable by that means and that all the other forms of enforcement referred to in Rule 66.02(1) would require, as Mr Rodbard-Bean conceded, application to the court, did not mean that the judgment debt was not "due and payable" at the time of service of the demand. The judgment debt was due and payable because enforcement had not been stayed. Indeed, there is authority that if the statutory demand had been in respect of the judgment debt in its foreign currency sum, albeit defective because not in Australian dollars as inferentially required by the "$" sign in the form prescribed, it would not have been set aside unless the applicant could prove that, by reason of that defect, not to set it aside would cause it "substantial injustice" within s 459J(1)(a) of the Corporations Law.[21]

In my view, however, Mr Ruta, as a good advocate will, had put his best argument first. I have left it to last. It was that the sum demanded was not, as he put it, due and payable, because it was a sum of Australian dollars which the applicant did not owe the respondent and which the respondent's solicitor had unilaterally calculated. During the proceeding, as has already been noted, it transpired that, of the total sum demanded, $92,735.06 was the sum which the respondent's solicitor had derived from his discussions with the "international desk" of the Bank of Bendigo. (The balance, $619.00 for costs, was less than the "statutory minimum" to support a statutory demand.) In short, although the applicant owed the respondent the judgment debt, the sum demanded, in a form of statutory demand appropriate to a judgment debt, was not the sum of the judgment debt - which was Lire 102,400,001.00.

Mr Rodbard-Bean's contention was that the statutory demand was for the judgment debt, albeit not expressed in the same currency as that of the judgment. The schedule to the demand made it clear that the sum demanded was derived from, and related by the stated exchange rate to, that for which the judgment had been given. He argued that it was permissible for the respondent by its solicitor to have converted the Lire sum of the judgment to the equivalent sum of Australian dollars by applying the exchange rate of which he was informed by the "international desk" on the date the demand was signed. Whether that was permissible I must now determine.

In giving the judgment in a foreign currency Judge Lewis was applying, in an appropriate case, a practice first sanctioned by the House of Lords in 1975 in Miliangos v George Frank (Textiles) Ltd,[22] and since followed in various States of Australia.[23] In Victoria, the practice was considered, and upheld, by Fullagar, J in ITC Distribution Ltd v Filmpac Holdings Ltd (unreported, 6 March 1990).[24] The question is this proceeding, of course, does not concern the jurisdiction to give judgment in a foreign currency. Miliangos, however, does also contain some observations which are clearly relevant to the issue of conversion of such a sum into local currency for the purpose of enforcement. Lord Wilberforce said:[25]

"As regards the conversion date to be inserted in the claim or in the judgment of the court, the choice, as pointed out in the Havana Railways case,[26] is between (i) the date of action brought, (ii) the date of judgment, (iii) the date of payment. Each has its advantages, and it is to be noticed that the Court of Appeal in Schorsch Meier [27] and in the present case chose the date of payment meaning, as I understand it, the date when the court authorises enforcement of the judgment in terms of sterling." [My emphasis.]

Lord Wilberforce went on to state that he "would favour the payment date, in the sense I have mentioned".[28] Lord Cross of Chelsea said that the date of conversion "should be the date when the plaintiff is given leave to levy execution for a sum expressed in sterling".[29] Lord Edmund-Davies appeared to favour dealing with the question at the time of judgment by giving it in the alternative - the foreign currency sum "or the sterling equivalent at the time of payment".[30] Lord Fraser of Tullybelton was of the view that the "latest practicable date" would be desirable, it being "the date when the court authorises enforcement of the judgment".[31] In the ITC Distribution case,[32] Fullagar, J, at the specific request of counsel for the plaintiff, gave judgment in Australian dollars as at the date of the judgment, specifying the exchange rate of that date which had been applied. Thus, that case did not require further consideration of the exchange rate to be applied if payment was to be enforced in local currency.

It is seen from Miliangos, then, that conversion of a judgment sum from a foreign to the local currency is a step that has been contemplated to be made by, or with the authority of, the court. Mr Rodbard-Bean, as I have already mentioned,[33] conceded that the County Court Rules contemplate the involvement of the court before enforcement of a judgment expressed in a foreign currency. To cope with the absence of its involvement in the process leading to the service of the statutory demand in this proceeding, he suggested that, by exercising its option to apply for an order setting aside the demand, the applicant had brought before the court the issue of the conversion of the sum of the judgment and thus the same end was achieved as if enforcement of the judgment had been sought with leave of the County Court or pursuant to its order. Having brought this proceeding, it was for the applicant, Mr Rodbard-Bean submitted, to demonstrate that the respondent's unilateral conversion of the judgment sum had resulted in "substantial prejudice".

There are obvious difficulties with this approach. The jurisdiction to set aside a statutory demand is dependent on there being a valid application brought in accordance with s 459G of the Corporations Law;[34] and, given that, the function of the court is to determine whether, under s 459H or 459J, the demand should be set aside. Just as it is not for the court to consider the merits of a genuine dispute as to the existence or amount of the debt demanded, or of a relevant genuine offsetting claim,[35] nor is it for the court to purport to exercise a jurisdiction belonging to the court in a proceeding not before it, a fortiori a jurisdiction belonging to another court (as would be so in this case). Thus, there is no role for the court hearing an application to set aside a demand to exercise a discretion with respect to the date and the exchange rate at which a judgment debt expressed in a foreign currency should be converted into Australian dollars or to purport to ratify a conversion unilaterally effected by the creditor prior to serving the demand.

It must be borne in mind that failure to comply with a valid statutory demand which is not set aside leads to a presumption of insolvency.[36] In these circumstances, a company which receives a statutory demand cannot be expected to use some of the valuable and extremely limited time it is given by the Corporations Law either to satisfy the demand or apply to have it set aside, in order to ascertain whether the sum of the demand is supportable for reasons extraneous to, as in this case, the judgment debt on which the demand apparently is intended to be based.[37] How, then, could such a question be left as if it did not exist unless and until there were an application to set aside the demand? This, however, was the effect of Mr Rodbard-Bean's submission as to my power to look at the question of the date and exchange rate of conversion employed by his instructing solicitor. Apart from the jurisdictional difficulty,[38] such a situation of uncertainty for a company served with a demand is not contemplated by the provisions of Part 5.4 of the Corporations Law.

In this case, the applicant was served with a demand in respect of a judgment debt the sum of which had been converted at a specified rate but on an unspecified date into Australian dollars. Because it was a demand with respect to a judgment debt, it was not accompanied by an affidavit.[39] But, as Mr Ruta submitted, it was not a demand for the judgment debt. In consequence, if (which I do not need to decide) it were permissible for the respondent without further application to the County Court to serve the demand for what it contended to be the Australian dollar equivalent of the judgment debt, it would be imperative that the demand be accompanied by an affidavit proving that the sum demanded was "due and payable" by explaining and verifying the date and exchange rate of the conversion made.[40] Any such demand, not being for a judgment debt, would attract the application of s 459E(3) of the Corporations Law. Where such a demand is served when not accompanied by the affidavit required by that section, the demand ought ordinarily be set aside under s 459J(1)(b).[41] There being no reason justifying the contrary, I conclude that the demand the subject of this proceeding, being for a debt which was not a judgment debt and not having been accompanied by an affidavit, ought be set aside.

The point made in the preceding paragraph ought not disguise the validity of the essentially simple proposition relied on by Mr Ruta. Since the demand purported to be a demand for a judgment debt but was not for the sum of the judgment debt, but an entirely different sum in another currency, there was non-compliance with s 459E(2)(a). That section required the respondent to "specify the debt and the amount of the debt" which was due and payable by the applicant to the respondent. True, the schedule referred both to the judgment and the judgment debt but it went on to refer to an exchange rate and an Australian dollar sum, thereby changing the specification of the debt and the amount of the debt. The consequence was that what was finally "specified" was a debt which was not due and payable. This is a sufficient ground for setting the demand aside under s 459J(1)(b), the "reason" being that the demand did not comply with the requirements of s 459E and was, accordingly, unauthorised by the Corporations Law.[42]

I have already referred in another context[43] to the burden which this demand in effect placed on the applicant to make its own inquiries to establish whether the sum demanded was a proper representation in Australian dollars of the judgment debt at a date which was appropriate in law for the conversion, the date used by the respondent also being an unknown.[44] In a joint judgment a Full Court of the Federal Court said last year of a statutory demand with which the company on which it was served is "unable to comply ... without making enquiries which is not obliged to make" that "there cannot be a failure to comply with the demand made by the creditor".[45] That is true of the applicant in this case and provides further justification for the setting aside of the demand.[46]

For these reasons, then, I shall order that the statutory demand is set aside.

[1] Because the demand purported to be based on a "judgment debt", an accompanying affidavit was not compulsory: Corporations Law, s 459E(3).

[2] Notwithstanding that the judgment expressly reserved the amount of the interest.

[3] He was the deponent of the affidavit filed and served with the notice of motion commencing this proceeding.

[5] "The Company" was defined in the address preceding the expression as a reference to the applicant.

[6] The applicant did not contend that the specification of an address in Italy for payment was a source of difficulty: cf Re Shuttle Datacomm Pty Ltd (1990) 2 ACSR 729, 8 ACLC 1028; and Delaine Pty Ltd v Quarto Publishing PLC (1990) 3 ACSR 81, 8 ACLC 1026.

[8] Also a different firm from that which acted for the applicant in the County Court proceeding.

[9] See Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; (1993) 11 ACSR 362, at 368; [1994] VicRp 61; 11 ACLC 1062, at 1067.

[10] Rule 43.03 Of Chapter I provides that on an interlocutory application an affidavit "may contain a statement of fact based on information and belief if the grounds are set out".

[11] Here, there was no statement of belief and the reference to the "International desk" was so vague as not to "qualify" as a ground.

[13] "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 ..."

[15] The expression, "warrant of execution", refers to a warrant of seizure and sale, a warrant of possession and a warrant of delivery: Rule 68.01. Only the warrant of seizure and sale is appropriate to a judgment for the payment of money; and it is to that form of execution that references in this judgment to a "warrant of execution" are to be read as applying.

[16] See s 459E(1) of the Corporations Law. In effect, it provides inter alia that a debt the subject of a statutory demand must be "due and payable".

[17] [1985] VicRp 67; [1985] VR 657, at 666 ("... a debt can only be the subject of a statutory demand if it is presently or immediately enforceable by action or otherwise"); 667 ("... if one characterises the creditor's rights under the various Acts since 1856 as a right to a form of statutory execution, that right must obtain only in the case of an immediately enforceable debt"); and 667 ("... a statutory demand should not be relied on unless it is made in respect to an ascertained debt which is not only immediately payable but which is also presently recoverable by action").

[20] This was derived from the well-known dictum of Lord Cranworth in Oakes v Turquand and Another [1867] LR 2 HL 325, at 363, albeit that Lord Cranworth was speaking of a winding up and not of the demand which might or might not be a precursor of winding up application.

[21] Vehicle Wash Systems Pty Ltd v Mark VII Equipment Inc (1997) 25 ACSR 709, at 715-716; (1998) 16 ACLC 223, at 228.

[23] The reported cases are referred to in Williams' Civil Procedure - Victoria, vol 1, par 21.03.107.

[24] The text of the decision is reproduced in Civil Procedure - Victoria, vol 3, practice decision 16,014, p 30,144.

[34] See David Grant & Co Pty Limited (receiver appointed) v Westpac Banking Corporation [1995] HCA 43; [1995] 184 CLR 265.

[35] See, for example, the Mibor Investments case, referred to at footnote 9 (supra).

[36] Section 459C(2)(a) of the Corporations Law.

[37] Cf Topfelt Pty Ltd v State Bank of New South Wales Ltd [1993] FCA 589; (1993) 12 ACSR 381, (1994) 12 ACLC 15.

[40] As required by s 459E(3) where the debt demanded is not a judgment debt.

[41] See Victor Tunevitsch Pty Ltd v Farrow Mortgage Services Pty Ltd (in liq) [1994] TASSC 121; (1994) 14 ACSR 565, 12 ACLC 963.

[42] I prefer this formulation to the alternative, that there was "a genuine dispute ... about the existence ... of [the] debt": see s 459H(1)(a). This was a case where the applicant did not dispute that it owed the respondent the judgment debt. It disputed the specification of the "debt" demanded, a subject expressly dealt with by s 459E(2)(a). Section 459E sets out in mandatory language the requirements to be satisfied with respect to a statutory demand for service pursuant to the power conferred on a creditor by s 459E(1).

[44] In the circumstances it is unnecessary to consider what (if any) significance should be attributed to the date being one which was apparently not contemplated in Miliangos. It is also unnecessary to contemplate the consequences of the unsatisfactory nature of the evidence "proving" the exchange rate. I add that I have had to look at the case on the basis that the effect of the demand was to put the applicant on (unwarranted) inquiry because, although at one stage of the argument Mr Rodbard-Bean asserted from the bar table that the applicant, by reason of its business, had a daily familiarity with the exchange rate of the Australian and Italian currencies, he declined my invitation to seek an adjournment to prove that fact.

[45] Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 24 ACSR 353, at 360[1997] FCA 681; , 15 ACLC 1001, at 1007.

[46] It is also the specific answer to the question I raised at the end of argument whether the demand was sufficient to impose on the applicant the burden of proving that it was excessive.

MEC Import Sales Pty Ltd v Iozzelli srl [1998] VSC 76 (25 September 1998)

Corporations - winding up - statutory demand - setting aside - demand based on judgment debt in foreign currency - demand for sum in Australian dollars - conversion made by creditor's solicitor - exchange rate but not date of conversion stated in schedule to demand - no affidavit accompanying demand - whether sum demanded "due and payable" - whether demand defective because not accompanied by affidavit - significance of applicant's needing to make inquiries about sum demanded - respondent not having obtained leave to issue warrant of execution - whether judgment debt "due and payable" Corporations Law, ss 459E, 459J(1)(b) Victor Tunevitsch Pty Ltd v Farrow Mortgage Services Pty Ltd (in liq) [1994] TASSC 121; (1994) 14 ACSR 565, 12 ACLC 963, applied Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 24 ACSR 353, at 360[1997] FCA 681; , 15 ACLC 1001, at 1007 applied Miliangos v George Frank (Textiles) Ltd [1976] AC 443 considered

MEC Import Sales Pty Ltd v Iozzelli srl [1998] VSC 76

At a glance

Court

Decision date

Source

Judgment (61 paragraphs)

Parties

Cases Cited (2)

MEC Import Sales Pty Ltd v Iozzelli srl [1998] VSC 76 (25 September 1998)