I heard these two proceedings together on 27 May and 3 June 1996. The issues on which they turn are almost identical. Each plaintiff applied by Summons issued on 22 March 1996 for an order that a statutory demand served by the defendant Kodak (Australasia) Pty Ltd pursuant to s.459E of the Corporations Law be set aside. Each plaintiff is under the control of Mr Thomas Cochran as Managing Director. Each is indebted to Kodak and each received a statutory demand bearing date 27 February 1996 and served on or soon after 1 March. The debts on which (according to its terms) the demand directed to Portrait Express (Sales) were based totalled $199,920.65; the debts were the prices of goods sold and delivered consisting of photographic films, paper and chemicals. The alleged debts in the demand directed to Olan Mills Studio totalled $63,966.16 and arose similarly.

A number of grounds were put forward as supporting the claim to set aside these demands. Some were based on s.459H of the Corporations Law and on claims that each plaintiff has an offsetting claim against the debts demanded. To invoke consideration of s.459H an offsetting claim must fall within the definition in subs.(5) and to do that it must be a genuine claim. Kodak disputes that there are genuine offsetting claims, and there is a significant body of evidence about this, but I have not heard counsel's submissions on that part of the case. I heard submissions on narrower issues relating to the statutory demands.

The credit terms on which the parties dealt were established by a letter which Mr Parkinson, the defendant's National Sales Manager, Professional Imaging sent to Mr Cochran on 29 June 1993; the letter called for Mr Cochran to sign it and return it, and he did. It refers only to dealings with Olan Mills, misdescribed as "Olan Mills Corporation" but it is clear that it established the agreed terms on which both companies for which Mr Cochran dealt were to buy from Kodak. Both parties so treated it. At page 2 the letter said "Our normal trading terms are 30 days from the date of statement at the end of the month invoiced, and we are prepared to offer you no more than 59 days from statement for settlement." Mr Cochran's signature indicates his concurrence. These terms were never varied; however Kodak sent out invoices on standard forms which asserted that payment was due earlier than the letter stated. By the date of the Notice of Demand, 27 February 1996 all the credit terms to which Olan Mills Studio was entitled had expired except in respect of the last invoice dated 8 February 1996 No. 160034 for prices totalling $3,355. The effect of the credit terms would mean that a statement was to be rendered on 29 February 1996 and payment was to be made by 28 April 1996. The demand was excessive to the extent of $3,355. The demand to Portrait Express (Sales) included claims in respect of four invoices rendered in December for sums totalling $33,820.72 and an invoice issued on 8 February 1996 for $9,810.60.

The invoices had incorrect statements about when payment was due. Invoice 160033 rendered on 8 February 1996 stated that the amount of $9,801.16 was due by 31 March 1996. This was too early, but it was still later than the time available to pay under the statutory demand.

The invoices issued in December said that payment was due by 31 January 1996; this was too early as 59 days credit on a statement at the end of December entitled Portrait Express Sales to credit until 28 February 1996, one day after the date of the statutory demand.

The plaintiffs' counsel contended that under subs.459J(1) the Court is empowered to set aside the statutory demands. It was contended that the fact that the demands required payment of significant sums which were not due for payment at the date of the demands and still were not due for payment when the demands were delivered (which happened on or about 1 March 1996) meant that substantial injustice will be caused unless the demands are set aside.

Provisions of Corporations Law and Rules of Court.

The grounds on which a Statutory Demand may be set aside are restricted by s.459J which is in these terms:-

"459J (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 merely because of a defect."

"Defect" is given a definition of inclusion thus in s.9:

"`defect', in relation to a statutory demand, includes:

(c) a misdescription of a debt or other matter; and

"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

By reference to s.9 of the Corporations Law the rules referred to in para 459E(3)(b) are rules of Court. The definition is thus:

(b) rules of the Supreme Court of this or another jurisdiction;

The relevant rule of this Court is Pt.80A r.15 of the Supreme Court Rules which is in these terms:

"15(1) An affidavit referred to in section 459E(3) must:

(a) subject to subrule (2), be made by the creditor or, where there is more than one creditor, by one of them;

(b) set out the facts entitling the deponent under paragraph (a) to make the affidavit;

(c) state the source of the deponent's knowledge of the matters stated in the affidavit concerning the debt or debts;

(d) state that the deponent believes those matters to be true; and

(e) state that the deponent believes that there is no genuine dispute about the existence or amount of the debt or debts to which the demand relates.

(a) a corporation - an affidavit by a member or officer of the corporation having knowledge of the facts so far as they are known to the corporation is taken to be an affidavit by the creditor;

(b) the Crown - an affidavit by an officer of the Crown having knowledge of the facts so far as they are known to the Crown is taken to be an affidavit by the creditor; and

(c) a company to which a liquidator or provisional liquidator has been appointed - an affidavit by the liquidator or provisional liquidator is taken to be an affidavit by the creditor.

(b) contain the statement headed `Important Note' set out in the form; and

(4) An affidavit under this rule must not be filed with the Court.

(5) For the purposes of section 459E(3), an affidavit in support of a statutory demand that complies with the rules of:

(b) the Supreme Court of another State or Territory in which the registered office of the company to be served is situated,

is taken to be an affidavit that complies with this rule.

(6) In subrule (2), `Crown' includes not only the Crown in right of New South Wales but also the Crown in any other capacity."

The relevant rule of the Federal Court of Australia in force in February 1996 was O.71 r.36A in these terms:-

"36A (1) An affidavit verifying that a debt is due, for the purposes of subsection 459E(3) of the Corporations Law, must:

(b) contain the statement headed `Important Note' set out in the form; and

36A (2) An affidavit under this rule must not be filed with the Court unless winding up proceedings have been commenced in the matter to which the affidavit relates.

36A (3) Unless the Court orders to the contrary, an affidavit under this rule must be made by a person who can depose to his or her knowledge of the indebtedness of the company.

36A (4) For the purposes of subsection 459E(3) of the Corporations Law, an affidavit in support of a statutory demand that complies with the rules of a Supreme Court of a State or Territory is taken to be an affidavit that complies with this rule."

It is for consideration what result is produced by the definition of "rules" and the words "as the case requires." As an affidavit verifying a statutory demand is not sworn in any litigation and is not part of the procedure in any Court, there is no reason to exclude either the Federal Court or the Supreme Court of this State as the court whose rules are required by the case when an affidavit is sworn for delivery to a company within this State. In my opinion subs.459E(3) would be complied with in the present case if the rules of either the Federal Court or this Court were complied with, as both demands were served within this State and all the relevant facts relate closely to the State. Jurisdiction is conferred widely by s.42 of the Corporations (New South Wales) Act 1990, but it is necessary at present only to consider the rules of those two Courts.

The form of the Statutory Demands - debts not yet due.

Each Statutory Demand is erroneous in what it says is owing. Thus the demand to Portrait Express (Sales) says "1. The Company owes Kodak (Australasia) ... the amount of $199,920.65 being the total of the amounts of the debts described in the Schedule." and in the Schedule "... the debt in each case (arose) at the time of delivery". The list in the Schedule includes five amounts totalling $43,621.78 which were not due for payment at the date of the Statutory Demand. It also says "2. Attached is the affidavit of John Francis Mitchum dated 27 February 1996, verifying that the amount is due and payable by the Company." Taken in whole these statements are incorrect as $43,621.78 was not due for payment at the date of the Statutory Demand, and in the context of the Statutory Demand and what it required it is obvious that the references to debts do not relate to debts which exist in the present but are not to fall due for payment until a future time. The inclusion with debts which were due of a claim for payment of debts which at the date of the Statutory Demand had not fallen due is in my opinion a defect in the Demand within the general meaning of "defect." As a defect it goes well beyond misstatement, misdescription and the other matters referred to in the definition of inclusion in s.9; it is more than a misstatement of an amount or total, and more than a misdescription of a debt to include a sum which is simply not payable at all in a demand for payment with threats of adverse consequences.

Kodak's counsel contended that no injustice had been suffered by the plaintiffs as a consequence of departure from the form of the Statutory Demands required by the rules. In my opinion the inclusion in the Statutory Demands of requirements for payment of significant sums of money which were not due for payment within the period available for compliance was an injustice to the plaintiffs. They were placed under a need to apply to set aside the demands and they were under that need whether or not they paid the parts of the sums demanded which in fact were due, as they would be exposed to the risk of winding-up proceedings unless they succeeded in having the demands set aside. An injustice is constituted by the service of a statutory demand in these circumstances. It is not simply that at the date of the demand significant sums demanded were still to fall due; that might be an injustice of itself, but I will leave that on one side. Significant sums were not to fall due until after the time available for an application to set aside the demands, so that the plaintiffs were put under improper pressure to pay moneys which were not due or incur the burden of commencing litigation to set aside the demands. The operation of this excessive requirement as an injustice is mitigated by the fact that the plaintiffs have another ground on which they applied to set aside the Statutory Demand, in respect of all sums claimed in them.

Another matter put forward arose under para.(b) of subs.459J(1) which applies if the court is satisfied that "there is some other reason why the demand should be set aside." There were misstatements in the affidavits of John Francis Mitchum a director of Kodak Australasia, which were in similar terms and were sworn in each case on 27 February 1996. The relevant terms of Mr Mitchum's affidavit for Portrait Express (Sales) were thus:

"(1) I am a director of Kodak (Australasia) Pty Ltd `(creditor)' and am authorised to make this affidavit on behalf of the creditor.

(2) To my knowledge, the amount of $199,920.65 which is the total of the amounts appearing in the schedule, is due and payable by the debtor, Portrait Express (Sales) Pty Ltd, to the creditor.

(3) The debts appearing in the schedule were incurred by the debtor by reason of goods sold and delivered by the creditor to the debtor under the invoices referred to in the schedule. In each case, the goods sold and delivered consisted of photographic film, paper or chemicals and the debt arose at the time of delivery."

In each affidavit Mr Mitchum said of the debts claimed that "... the debt arose at the time of delivery." This statement is literally true but misleading, as although the debt then existed, it was not payable until the expiry of the credit terms. This misstatement was not on a matter with which the rules of court require that the affidavit should deal. Each affidavit also stated that the total amount in the demand to which it related "... is due and payable by the debtor." By so saying Mr Mitchum appeared to comply with para (a) of subs.459E(3) but his statements that the totals were due and payable were untrue. The total was not yet payable in either case.

All considerations of the form of affidavits are overshadowed by the fact that the affidavits were untrue as the totals were not payable. There can be no shelter for a demand in an affidavit which says what para (a) of subs.459E(3) says it is to say, but is untrue. This is a discretionary consideration of great force. The verifications are inconsistent with Kodak's own documents. Mr Mitchum had only to look at Kodak's own invoice 160033, referred to by number in one of his affidavits, to see that it said that payment was due by 31 March. That statement too was inaccurate, having regard to the letter of 29 June 1993, as Mr Mitchum would have seen had he read the letter.

Each affidavit was entitled "In the Supreme Court of New South Wales", and showed in the left hand margin the title and parties' names of a litigation (which has never existed) in the Equity Division of this Court in which Kodak was the plaintiff and the relevant debtor company was the defendant, with a note of the deponent's name and date of swearing.

These affidavits do not comply with Pt.80A r.15(1) of the Supreme Court Rules in three respects. Neither states the source of Mr Mitchum's knowledge of the matter stated in the affidavit concerning the debt. Neither states that Mr Mitchum believed those matters to be true, nor that Mr Mitchum believed that there was no genuine dispute about the existence or amount of the debts.

This part of the plaintiff's case then turned on the contention that this constituted "some other reason why the demand should be set aside" within para (b) of subs.459J(1).

In B & M Quality Constructions Pty Ltd v. Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433 McLelland CJ in Eq, in ordering that a statutory demand be set aside pursuant to s.459J, held that an affidavit made by a person who was not a member or officer and hence not designated by r.15 as the person to make an affidavit did not comply with the rules and hence did not comply with subs.459E(3). This decision was given on a former r.15, the terms of which were somewhat simpler; the present r.15 was substituted by an amendment made on 24 November 1995. In his Honour's view, the requirement that a member or officer verify the statutory demand could not be said to be a merely technical breach of the rule, and related to a significant mechanism for filtering out cases where in fact there was a dispute; see p.435 line 38 to p.436 line 10.

The requirements of subr.15(1) which in the present case were not met have no less significance than the requirement which was not met in the B & M Quality Constructions case. The requirements that the deponent state the source of his knowledge and his belief that the matters stated in the affidavit concerning the debts were true and his belief that there was no genuine dispute are in at least the same order of importance as the requirement that the verification be made by a member or officer. The selection of the right person achieves nothing unless the facts required to be verified are actually verified.

McLelland CJ in Eq. went on at p436 to express these views (line 19 to 29): "The defendant's failure to comply with the rules in the manner discussed, for the reasons I have indicated, provides a sufficient `other reason' for the purposes of s.459J(1)(b) why the demand should be set aside. The failure to comply with the rules in respect of the accompanying affidavit is not in my opinion a `defect' within the meaning of s.459J(2) which I think, having regard to subs.(1), must be read as a `defect' in the demand itself (and see the definition of `defect' in s.9), and even if it were, the court would not be acting `merely' because of the defect, a phrase which connotes acting merely because there is a defect, without regard to the significance of the defect in the particular circumstances. (cf Zhen Yun (Aust) Pty Ltd v_. State Bank of SA_ [1994] SASC 4626; (1994) 13 ACSR 801 at 803)."

It will be seen that his Honour's view was that the failure of the affidavit to comply with the Rules of Court is not a defect in the demand itself and is not protected by s.459J(2).

In L.M. & W.J. Taylor v. Armour Timber & Trading Pty Ltd (1996) 19 ACSR 231 McLelland CJ in Eq. referred to his decision in B & M Quality Constructions v. Buyrite Steel Supplies with approval; see p.232 line 50 to 233 line 18. It would seem that his Honour was there addressing the substituted rule 15 and regarded his earlier view continuing to be as applicable. In my opinion the substitution has not materially changed the considerations which led his Honour to decide B & M Quality Constructions as he did. In my respectful view that decision was correct, the law as there applied is applicable in the present case, and I should follow it.

Compliance of affidavits with Federal Court Rules.

On behalf of Kodak Australasia however it was said that subr.15(5) excuses the form of these affidavits. It was said that the affidavits complied with the rules of the Federal Court of Australia, relevantly Order 71, r.36A of the Federal Court Rules which I have set out.

Form 93B contains a form of affidavit. The form does not include any reference to any court; the form is headed "Affidavit under s.459E of the Corporations Law". The affidavit in the form is not entitled in the Federal Court of Australia or in any court, and does not show any person as plaintiff, defendant or otherwise by a description appropriate to a litigant. The form is appropriate for an affidavit sworn under statutory authority but not in any litigation, and hence there is no occasion for it to refer to any court, or to any litigation. The generally similar Form 154FA of the forms in Schedule F to the Supreme Court Rules includes "(No heading or title)" so that it too does not refer to any court or any litigation. Mr Mitchum's affidavits do not follow either Form.

In the Federal Court Rules Form 75 "Head of Document" is a general form for setting out the title and parties' names in proceedings under Order 71, the Corporations Rules. Where a form in the Rules is to include the title and parties' names this is indicated by including "(Heading in Form 75)" in the form; sometimes the title appears within the form, and some forms include the words "(no heading or title)". In Form 93B it is clear that there is to be no title or parties' names except for the reference to creditor and debtor.

What Form 93B indicated for the contents of an affidavit was thus:-

"1. To my knowledge, the amount of $5 (amount or amounts) is due and payable by the debtor to the creditor.

2 (Specify details of how and when the debt was incurred)."

The rules of the Federal Court did not (in February 1996) make as complete a prescription of the contents of such an affidavit as did Supreme Court Rules Pt.80A r.15, and Mr Mitchum's affidavit would not fail to comply with the Federal Court Rules in the respects I have mentioned; the requirements of (c), (d) and (e) of subr.15(1) had no counterparts. For this reason Kodak's counsel contended that the affidavits were saved by subr.15(5) in that they complied with the rules of the Federal Court of Australia. However it is manifest that they do not so comply, as they are entitled in the Supreme Court of this State. They are not in accordance with Form 93B; they are quite different, as the form prescribed for the Federal Court of Australia does not provide that such an affidavit should be entitled in any court. The Federal Court Rules do not mean that the Federal Court Rules are to be applied to an affidavit for use in some other court. It may be that the Federal Court of Australia would allow an affidavit entitled in some other court to be read, but if that were to happen, it would not happen in recognition that that affidavit complied with the Rules of the Federal Court.

In Besser Industries (NT) Pty Ltd v. Steelcon Constructions Pty Ltd [1995] FCA 1163; (1995) 16 ACSR 596 (Branson J) the verifying affidavit did not follow Form 93B in that it did not contain the "Important Note" for which this form provides. Branson J was of the view that the failure was technical in nature and "No injustice or disadvantage to the applicant has been suggested to flow therefrom." (p605). The verifying affidavit was inaccurate because the account demanded and verified was excessive; it was her Honour's view (p606) that "Nothing within Div.2 of Pt.5.4 of the Corporations Law suggests, in my view, that statutory demands which are accompanied by such affidavits should for that reason alone be set aside. If it were to be shown that the affidavit had not been sworn in good faith the position might well be different." The facts of that case are not replicated in this case. In my respectful opinion the question under subs.459J(1)(b) whether there is some other reason why the demand should be set aside opens consideration more widely than to matters suggested by the text of Pt.5.4 Divs.2 and 3. Branson J did not have under consideration an affidavit which the creditor's own invoices did not support.

B & M Quality Constructions was not cited to Branson J. It appears from the passage in the judgment of Branson J at 605 l.31-48 that in her Honour's view the prohibition in subs.(2) against setting aside a Statutory Demand merely because of a defect extends to a defect found elsewhere than in the Statutory Demand. This is a different view to that of McLelland CJ in Eq in which subs.(2) refers to a defect in the Statutory Demand itself. In my respectful opinion the view of McLelland CJ in Eq is correct because subs.(2) applies "Except as provided in subs.(1)" and the only part of subs.(1) which speaks of setting aside a Statutory Demand because of a defect is para.(a); para.(b) does not.

Substantial compliance with the Federal Court Rules as to form is sufficient; see Order 1 Rule 7(2). By bearing a title in the Supreme Court and reference to parties in a non-existant litigation the affidavits verifying Statutory Demands did not comply with Form 93B. The departure from the form consists of superfluous inclusions, and does not relate to anything which Form 93B requires to be included. The superfluous inclusions would be rather puzzling to a reader, but they would not impede any reasonable reader from understanding what the affidavits and the Statutory Demands have to say. In my opinion the affidavits and the Statutory Demands were in substantial compliance with the Federal Court Rules, and hence in compliance with subs.459E(3)(b).

Credit terms of trading and the application of the letter of 29 June 1993.

Counsel for Kodak contended that the trading terms established by the letter of 29 June 1993 did not apply to the sales of goods which took place in February 1996. He contended that the terms of conversations between Mr Cochran, Managing Director of the plaintiffs and Mr N.C. Robins, Credit Manager of Kodak showed that there was a special and ad hoc arrangement in which Kodak agreed to supply the plaintiffs' immediate needs in return for a cheque, and what was delivered was not a cheque; and in those circumstances he contended that the plaintiffs could not rely on the June 1993 letter dealing with 59 days credit.

Mr Robins' affidavit of 28 March 1996 gives an account of a telephone conversation with Mr Cochran early in February 1996. At that time Kodak was withholding further supply because of outstanding indebtedness. Mr Cochran said that he needed stock or he would have to shut his doors. Mr Robins said that the account would go on hold until Kodak had a firm repayment schedule, a guarantee and a resolution of a dispute Mr Cochran had raised about a claim for $105,000. After some discussion about Kodak's position Mr Cochran said "I will give you a cheque for $100,000 and I will give you the guarantee." Mr Robins said "When we receive the cheque and the guarantee, we'll then look at supplying stock." Mr Robins then sent Mr Cochran a form of guarantee and Mr Cochran sent back by fax transmission a copy of this form bearing his own signature. (The document is very defective as it does not name the debtor which is guaranteed. However it does contain an acknowledgment in which Mr Cochran said "We have had the opportunity to read the trading terms between the customer and Kodak (Australasia) Pty Ltd"). Mr Cochran also gave Mr John Parkinson in the Sydney office of Kodak a cheque for $110,000; that is, a document written on a cheque form but with a condition written in it relating to money becoming available from some other transaction. The condition was never fulfilled and the existence of the condition means that the document was not in strictness a cheque at all.

Mr Cochran also had a conversation, in the hearing of Mr Robins, with Dr Sierakowsky, a Manager of Kodak, on 7 February 1996 in which Dr Sierakowsky took a firm line on the need for funds or "hard security" if further product was to be supplied. After discussing various aspects of the parties' dealings Dr Sierakowsky closed the conversation by telling Mr Cochran that Dr Sierakowsky would not move on release of product until guarantees and the cheque for $110,000 was received. Mr Cochran sent Mr Robins a fax transmission, bearing date 8 February but apparently transmitted on 9 February purporting to give Kodak a charge over some land in Illinois, but subject to a condition which is difficult to understand.

Mr Cochran alleges in his affidavit of 16 April that he made a further arrangement with Mr Robins, but Mr Robins denies this and I am not prepared to act on this part of Mr Cochran's evidence.

The evidence of Mr Robins and the notes made by Dr Sierakowsky show that Mr Cochran was told that Kodak was prepared to supply product in February to meet the plaintiff's urgent needs only on conditions relating to a guarantee, payment of a large sum variously spoken of as $100,000 and $110,000, and security Mr Cochran indicated that he would do these things. A guarantee was given, the other requirements were not met, and Mr Cochran had no effective commitment from Kodak to supply him with goods in February at all. In these circumstances Kodak actually supplied the plaintiffs with part, said to be about half, of their February requirements, and these are the February sales.

Counsel contended that these circumstances showed that the amount payable under the February invoice fell due when the goods were delivered. The February sales were not supplied under any arrangement made between Mr Cochran and Kodak in the persons of Mr Robins and Dr Sierakowsky. Mr Cochran received no commitment to give supply which operated in the circumstances which actually existed. More importantly, even if the February sales had been made in accordance with some special arrangement governing them, there is nothing in the evidence to show that the special arrangement included any modification of the overriding terms of credit on which the parties were dealing. (Mr Cochran tried to obtain modification of the credit terms for the sales of some earlier months, but he did not succeed.) The evidence does not support the view that any credit terms other than those agreed in June 1993 were to cover the sales made in February 1996.

Operation of paras.(a) and (b) of subs.459J(1) - "mutually exclusive."

Kodak's counsel referred me to authorities which show a difference of judicial opinion on whether paragraphs (a) and (b) of subs.459J(1) are mutually exclusive, that is, whether para.(a) deals exhaustively with the availability of grounds founded on defects in demands so that in the absence of substantial injustice and notwithstanding para.(b) the Court can never set aside a demand merely because of a defect in it.

Kodak's counsel contended that it is clear that overstatement is not a case for setting aside the demand, and went on to say that in every case where the sum stated in the demand is excessive there will necessarily be an affidavit which does the same. The first part of this contention was said to appear clearly from the terms of s.459H, of which counsel said that the legislature dictates that the Court must reduce the demand by the amount of the overstatement but must not set it aside on the ground of the overstatement. In my opinion however s.459H is of no assistance to Kodak. There is no genuine dispute about the existence or amounts of the debts to which the demands relate. The matters relied on by Kodak's counsel in support of the contention that the February invoices became due earlier were not supported by evidence, were nominally supported by references to evidence which did not relate to them and did not raise a genuine dispute. For the February invoices, and for the earlier sales for which credit terms had not run out by 27 February, the problem with the Statutory Demands is not that parts of the debts in them were the subject of a genuine dispute; the problem is that part of the debts in them were manifestly not payable on any rational view at the date of verification.

The claim of the plaintiff that the Statutory Demand should be set aside on this ground is not meritorious; the greater part of the debts in both Statutory Demands was undoubtedly past due for payment and it is fortuitous that the plaintiffs are able to point to other parts which were not due for payment when the demands were signed and verified, or when they were served, or when the time to apply to set them aside expired, but have since fallen due for payment. The question under para.(b) of s.459J(1) falls to be addressed on the basis that the plaintiffs have no relevant merits. I must consider whether the Court is to accept use by Kodak of the statutory procedure in which verification is required, where the verifying affidavit is correct as to part of the matter with which it deals and incorrect as to significant other parts; clearly incorrect in a way which should have appeared on a reasonable address to whether what was being verified was in fact correct, even limited to a review of Kodak's own documents. Is the Court to allow the Statutory Demand to stand, or is it to see the circumstances as a reason why the demand should be set aside and exercise its discretionary power to do so?

Kodak submitted that there is a conflict in the reported decisions on the question whether, where there is a defect in a demand, the only source of power to set aside the demand is in s.459J(1)(a). He contended that the proposition that para.(a) is the only source of power is supported by Kalamunda Meat Wholesalers Pty Ltd v. Reg Russell & Sons Pty Ltd [1994] FCA 1059; (1994) 13 ACSR 525 at 528-529 (Hill J), Victor Tunevitsch Pty Ltd v. Farrow Mortgage Services Pty Ltd [1994] TASSC 121; (1994) 14 ACSR 565 at 567 (Cox J) Chains & Power (Aust) Pty Ltd v. Commonwealth Bank of Australia (1994) 15 ACSR 544 at 551-552 (Sackville J), Chippendale Printing Co. Pty Ltd v. Deputy Commissioner of Taxation (1995) 15 ACSR 682 (Lindgren J) and Chase Manhattan Bank Ltd v. Oscty Pty Ltd [1995] FCA 1208; (1995) 17 ACSR 128 at 137 (Lindgren J).

In Kalamunda Hill J expressed this view distinctly. In Victor Tunevitsch Cox J expressed agreement with Hill J (at 567) but acted under para.(b), where no accompanying affidavit was served. In Chains & Power Sackville J expressed agreement with Hill J (with a slight qualification) - see 552-553. In that case the attack on the Statutory Demand related to its not specifying how much of the debt was principal and how much was interest and other charges, and to the manner of service. In Chippendale Printing, Lindgren J followed Hill J - 699. In my opinion Chase Manhattan does not contain any relevant observations. In First Line Distribution Pty Ltd v. Paul Whiley (1995) 18 ACSR 185 at Cohen J referred with apparent approval to Kalamunda Meat and Chains & Power as supporting the view that "subs.(2) has been interpreted to mean that s.459J(1)(a) is the only power under which a demand can be set aside because of a defect ... As a result, s.459J(1)(b) can be relied on only where the company is not basing its application on a defect in the demand."

Counsel brought to my attention to other decisions which support the view that a defect in the demand may constitute grounds on which to set aside the demand under para.(b). In Topfelt Pty Ltd v. State Bank of New South Wales Ltd [1993] FCA 589; (1993) 12 ACSR 381 Lockhart J set aside a defective Statutory Demand, acting under para.(b), although there was no evidence of any specific injustice which the applicant had suffered or might suffer; see p.396 and 397. In Scandon Pty Ltd v. Dome Supplies Pty Ltd (1995) 17 ACSR 662 Senior Master Mahony, confronted with a Statutory Demand the defects in which were gross, followed Lockhart J in Topfelt and declined to follow Kalamunda and decisions which follow it.

It is not necessary to come to a conclusion between these views to dispose of the present case. I incline towards the Kalamunda view, for textual reasons. My preference is based on the text of section 459J and generally of Pt.5.4, including Div.3, which seem to show that a decision to set aside a demand because of defect in the demand can only be made under para.(a) and cannot be made under para.(b). The reference to substantial injustice in para.(a) and its absence from para.(b) seem to show that it is not essential for a decision to set aside a demand under subpara.(b) that there should be a substantial injustice. As substantial injustice is required for a decision under para.(a) and is not referred to in para.(b) it must be intended that there be some difference in their operation. The Court should not act under para.(b), which is discretionary, unless the decision to do so is supported by some sound or positive ground or good reason which is relevant to the purposes for which the power exists.

The detailed provisions of ss.459H and 459J(1)(a) show that demands are to stand unless there are reasons of appropriate seriousness for setting them aside, and an application under para.(b) should be approached in that way. A judicial decision to set a demand aside must be obtained by a prescribed procedure invoked in a limited time, and this regime of itself indicates that there must be grounds of appropriate seriousness.

Exercise of the power in para.(b) of subs.459J(1).

Kodak's counsel contended that it is relevant to the exercise of any discretion that, as he said, points relating to the form of the demands and affidavits were not taken until the hearing began on 27 May. This contention lacks substance as the points arise on the terms of the document and could not have been the subject of additional evidence adduced by the plaintiffs. It should always be understood that the terms of a Statutory Demand and Affidavit will come under scrutiny, the plaintiffs were placed under the need to make their applications within a limited time, the prescribed procedure requires them to produce their affidavits but does not require them to state the nature of their case, and Kodak could have asked for particulars of their grounds if it wanted particulars.

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. Echoing expressions of Senior Master Mahony in Scandon at p668, 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.

Kodak's counsel also asked that I make an order under Pt.1 r.12 of the Supreme Court Rules dispensing with requirements of Pt.80A relating to the form of the affidavit. Determination of this application is not necessary as, in my opinion, the affidavit substantially complies with the Federal Court Rules and hence with para.(b) of subs.459E(3). If it did not, the position could not be rectified by an order under Pt.1 r.12 as subs.459E(3) requires compliance, not dispensation with compliance.

I was also asked to make an order in each case pursuant to para.(a) of subs.1322(4) of the Corporations Law. In my opinion the concept of validity involved is "invalidated" in subs.(2) and related expressions in s.1322 refers to a lack in a proceeding of its purported or intended effect. In my opinion the issue and service of the demands are not invalid by reason of any defect or deficiency in the supporting affidavits. The possibility that a purported Statutory Demand might have a defect so fundamental that the demand was incapable of assuming the description of Statutory Demand was contemplated by Lockhart J in Topfelt at p.393 l.20 but does not appear to have been encountered in any reported case. None of the criticisms levelled at the Statutory Demands in this case if upheld would relate to its validity as a Statutory Demand; each is undoubtedly a Statutory Demand, and the difficulty faced by Kodak is not lack of validity but the claim to set them aside under statutory power to do so.

If this were not so, and an order were made under s.1322 declaring that the notice of demand was not invalid, the notice of demand would be just as much open to exercise of the power to set it aside under s.459J as if there had been no order under s.1322; see McLelland CJ in Eq. in B & M v. Buyrite at 437.

Counsel also contended that if the Statutory Demands were to be set aside they should be set aside by an order under s.459M which imposed some conditions relating to their operation with respect to the debts which undoubtedly had fallen due. However I do not regard it as appropriate to preserve their operation to any extent.

In my view the dominant consideration is the need to ensure the purity of the manner in which creditors follow statutory procedures which are preliminary to litigation and for which verification is required by law. I do not find it possible to see deficiencies of the kinds which exist in these affidavits as something which can be disregarded. It is not enough that a responsible officer should support a Statutory Demand by oath or affirmation; the exercise must be carried out in a responsible way, and regard must be paid, with a strictness appropriate for verification, to the need to review the available information and observe whether what is being verified conforms to the information in the creditor's own hands. If there had been a conscientious review of Kodak's own records, the affidavits made in this case could not have been made. In my opinion I should not allow this. I should not allow it whether or not there are genuine offsetting claims.

As I am of the view that the plaintiffs are entitled to succeed on the grounds which I have set out, irrespective of whether or not there is an offsetting claim which is a genuine claim, I do not propose to take the matter further or to give counsel an opportunity to address on whether or not there is a genuine offsetting claim.

In each case I make the orders claimed in the Summons, in these terms:

1. Order that the demand served on the plaintiff by the defendant pursuant to s.459E of the Corporations Law be set aside.

2. Order that the defendant pay the plaintiff's costs of the proceedings.

B & M Quality Constructions Pty Ltd v. Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433

L.M. & W.J. Taylor v. Armour Timber & Trading Pty Ltd (1996) 19 ACSR 231

Kalamunda Meat Wholesalers Pty Ltd v. Reg Russell & Sons Pty Ltd [1994] FCA 1059; (1994) 13 ACSR 525

Victor Tunevitsch Pty Ltd v. Farrow Mortgage Services Pty Ltd [1994] TASSC 121; (1994) 14 ACSR 565

Chains & Power (Aust) Pty Ltd v. Commonwealth Bank of Australia (1994) 15 ACSR 544

Chippendale Printing Co. Pty Ltd v. Deputy Commissioner of Taxation (1995) 15 ACSR 682

Chase Manhattan Bank Ltd v. Oscty Pty Ltd [1995] FCA 1208; (1995) 17 ACSR 128

First Line Distribution Pty Ltd v. Paul Whiley (1995) 18 ACSR 185

Besser Industries (NT) Pty Ltd v. Steelcon Constructions Pty Ltd [1995] FCA 1163; (1995) 16 ACSR 596

Scandon Pty Ltd v. Dome Supplies Pty Ltd (1995) 17 ACSR 662