Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA [1997] FCA 681 | Case summary

REASONS FOR JUDGMENT THE COURT: INTRODUCTION This is an appeal from the decision of a judge of the Court in which an application by the appellant to set aside a statutory demand claiming $12,303.00 was dismissed. The demand, dated 9 July 1996, was served on the appellant by the respondent under s 459G of the Corporations Law. The appellant had contended that: · there were defects in the demand which warranted it being set aside; and · there was a genuine dispute as to the existence of the debt claimed in the demand. The learned primary judge, Finn J, held that the defects did not warrant an exercise of discretion under s 459J(1)(b) of the Corporations Law as they did not produce substantial injustice and were not of such a character as to warrant the clear disapprobation of the Court. His Honour also held that while disputes were alleged in the evidence adduced before him they failed to meet the threshold of genuineness as stated by Lindgren J in Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA (1994) 15 ACSR 347. Finn J found that the disputes alleged constituted no more than bare assertions which were, in the main, inconsistent with the terms of the contract propounded by the appellant. FACTUAL BACKGROUND On 2 March 1994 the appellant, then known as Fyna Constructions Pty Ltd, entered into a head contract as builder with Vynotas Pty Ltd ("Vynotas") for the construction of a residential development at 388‑442 Victoria Parade, East Melbourne. Under that contract Vynotas was entitled to deduct retention monies from progress payments. Earlier, in or about January 1994 the appellant entered into an arrangement in the nature of a sub‑contract with the respondent for the carrying out by the respondent of underpinning works which were to form part of the head contract works. A form of sub‑contract was prepared but was never executed. At the hearing before Finn J the appellant propounded one form of sub‑contract, which had not been executed by the parties, as being the relevant contract between the parties and the respondent propounded, as the relevant contract, an amended form of sub‑contract which it had executed but which had not been executed by the appellant. The appellant disputed that the latter document constituted the relevant contract between the parties. However, it was common ground between the parties that such contract as was entered into provided for progress claims and progress payments and for the retention of 10% of the progress payments approved for payment pending practical and final completion. The respondent carried out the underpinning works, submitted progress claims and received progress payments in respect of which $12,303.00, being 10% of the progress payments approved by the appellant and made to the respondent, was withheld by the appellant. There is an issue as to whether this amount had been paid by the principal, Vynotas, to the appellant. On 7 December 1994 Vynotas terminated the head contract with the appellant and the new construction manager retained on its behalf, Total Project Control Pty Ltd, distributed a memorandum to the sub‑contractors and suppliers involved in the works in the following terms: "It is our intention on behalf of Vynotas Pty Ltd to immediately deal with all Sub‑Contract and Supply Agreements in order to ensure that: * Contractors and Suppliers are paid for work certified as complete, including for legitimate variations, * completion of the Contract Works is achieved within the original general contract provisions, especially in regard to quality and cost. ..." The appellant claims that at a site meeting with the new construction manager on 8 December 1994, at which the respondent was represented, the new construction manager: "represented in effect, amongst other things, that all moneys owing to sub‑contractors by the Company would be made good by Vynotas Pty Ltd". The appellant contends that because the head contract was terminated and Vynotas undertook to deal with all sub‑contractors including the respondent, it is not responsible for paying the retention sum which it says is payable by Vynotas to the respondent. On 12 December 1994 the appellant wrote a letter to the respondent which included the following: "The Principal has now accepted the obligation to pay all sub‑contractors and suppliers engaged for the project. In the circumstances, we advise that all future claims made by you in relation to the project should be forwarded to the attention of [the new construction manager]." On 16 December 1994 the respondent wrote to the new construction manager and informed it that the following amounts were outstanding: "Original contract: $ 2,000.00 Retention held (cash): 12,303.00 Total amount outstanding: $14,303.00" The respondent had not requested the appellant to pay the $2,000.00 which was due under the sub‑contract. Vynotas paid the $2,000.00 but not the remaining sum of $12,303.00. Vynotas informed the respondent that the retention amount had been paid to the appellant but the appellant says this amount has never been received by it. Correspondence between the appellant and the respondent's solicitors was to no avail and eventually the statutory demand claiming $12,303.00 was served. DEFECTS AND DISPUTES RELIED UPON BY APPELLANT The appellant alleged two defects in the statutory demand and a defect in relation to the accompanying affidavit. The defects were that: (a) the demand was not directed to the appellant at its registered office which was current at the time of the service of the statutory demand. On 14 February 1996, the address identified in the demand as the appellant's registered office had been changed to another address with effect from 15 February 1996; (b) the demand was served in New South Wales but specified an address in Victoria, being the address of the respondent's solicitors, for service of any application under s 459G of the Corporations Law; and (c) the affidavit accompanying the statutory demand was in the form specified in the Rules of the Supreme Court of Victoria and was not in the form required by either the Federal Court Rules or the Rules of the Supreme Court of New South Wales. The defects referred to in (b) and (c), but not the defect in (a), were raised before the primary judge. No objection was taken to the reliance by the appellant on the appeal upon the defect in (a). The grounds relied upon before the primary judge and on appeal for contending that there was a genuine dispute about the existence, or the amount, of the debt to which the demand related were as follows: (a) the debt was not due and payable unless and until the appellant received the retention money Vynotas had withheld from it in respect of the respondent's work; (b) payment of the debt by the appellant had been waived by the respondent as, upon the termination of the head contract, Vynotas undertook liability for paying the retention money and the respondent accepted that undertaking of liability in lieu of any previous obligation of the appellant to pay that amount. Although the ground was expressed in terms of "waiver", in reality it alleged a "novation". Counsel for the appellant acknowledged that the defects upon which the appellant relied had not caused any substantial injustice. The demand had been received by the appellant which was able to file its application to set it aside within the strict time period required by s 459G. The appellant nevertheless submitted that the primary judge should set aside the statutory demand under s 459J(1)(b) on the basis that there was "some other reason why the demand should be set aside". It was contended that the reason was that it was proper for the Court to censure significant and substantial departures from the prescribed procedures: see Scandon Pty Ltd v Dome Supplies Pty Ltd (1995) 13 ACLC 1256. Finn J did not regard the defects, nor any of the circumstances arising from them, as warranting an exercise of discretion by the Court under s 459J(1)(b). His Honour referred to the federal character of the matter and concluded that, whatever might be the difficulties which the defects might cause in proceedings in a State court, they should not be treated as being of significance in the Federal Court unless: (a) they produce substantial injustice; or (b) they were of such a character as to warrant the clear disapprobation of the courts. His Honour also found there was nothing in the contractual relationship between the parties which provided any plausible basis for alleging that it was a contractual term that the retention moneys did not have to be paid until the appellant received the moneys from Vynotas. Nor could his Honour find any evidence to support the appellant's contention that Vynotas or its new construction manager had assumed any legal obligation, enforceable by the respondent, to pay the retention moneys to it. THE DEFECTS IN RELATION TO THE DEMAND Before us the appellant contended that this was a case where the demand should be set aside for "some other reason" under s 459(1)(b) because the gravity of the defects was such that the Court should show its disapprobation and warn persons wishing to rely on the statutory demand procedure of the importance of complying with the relevant statutory and regulatory requirements. It was central to the appellant's submission that "some other reason", for the purposes of s 459J(1)(b), encompassed a defect in the demand notwithstanding that the defect did not cause substantial injustice. Counsel for the appellant relied upon the reasoning of Lockhart J in Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226 and Senior Master Mahoney in Scandon Pty Ltd v Dome Supplies Pty Ltd (supra). The appellant also contended, before us, that the accompanying affidavit did not comply with "the rules" of court as required by s 459E(3). Counsel for the respondent accepted that there were defects in the demand but contended that they were of no substance or consequence. Counsel disputed that the accompanying affidavit did not comply with "the rules" of court. Accordingly, it was said, the Court could not, or ought not, set the demand aside under s 459J merely because of the defects. It is necessary to identify the alleged defects. Section 459E(2)(e) provides that a statutory demand "must be in the prescribed form (if any)". By reason of reg 1.03 of the Corporations Regulations, Form 509H of the Regulations is prescribed for the purposes of s 459E(2)(e). Form 509H , so far as is relevant, is in the following form: "To (name and ACN or ARBN of debtor company) of (address of the company's registered office) 1. The company owes ... ... 6. The address of the creditor for service of copies of any application and affidavit is (insert the address for service of the documents in the State or Territory in which the demand is served on the company, being, if solicitors are acting for the creditor, the address of the solicitors) ..." Regulation 1.04 provides: "A form must be completed in accordance with the directions and instructions specified in the form." Section 459E(3) requires a demand, unless the debt is a judgment debt, to be accompanied by an affidavit which verifies the debt and "complies with the rules". The expression "the rules" is defined in s 9 of the Corporations Law as meaning: "(a) rules of the Federal Court; or (b) rules of the Supreme Court of this or another jurisdiction; as the case requires..." The demand before the Court was served on the appellant and received by it in New South Wales but: (a) it was addressed to the appellant at its former registered office, a different registered office having been established on 15 February 1996; (b) the address for service of any application and affidavit was given as the respondent's solicitors' address in Melbourne. It was common ground that these two deficiencies were defects in the demand. The accompanying affidavit was in accordance with Form 5‑7A of the Rules of the Supreme Court of Victoria, Chapter V which differs, in substantive respects, from the form required by the Federal Court Rules and the Rules of the Supreme Court of New South Wales. The respondent disputed that there was any defect in relation to the affidavit. If there was a defect in respect of the affidavit it was a defect in relation to the demand rather than in the demand itself. Section 9 of the Corporations Law defines "'defect', in relation to a statutory demand" as including: "(a) an irregularity; and (b) a misstatement of an amount or total; and (c) a misdescription of a debt or other matter; and (d) a misdescription of a person or entity". Section 459J provides: "(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". What is the consequence of a defect? As a matter of construction it appears to us that the section is intended to operate as follows. If the defect is "in the demand" it is only to be set aside if substantial injustice will be caused by the defect unless the demand is set aside: see s 459(1)(a) and (2). If there is any other defect, including a defect in relation to the demand rather than in the demand itself, then the demand may only be set aside if the Court is satisfied that there is some reason why the demand should be set aside: see s 459J(1)(b) and (2). If our construction is correct the statute itself provides for the consequences of non‑compliance in the case of "a defect" so that, in respect of a defect in or in relation to a demand, strict compliance with the statutory provisions is not a precondition to the validity of the demand. It is now well settled that the consequence of failing to comply with a statutory requirement is not a question of categorisation into a mandatory/directory dichotomy. Rather, it is a question of legislative intent to be discerned in the words of the relevant statutory provision construed in the context of the statute as a whole: see Australian Broadcasting Corporation v Redmore Pty Ltd (1989) 166 CLR 454, 457 per Mason CJ, Deane and Gaudron JJ. In respect of a defect falling within s 459J the ultimate issue is whether, construing the relevant provisions in their context (including their scope and purpose), there is a legislative intent that either strict or substantial compliance with the relevant requirement is a precondition to the validity of the action taken: see Hunter Resources Limited v Melville (1988) 164 CLR 234, 241, 245, 248‑9, 251, 256‑7; Australian Broadcasting Corporation v Redmore Pty Ltd (1989) 166 CLR 454, 457; and Pearce and Geddes, Statutory Interpretation (4th ed, 1996) 284‑5. Section 459J(2) makes it quite clear that the legislative intent is that defects in relation to statutory demands are not to result in invalidity save and except as provided in s 459J(1). Given that role there is no basis for construing s 459J(2) as being limited to defects in demands rather than defects in relation to demands. In summary, s 459J(2) prevents the Court from setting aside a statutory demand "merely because of a defect" except as provided in sub‑section (1). Section 459J(2) is the legislative prescription which ensures that defects alone, whether in the statutory demand or in relation to the statutory demand, will not result in invalidity. The failures to specify the correct registered office of the appellant and an address of the respondent in New South Wales for the service of any application and affidavits are clearly "defects" in the demand in that the required form and the directions and instructions contained in it have not been complied with. As no injustice will be caused by these defects the Court is precluded from setting aside the demand merely because of them: ss 459J(1)(a) and (2). However, the appellant contends that the Court is able to treat the gravity of the defects in the demand as affording "some other reason" under s 459J(1)(b) as to why the demand should be set aside. If that contention is correct the Court is entitled to set aside a demand because of a defect in it even if substantial injustice will not be caused by the defect, notwithstanding that the combined operation of ss 459J(1)(a) and (2) suggests that that is precisely what a court cannot do. The interpretation of s 459J(1) contended for by the appellant is not correct. Section 459J(1) and (2) constitute the statutory code for defects in a demand; within that code the legislature did not distinguish between degrees of defect in statutory demands. As we have pointed out a defect in a demand only gives rise to an entitlement (if substantial injustice is established) to have the demand set aside under s 459J(1)(a), but not under s 459J(1)(b). Accordingly, the "other reason" required by s 459J(1)(b) must, in our view, be a reason other than a defect in the demand. Section 9 of the Corporations Law defines a "statutory demand", unless the contrary intention appears, as meaning: "(a) a document that is, or purports to be, a demand served under section 459E; or (b) such a document as varied by an order under subsection 459H(4)." No contrary intention appears in s 459J. Accordingly, the expanded definition applies to s 459J which operates in respect of documents purporting to be demands served under s 459E. Thus so long as a document "purports to be" a statutory demand, the power of the Court to set it aside on the basis that there is a defect in or relating to the demand, is to be determined by reference to s 459J. That offers further support for our view that even significant defects in a demand are to be determined under s 459J(1)(a) rather than s 459J(1)(b). In Topfelt Pty Ltd v State Bank of New South Wales Ltd (supra, 238) Lockhart J expressed the view that: "There may, however, be cases where deficiencies in the form of demands are so fundamental that the demands are incapable of assuming the description of statutory demands within the meaning of the Corporations Law. This is a question to be decided in future cases."

Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA

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