Spinoccia v Challenger

Spinoccia v Challenger - [2010] NSWSC 1310 - NSWSC 2010 case summary — Zoe

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2010/234897 SPINOCCHIA COMPRESSOR & AIR TOOLS SALES & SERVICES PTY LIMITED v CHALLENGER MANAGED INVESTMENTS LIMITED JUDGMENT 1 HIS HONOUR: This is an application under s 459 of the Corporations Act 2001 (Cth) ('the Act') to set aside a statutory demand. The demand is dated 22 June 2010 and claims the amount of $117,974.03. The description of the debt and the demand is as follows "amount paid in mistake by Perpetual Trustee Company Limited to the Company that should have been paid as GST to the ATO on the sale of the property at 2 Woodfield Boulevard Carringbah NSW 2229". 2 The plaintiff suggests that there are defects in the affidavit in support of the statutory demand that would lead to the demand being set aside and also submits that the amount sought to be recovered is not a debt but merely an unliquidated claim. Background circumstances 3 The plaintiff was the owner of land at Taren Point, NSW that was subject to a mortgage to the defendant. 4 On 2 March 2010, the defendant as mortgagee exercising its power of sale, sold the land at auction for an amount of $1,175,000 exclusive of GST. Pursuant to the contract, the deposit of $175,500 was paid to the defendant's solicitors. On settlement the defendant's solicitor received $1,180,214.34. Out of the settlement funds, the defendant received $905,674.16 in repayment of the amount due on the mortgage. In addition, the defendant's solicitors were paid $1,274.02 in payment of legal fees and $20,380.37 was drawn in payment of monies owed to a caveator. 5 On 21 April 2010, the plaintiff was paid the balance of $322,162.12. However, the amount the defendant received on settlement included an amount of GST which the defendant had collected from the purchaser of the property totalling $117,974.03. 6 The defendant's claim arises because it says that at the time it had paid the $322,162.12 to the plaintiff there was outstanding GST in relation to the sale that had not been remitted to the ATO. It is submitted that in making the payment to the plaintiff, the defendant made a mistake of fact in not appreciating that it had an obligation to pay to the ATO the GST of $117,974.03. There is no doubt that the plaintiff is properly entitled to the balance of the payment to it. 7 It is clear that neither party has paid the amount of the GST to the Australian Taxation Office. Defects in the affidavit 8 After debate and submissions the basis upon which the plaintiff said the affidavit was deficient boiled down to two points. Firstly, a matter connected to the jurat in the affidavit and secondly, the defendant did not state the source of his knowledge. 9 I will deal with the first matter. 10 The commencing part of the affidavit was as follows: "I, Joseph George Mercieca, of Level 33, 101 Collins Street, Melbourne VIC 3000, Collections Manager-Commercial Lending, say on oath: … ". 11 The jurat which followed the 12 paragraphs of the affidavit was in the following form: SWORN/AFFIRMED by the deponent at ) Melbourne ) In New South Wales ) On 21 June 2010. ) a signature . Signature of Deponent

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29 At common law the only action in which mistake could be set up as a ground for relief was in circumstances where no express contractual basis to a claim existed and "money had and received" by the defendant, was in justice, recoverable by the plaintiff. Such a claim is one of the normal indebitatus assumpsit claims (see New South Wales Law Reform Commission, "Community Law Reform Program: Eleventh Report - Restitution Of Benefits Conferred Under Mistake Of Law" Report 53 (1987), Chapter 2 and Bullen & Leake's Precedents of Pleadings 3rd ed (1868) on page 50). 30 There have been a number of cases that deal with the word debt in the context of demands under the Corporations Law (Cth) and its predecessors. As I said in Reinsurance Australia Corporation v Odyssey [2000] NSWSC 1118, the first of these is Rothwells Ltd v Nommack (No 100) Pty Ltd [1990] 2 Qd R 85; (1988) 6 ACLC 1199. That was a decision of McPherson J of the Supreme Court of Queensland who was considering a notice under s 364 of the Companies (Queensland) Code. That provision required that there must be a "creditor to whom the company is indebted in a sum exceeding $1,000 then due…" His Honour took the word "indebted" to mean a liquidated sum in money presently due owing and payable by one person called the debtor to another person called the creditor. After dealing with some of the facts, his Honour went on deal with what was a debt at common law, which would support an action in debt or indebitatis assumpsit. He indicated that there were three ways in which a debt could arise. They were: 1. By judgment; 2. By deed under seal; and 3. As quid pro quo for a consideration that was executed. 31 The factual circumstances related to a promise to pay a sum to a third party. His Honour found that the arrangements did not give rise to a debt, which he saw as importantly different from a claim for breach of contract. 32 The next case is First Line Distribution Pty Ltd v Paul Whiley & Ors (1995) 13 ACLC 1216. This was a decision of Cohen J of the Supreme Court of New South Wales and was concerned with a contract that gave a right to distribute and sell the plaintiff company's products. The company was paid money by the defendants for the distribution rights and under the contracts the defendants delivered the company's goods. For a while the defendants bought stock from the company but the company became unable to continue to supply the goods. The statutory demand, under the Corporations Law, claimed that the monies that had been paid for the right to distribute the company's products were now debts owing to the defendants. His Honour referred to the fact that contingent or respective liabilities may not be the subject of a statutory demand. He pointed out that the defendant would be entitled to claim damages for breach of the agreement. His Honour went on to say: "However, as none of the defendants have brought an action for damages there is no judgment debt against the company, the company's claim is, and was at the time the demand was served, merely one for unliquidated damages. The amount of damages has not been ascertained and the company does not owe a debt to any of the defendants until then." 33 Plainly, claims for damages for breach of contract for unliquidated claims are not susceptible to creating a debt for the purposes of a statutory demand. The claim to be advanced in the present case in respect of the money received by the defendant for the use of the plaintiff was, as I have said, one of a common indebitatus assumpsit count. 34 In Hansmar Investments v Perpetual Trustee [2007] NSWSC 103; (2007) 25 ACLC 282 at 291, White J considered the promise under contract to pay a specific or readily calculable sum was properly characterised as giving rise to a debt in that sum. 35 A case which is useful for its explanation of what is a debt for the purpose of the present provision is Vimblue Pty Ltd v Toweel t/as Carpenters Core Building [2009] NSWSC 494. After referring to the words of McPherson, in Rothwells which I quoted above, Barrett J said: " [14] It may be noted that McPherson J referred to a "liquidated sum", not a "liquidated demand". The nature of a "liquidated sum" was explained by Knox CJ and Starke J in Spain v Union Steamship Co of New Zealand Ltd [1923] HCA 21 ; (1923) 32 CLR 138 at 142 by quoting from the then current edition of Odgers on Pleading:

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[20] If a mechanic spends half an hour repairing my car and there is no agreement between us as to the amount he will charge and I will pay, his subsequent claim for $1 million may be regarded as a liquidated claim. But no liquidated sum is thereby owing, due and payable by me to him. His entitlement is to be paid a reasonable sum upon a quantum meruit. Until the value of the work is ascertained and in the absence of some process that fixes what is reasonable according to what Palles CB called "positive data", as distinct from "opinion or conjecture", the liquidated claim does not mature into an entitlement to a liquidated sum." 36 Here in the present case the claim is for a fixed amount that has been paid because of an alleged mistake. There is nothing that needs to be determined or ascertained to fix the amount of the claim. It truly is a claim for a liquidated sum. In these circumstances, subject to the next matter that I will address, there is a debt that is the subject of the demand. 37 There is no doubt in this case that the purchasers paid the GST in addition to the contract price. The front page of the Contract for the Sale of Land - 2005 Edition, executed on 2 March 2010, provided the sale of the property was a taxable supply on a GST exclusive basis. 38 Clause 31.3 of the special conditions of the contract provided as follows: "31.1 The consideration expressed to be payable under any other clauses of this Agreement for any supply made under or in connection with this Agreement does not include GST." 39 The defendant's liability to pay GST under A New Tax System (Goods and Services Tax) Act 1999 (Cth) is said to arise under section 105-5 of that Act: "105-5 Supplies by creditors in satisfaction of debts may be taxable supplies (1) You make a taxable supply if: (a) you supply the property of another entity (the debtor ) to a third entity in or towards the satisfaction of a debt that the debtor owes to you; and (b) had the debtor made the supply, the supply would have been a taxable supply. (2) It does not matter whether: (a) you made the supply in the course or furtherance of an enterprise that you carry on; or (b) you are registered, or required to be registered. (3) However, the supply is not a taxable supply if: (a) the debtor has given you a written notice stating that the supply would not be a taxable supply if the debtor were to make it, and stating fully the reasons why the supply would not be a taxable supply; or (b) if you cannot obtain such a notice - you believe on the basis of reasonable information that the supply would not be a taxable supply if the debtor were to make it. (4) This section has effect despite section 9-5 (which is about what is a taxable supply)." 40 The requirement in 105-5(1)(a) is satisfied in this case. The definition of taxable supply is set out in s 9-5 of the Act as follows:

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