Standard Commodities Pty Ltd v Société Socinter Départment Centragel

CATCHWORDS : CORPORATIONS - Statutory Demands - plaintiff makes applications under s 459G of the Corporations Act 2001 (Cth) ("the Act") to set aside various Statutory Demands - alleges Demands should be set aside on grounds of "some other reason" pursuant to s 459J(1)(b) of the Act - plaintiff alleges that "some other reason" exists because: the affidavit supporting each Demand does not comply with the requirements of Form 7, as prescribed by r 5.2(a) of the Supreme Court (Corporations) Rules 1999, because it does not identify the source of the deponent's knowledge - or alternatively that, even if it complied, the evidence of the deponent was hearsay and did not sufficiently identify the source of the deponent's knowledge - in the circumstances neither contention sustainable - applications to set aside the Statutory Demands accordingly dismissed

LEGISLATION CITED : Corporations Act 2001 (Cth) Supreme Court (Corporations) Rules 1999

Standard Commodities Pty Ltd v Société Socinter Départment Centragel (2005) 54 ACSR 489 CASES CITED : B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433 First Line Distribution Pty Ltd v Whiley & Ors (1995) 18 ACSR 185 Delta Beta Pty Ltd v Vissers (1996) 20 ACSR 583

Walltech Building Systems Limited ABN 34 124 619 601 Nathanial Ira Gerlich Bina Patel Ishwarbhai Haribhai Patel Delaney Alvord Gerlich Katharyn Alvord Gerlich PARTIES : Phillip Towzell Rajesh Patel Shirish Patel Carrie Delaney Rhodes Richard Gibb Ratilal Patel James Rhodes Nanu Patel

FILE NUMBER(S) : SC 3868/2008; 3869/2008; 3870/2008; 3872/2008; 3873/2008; 3874/2008; 3875/2008; 3877/2008; 3878/2008; 3879/2008; 3880/2008; 3882/2008; 3883/2008

COUNSEL : S.M. Golledge (Plaintiff) D.L. Cook (Defendants)

SOLICITORS : DLA Phillips Fox (Plaintiff) Deacons Lawyers (Defendants)

• 9 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

3868/2008 WALLTECH BUILDING SYSTEMS LTD -V- NATHANIAL IRA GERLICH 3869/2008 WALLTECH BUILDING SYSTEMS LTD -V- BINA PATEL 3870/2008 WALLTECH BUILDING SYSTEMS LTD -V- ISHWARBHAI HARIBHAI PATEL 3872/2008 WALLTECH BUILDING SYSTEMS LTD -V- DELANEY ALVORD GERLICH 3873/2008 WALLTECH BUILDING SYSTEMS LTD -V- KATHARYN ALVORD GERLICH 3874/2008 WALLTECH BUILDING SYSTEMS LTD -V- PHILLIP TOWZELL 3875/2008 WALLTECH BUILDING SYSTEMS LTD -V- RAJESH PATEL 3877/2008 WALLTECH BUILDING SYSTEMS LTD -V- SHIRISH PATEL 3878/2008 WALLTECH BUILDING SYSTEMS LTD -V- CARRIE DELANEY RHODES 3879/2008 WALLTECH BUILDING SYSTEMS LTD -V- RICHARD GIBB 3880/2008 WALLTECH BUILDING SYSTEMS LTD -V- RATILAL PATEL 3882/2008 WALLTECH BUILDING SYSTEMS LTD -V- JAMES RHODES 3883/2008 WALLTECH BUILDING SYSTEMS LTD -V- NANU PATEL EX TEMPORE JUDGMENT 1 HIS HONOUR: There are before the Court thirteen applications, each brought by the plaintiff company under s 459G of the Corporations Act 2001 (Cth) ("the Act") to set aside a Statutory Demand dated 2 July 2008, directed to it by the defendant in each matter claiming that the plaintiff is indebted to him or her as a consequence of the termination of a Subscription Agreement, which the plaintiff and each of them entered into in October 2007. Save that the amount demanded in each case differs, the evidence in each application is the same. 2 The affidavit accompanying each Demand is deposed to by the creditors' solicitor, Mr E L R Houghton, and is in the following terms: "1. I am the solicitor for the Creditor named in the Statutory Demand, which this affidavit accompanies, in respect of a debt of $[amount appears here] owed by Walltech Building Systems Limited ACN 124 619 601 ( Company ) to the Creditor as a consequence of termination of the Subscription Agreement entered into between the Company and the Creditor and others in October 2007. 2. I am authorised by the Creditor to make this affidavit on the Creditor's behalf. 3. I have been informed by the Creditor and believe that the debt of $[amount appears here] mentioned in paragraph 1 is due and payable by the Company. 4. I believe that there is no genuine dispute about the existence or amount of the debt." 3 Section 459J(1)(b) of the Act provides: "(1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:

(a) ... (b) there is some other reason why the demand should be set aside." 4 The plaintiff puts that the Demands should be set aside on two separate but related grounds each of which it contends constitutes "some other reason" for doing so within s 459J(1)(b) of the Act: a the first is that the affidavits supporting the Demands do not comply with r 5.2(a) of the Supreme Court (Corporations) Rules 1999 which requires the affidavit accompanying a Statutory Demand to be in accordance with Form 7 and to state the matters mentioned in that Form; and b the second is that even if the affidavits do comply, the evidence of the deponent is hearsay and does not sufficiently identify the source of the matters required to be stated. 5 I will deal with each of the grounds in turn. 6 Form 7 referred to r 5.2(a) is, relevantly, in the following terms: "3. [State the source of the deponent's knowledge of the matters stated in the affidavit in relation to the debt or each of the debts, eg 'I am the person who, on behalf of the creditor(s), had the dealings with the debtor company that gave rise to the debt', 'I have inspected the business records of the creditor in relation to the debtor company's account with the creditor']. 4. *The debt/ *The total of the amounts of the debts mentioned in paragraph 1 of this affidavit is due and payable by the debtor company.

5. I believe that there is no genuine dispute about the existence or amount of the *debt/*any of the debts."

7 The plaintiff puts that the requirement in par 5 of Form 7 to state the source of the deponent's knowledge of the matters stated in the affidavit in relation to the debt or each of the debts includes a requirement to state the matters which give rise to the belief of the deponent required to be stated in par 5 of the Form (deposed to in par 4 of the affidavits) that there is no genuine dispute about the existence of the amount of the debt or any of the debts. Additionally it is put that because the deponent in the present case is conveying hearsay with respect to the matters stated in par 3 of his affidavits it is a requirement that he state the source of the information which gives rise to his belief deposed to in par 4 of his affidavits. 8 It is put that to comply with the requirement as articulated, par 4 of the affidavits (corresponding to par 5 of Form 7) should commence with the words, or words to the effect of:

"Based on information I have received from the Creditor..." 9 It is put that this is a failure to comply with r 5.2(a) in a significant respect, and that this non-compliance is "some other reason" why the Demands should be set aside under s 459J(1)(b) of the Act. 10 It should be made clear that it is not put that it is impermissible in all cases for the deponent's source of information to be a hearsay one. It is clear from the authorities and from the words of the Form itself that it can be. 11 The plaintiff's first contention is unsustainable, for the following reasons: a r 5.2(a) requires the deponent, relevantly, to do two things: firstly to state the source of the deponent's knowledge of the matters stated in the affidavit in relation to the debt, and secondly, to state in an unqualified fashion his belief that there is no genuine dispute about the existence or amount of the debt. The deponent has done both; b in par 3 of his affidavits, Mr Houghton states the source of his information, which is the individual creditor in each case. That paragraph refers to the debt mentioned in par 1. The debt in par 1 is identified by the amount, the parties, and the fact that it arises as a consequence of the termination of the Subscription Agreement, which had been entered into in October 2007; c the deponent identifies both his source and the elements which give rise to the claimed debt. It is clear that both emanate from and are attested to, in the manner in which they are conveyed, by the person who is identified as the creditor. The positive material set out in par 3, read with par 1, is a sufficient statement of the source of the belief as to the existence of the debt; d par 5 of Form 7 requires no more of the deponent than to state his belief that there is no genuine dispute. If par 3 of the Form is complied with, the direct oath of the deponent as to the matter in par 5 will suffice, and par 3 has been complied with in this case. 12 I turn now to the second contention. 13 In Standard Commodities Pty Ltd v Société Socinter Départment Centragel (2005) 54 ACSR 489 at [15] Barrett J said: "If a person claiming to be a creditor of a company is to obtain, through Pt 5.4, the benefit of a presumption of insolvency under s 459C, it is necessary that that person provide to the company all the information that must be provided in and with a statutory demand. The company receiving the demand is entitled to know that the information given both comes from and is attested to by the person claiming to be a creditor. Where, as here, important elements of the information are represented as no more than a belief of a third party based wholly on representations of a second party and without any indication at all that the second party has obtained the information from the person claiming to be a creditor, that entitlement is denied. In the present case, the affidavit cannot be regarded as containing any statement by (or sourced from) the defendant as to the matters referred to in paras 4 and 5 of form 7. In line with the cases mentioned at [12] and [13] above, that, in my opinion, represents a reason under s 459J(1)(b) for setting aside the statutory demand." 14 His Honour appears to have considered that, even though the affidavit in that case complied with the Rules, the distance between the source stated and the deponent was so great so as to constitute a reason under s 459J(1)(b) of the Act for setting aside the Statutory Demand. 15 It is not presently necessary to consider whether his Honour's conclusion was equivalent to a finding of non-compliance with the Rules, because of the failure of the deponent meaningfully to state a source, given the second-hand hearsay there involved. It may, for present purposes, be accepted (without it being necessary to decide) that there are cases where the Rules are complied with, but the source of the information is stated in such a form so as to constitute some other reason why the demand should be set aside. That is not this case. 16 In Standard Commodities Pty Ltd v Société Socinter Départment Centragel, the source of the information was not the creditor and the matters referred to in pars 4 and 5 of the Form could not be regarded as having being sourced from the creditor. 17 In this case there has been both compliance with the rule and the source is identified as the creditor. There is no feature which makes the statement of the source a reason for, or any other feature which warrants, setting aside the Demands. 18 Attention was drawn to what McClelland CJ in Eq said in B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433 at 435-6 (referred to by Barrett J in Standard Commodities Pty Ltd v Société Socinter Départment Centragel at [12]) to the following effect: "It is important in this regard to bear in mind that the relevant matters include not only a belief as to the existence and amount of the debt, but also a belief as to the absence of any genuine dispute about the existence or amount of the debt. The express requirement in the rule that the person making the affidavit depose to his or her belief that there is no genuine dispute is a significant mechanism for filtering out cases where there is in fact such a dispute, so as to prevent such cases from reaching the court on such an application as the present, with a consequent waste of time and resources. This mechanism would be substantially weakened unless a person likely to have personal knowledge of the existence of a dispute if there is one makes the affidavit. A statement of a belief that there is no genuine dispute based solely on hearsay is unlikely to have anything like the same degree of reliability. I therefore do not regard what has occurred in the present case as a merely technical breach of the rules." 19 I was also referred to what Cohen J said in First Line Distribution Pty Ltd v Whiley & Ors (1995) 18 ACSR 185 at 190 to the following effect: "Even if I did not regard the defects in the statutory demand as causing substantial injustice, in my opinion the demand should be set aside under s 459J(1)(b). This paragraph allows a demand to be set aside for 'some other reason' than a defect. B & M Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1995) 15 ACSR 433; 13 ACLC 88, before McLelland CJ in Eq, deals with the operation of s 459J(1)(b). In that case, a statutory demand was accompanied by an affidavit sworn by a commercial agent appointed by the creditor in relation to the collection of debts. The agent had obtained information about the facts sworn in the affidavit through an examination of the creditor's records. The company sought to have the demand set aside on the basis that the affidavit did not comply with the Supreme Court Rules, as required by s 459E(3) of the Corporations Law. Where the creditor is a corporation, Pt 80 r 15(a)(iii) [sic] requires an accompanying affidavit to be made by a member or an officer of the creditor corporation having knowledge of the facts so far as they were known to the creditor. The demand was set aside under s 459J(1)(b). McLelland CJ said that the commercial agent was not an officer or a member of the creditor, nor did he have knowledge of the facts in the affidavit as far as they were known to the creditor. This breach of Pt 80A r 15 was a matter of substance, going to the heart of what the rule was intended to achieve. The requirement that the person making the affidavit depose to his belief that there was no genuine dispute was a means of filtering out cases where there was in fact such a dispute. In this case the affidavit was merely a statement of the deponent's belief, based on hearsay, that there was no genuine dispute. McLelland CJ stated that the creditor's failure to comply with the rules was a sufficient other reason under s 459J(1)(b) why the demand should be set aside. It was not a defect under s 459J(2), he said, which having regard to subs (1), had to be read as a defect in the demand itself. Even if the failure were a defect under s 459(2), the court was not acting merely because of the defect, without regard to its significance in the particular circumstances." 20 Finally, I was also referred to Delta Beta Pty Ltd v Vissers (1996) 20 ACSR 583 in which Nicholson J held that the swearing of an affidavit by a person who had no knowledge whether the amounts claimed were owed was a sufficient "other reason" to set aside the statutory demand in that case. 21 In both B & M Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd and First Line Distribution Pty Ltd v Whiley & Ors there was non-compliance with the rule which then applied, which was SCR Pt 80A r 15 which required the affidavit, where the creditor was a corporation, to be made by a member or officer of the corporation having knowledge of the facts so far as they are known to the corporation. 22 In Delta Beta Pty Ltd v Vissers there was a failure to comply with the requirements of the relevant rule of the Federal Court namely order 71 r 36A(3) which required the affidavit to be "made by a person who can depose to his or her own knowledge of the indebtedness of the company". 23 The rules which apply here do not impose the requirements that were not satisfied in B & M Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd, First Line Distribution Pty Ltd v Whiley & Ors and Delta Beta Pty Ltd v Vissers. 24 Part 80A rr 15(1) provided as follows:

" Form of affidavit in support of statutory demand (s 459E (3))

(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." 25 Subrules (1)(c), (d) and (e) bear a clear symmetry with the requirements of Form 7 (without the inclusion of subrules (a) and (b)). 26 Both the requirements of the relevant rule and the policy dictate referred to by Barrett J, that it be clear that the information was sourced from the creditor, have been met. 27 I do not consider, in all the circumstances, that there is some other reason within the meaning of s 459J(1)(b) to set the Statutory Demands aside and I decline to do so. 28 The Originating Process in each of the matters is dismissed and the plaintiff is to pay the defendants' costs in each case. 29 By consent, in proceedings 5883/2008, I vary the Statutory Demand dated 2 July 2008, to claim the amount of $783,803.51. I declare that the Statutory Demand as varied took effect as and from 2 July 2008 and I otherwise dismiss the Originating Process in that matter. 30 I make no order as to costs in matter 5883/2008.

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