Tatlers.com.au Pty Ltd v Davis

Supreme Court of NSW|2007-08-03|Before: White J

Reported Decision : 213 FLR 109 (2007) 25 ACLC 1,150

CITATION : Tatlers.com.au Pty Ltd v Davis [2007] NSWSC 835 This decision has been amended. Please see the end of the judgment for a list of the amendments.

JURISDICTION : Equity Division Corporations List

CATCHWORDS : CORPORATIONS - Corporations - Statutory demand - Affidavit in support of application to set aside - Whether s 459G(3) of the Corporations Act 2001 (Cth) requires service of exhibits to affidavit within 21-day period - Held it does not. - CORPORATIONS - Statutory demand - Application for order setting aside under s 459G of the Corporations Act - Whether grounds for application raised expressly or by reasonable inference in affidavit in support of application in accordance with Graywinter principle - Held that plaintiff not entitled to rely upon ground which should be reasonably apparent from what has passed between parties but is not raised expressly or by reasonable inference in affidavit in support of application - Where supporting affidavit clearly raised liability of defendant to each of third party and plaintiff arising from costs orders in their favour - Held that plaintiff entitled to rely on grounds that there is a genuine dispute or offsetting claims arising from costs orders in favour of plaintiff and deponent - Plaintiff entitled to set off amount owed to it by defendant pursuant to costs order in favour of plaintiff. - CORPORATIONS - Statutory demand - Application for order setting aside under s 459G of the Corporations Act - Offsetting claim - Whether costs order in favour of third party to statutory demand can be availed of by plaintiff as an offsetting claim, where debt the subject of the statutory demand is owed jointly and severally by third party and plaintiff to defendant - Held that a joint and several obligor who is sued alone cannot raise a set-off to which his or her co-obligor is entitled.

Corporations Act 2001 (Cth) Federal Court Rules 1979 (Cth) LEGISLATION CITED : Uniform Civil Procedure Rules 2005 (NSW) Corporate Law Reform Bill 1992 (Cth) (Explanatory Memorandum, Corporate Law Reform Bill 1992 (Cth) Derham, The Law of Set Off, 3rd ed

Kortz Ltd v Data Acquisition Pty Ltd (2006) 155 FCR 556; [2006] FCA 1722 Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1986) 70 FCR 452 Anderson Formrite Pty Ltd v CASC Hire Pty Ltd (2005) 147 FCR 379 Robowash Pty Ltd v Robowash Finance Pty Ltd (2000) 158 FLR 338 Re Koscot Interplanetary (UK) Ltd [1972] 3 All ER 829 Carter v Roberts [1903] 2 Ch 312 Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd (2002) 20 ACLC 352; [2001] WASCA 299 Re Hinchliffe [1895] 1 Ch 117 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 Energy Equity Corporation Ltd v Sinedie Pty Ltd (2001) 166 FLR 179 David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 CASES CITED : Jem Number Two Pty Ltd v St Hilliers Pty Ltd [2007] NSWSC 245 Harmer report (Australian Law Reform Commission Report, General Insolvency Inquiry, No. 45 (Canberra AGPS, 1988)) Second Reading Speech (Parliamentary Debates (Cth), House of Representatives, 3 November 1992 Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd (2007) 61 ACSR 321 Infact Consulting Pty Ltd v Kyle House Pty Ltd [2007] NSWSC 56 Jargon Pty Ltd v Good Earth Garden Products Pty Ltd (2006) 206 FLR 244 Roberts v Biggs (1754) Barnes 146; 94 ER 848 Mitchell v Oldfield (1791) 4 TR 123; 100 ER 929 Dennie v Elliott (1795) 2 HBL 587; 126 ER 719 Goodwin v Duggan (1996) 41 NSWLR 158 Bowyer v Pawson (1881) 6 QBD 540 Lord v Direct Acceptance Corporation Ltd (in liq) (1993) 32 NSWLR 362 Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379

Tatlers.com.au Pty Ltd PARTIES : v Davis

COUNSEL : Plaintiff: M K Condon Defendant: E A J Hyde

SOLICITORS : Plaintiff: Sage Solicitors Defendant: Malcolm Johns & Co

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

1096/07 Tatlers.com.au Pty Ltd v Davis JUDGMENT 1 HIS HONOUR: This is an application under s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand. The demand claimed $31,370 as the balance of a judgment debt. The judgment was for an amount of $75,000 and was entered in favour of the defendant against the plaintiff and a Ms Deborah Fletcher. She is the sole director of the plaintiff. 2 The originating process seeking to set aside the statutory demand, and an affidavit of Ms Fletcher in support of that application, was filed and served within the period of 21 days after service of the statutory demand. In her affidavit, Ms Fletcher deposed that, pursuant to terms of settlement executed between her, the defendant and the plaintiff on 2 May 2006, a judgment was entered against her and the plaintiff for $75,000. She exhibited to her affidavit the terms of settlement and a copy of the judgment. Ms Fletcher also deposed that a statutory demand had been served on the plaintiff on 1 August 2006 that had been set aside on 6 October 2006 with an order that the defendant pay the plaintiff's costs. She claimed that the plaintiff had incurred costs of $13,677.06 for which it had an order against the defendant. It was common ground that those costs have been assessed at $8,688.66. 3 Ms Fletcher deposed that the defendant had issued a bankruptcy notice against her for the judgment debt. The defendant had subsequently issued a creditor's petition which was dismissed with costs. She deposed that she had incurred costs in respect of the creditor's petition in the sum of $17,504.30. It was common ground that those costs were subsequently assessed in the sum of $11,000. 4 Ms Fletcher deposed that since judgment was entered she and the plaintiff had paid $43,630 towards the debt for which judgment was entered leaving a balance of $31,370. This was the amount for which the statutory demand dated 20 December 2006 was served on the plaintiff. The supporting affidavit did not annex or exhibit the statutory demand. 5 The exhibits to the supporting affidavit were not served on the defendant within 21 days after service of the statutory demand. 6 So far as can be gleaned from the supporting affidavit, the plaintiff disputed that it owed the amount claimed by the defendant in the statutory demand, on the ground that it was entitled to set off against the balance of a judgment debt owed to the defendant the amount it was entitled to recover pursuant to the costs order made in earlier proceedings to set aside a statutory demand, and the amount which Ms Fletcher was entitled to recover against the defendant pursuant to the costs order made in her favour in the bankruptcy proceedings brought by the defendant against her. Alternatively, it appeared from the supporting affidavit that the plaintiff contended that, whether or not it was entitled to a set-off which reduced the debt payable to the defendant, it had an offsetting claim for the amounts payable under both costs orders to be taken into account in calculating the substantiated amount of the demand. 7 The issues to be determined are:

whether the application has not been properly brought because the exhibits to the supporting affidavit were not served within the 21-day period prescribed by s 459G as the time within which an application for an order setting aside a statutory demand must be made ( Kortz Ltd v Data Acquisition Pty Ltd (2006) 155 FCR 556; [2006] FCA 1722 at 562 [30]);

whether, by reason of the principles in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1986) 70 FCR 452 it is open to the plaintiff to seek to set aside the statutory demand pursuant to s 459J(1)(b) on the ground that the statutory demand for an unpaid balance of a judgment debt was not accompanied by an affidavit pursuant to s 459E(3);

if it is open to the plaintiff to rely upon the absence of a supporting affidavit, whether the statutory demand should be set aside on that ground ( Anderson Formrite Pty Ltd v CASC Hire Pty Ltd (2005) 147 FCR 379 at 391-392 [60]-[63]);

whether the plaintiff is precluded from raising as a ground of genuine dispute, or as an offsetting claim, the debt owed by the defendant to it pursuant to the costs order in its favour, because it did not serve the exhibits to the supporting affidavit within the 21-day period;

whether the plaintiff is precluded from raising as a genuine dispute or as an offsetting claim the debt payable by the defendant to Ms Fletcher pursuant to the costs order in Ms Fletcher's favour on Graywinter principles, or because the exhibits to the affidavit were not served within 21 days after service of the statutory demand; and

whether the order for costs in favour of Ms Fletcher created a genuine dispute or an arguable offsetting claim which can be availed of by the plaintiff, or whether it provides some other reason for setting aside the statutory demand pursuant to s 459J(1)(b). First Issue: Failure to Serve Exhibits 8 Section 459G provides: " 459G Company may apply

(1) A company may apply to the Court for an order setting aside a statutory demand served on the company. (2) An application may only be made within 21 days after the demand is so served. (3) An application is made in accordance with this section only if, within those 21 days: (a) an affidavit supporting the application is filed with the Court; and (b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company. " 9 In Kortz Ltd v Data Acquisition Pty Ltd, Greenwood J of the Federal Court said (at 562 [30]-[31]): " [30] Section 459G(3) requires a Plaintiff to serve the supporting affidavit within the relevant time frame. Notwithstanding the distinctions between an exhibit and an annexure to an affidavit, it would seem an odd result in relation to an application to set aside a statutory demand that a Defendant to such an application must be served with any supporting affidavit and any annexures to and thus incorporated within such an affidavit ( Robowash Pty Ltd v Robowash Finance Pty Ltd (above) at [23]), yet no obligation arises to serve documents marked as an exhibit. If the true purpose of s 459G is to cast an obligation upon a Plaintiff to provide the Defendant with a copy of the material relied upon by the Plaintiff so that the Defendant might understand, test and respond before the forum to that material in a way which addresses the merits of the application in the interests of justice, it would be an odd result if that purpose might be defeated by crafting an affidavit in such a way that documents probative of a fact in issue are produced to the deponent, marked as an exhibit and not served upon the Defendant. It seems to me that the reference to 'an affidavit' in s 459G(3) contemplates an affidavit and all documents annexed or exhibited to the affidavit and thus relied upon by the Plaintiff in support of the merits said to be persuasive of the Court making an order in favour of the Plaintiff. [31] Accordingly, in the ordinary course, a Plaintiff would be required to file an application seeking the relevant relief and serve a copy of the application, a copy of the supporting affidavit and a copy of any exhibit or annexure to the affidavit within the time limited by s 459G(3)." 10 In that case, the plaintiff had exhibited a number of documents to the supporting affidavit. The exhibits were served before the originating process and supporting affidavit and exhibits were filed. His Honour (at [29]) accepted that for the purposes of the rules of the Federal Court and of the Supreme Court of Victoria, and as a matter of principle, documents marked as an exhibit to an affidavit do not form part of the affidavit (see also Robowash Pty Ltd v Robowash Finance Pty Ltd (2000) 158 FLR 338 at 342 [20]; Re Koscot Interplanetary (UK) Ltd [1972] 3 All ER 829 at 835; Carter v Roberts [1903] 2 Ch 312 at 316). The exhibits served before the supporting affidavit was filed were not re-served. However, the exhibits served before the affidavit was filed were true copies of the exhibits to the affidavit. His Honour held by reference to the decision of the Full Court of the Supreme Court of Western Australia in Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd (2002) 20 ACLC 352; [2001] WASCA 299 that s 459G(3) was satisfied where true copies of the exhibits were served before the affidavit was filed. 11 Whilst it may not be material to the construction of s 459G(3), it may be observed that, unlike order 14 r 4(3) of the Federal Court Rules which requires copies of all exhibits to an affidavit to be served with the affidavit, r 35.6(6) of the Uniform Civil Procedure Rules 2005 (NSW), which are applicable to proceedings in the Supreme Court of New South Wales, provides: " 35.6 Annexures and exhibits

(cf SCR Part 38, rule 4; DCR Part 30, rule 4; LCR Part 25, rule 4) ... (6) If any other party so requires, a party who serves an affidavit to which a document is an exhibit: (a) must produce the document for inspection by that other party, or (b) must provide a photocopy of the document to that other party, or (c) must produce the document at some convenient place to enable it to be photocopied by that other party. " 12 There is no requirement under the rules applicable to this court that an exhibit be served at the time the affidavit is served. In the present case, the defendant did not request the production of the exhibits before the expiry of the period of 21 days after service of the statutory demand. 13 It is also relevant that r 35.6(5) provides that "an exhibit to an affidavit must not be filed." 14 I am unable to agree with the observations of Greenwood J in Kortz Ltd v Data Acquisition Pty Ltd that the reference to "an affidavit" in s 459G(3) refers to the affidavit and to all documents annexed or exhibited to the affidavit. With respect, once it is concluded, as Greenwood J did (at 562 [29]) that " ... as a matter of principle, documents marked as an exhibit to an affidavit do not form part of the affidavit", it is difficult to support a conclusion that, in s 459G(3), the expression "affidavit" extends to the exhibits to an affidavit. 15 If the word "affidavit" in s 459G(3)(b) extends to the exhibits to it, then it must be equally true that the word "affidavit" in s 459G(3)(a) includes the body of the affidavit, the annexures to it, and the exhibits to it. However, it was never the practice for exhibits to be filed (Re Hinchliffe [1895] 1 Ch 117 at 120; Carter v Roberts at 316) and the current rules applicable to this court prohibit the filing of exhibits to an affidavit. 16 In Robowash Pty Ltd v Robowash Finance Pty Ltd, the Full Court of the Supreme Court of Western Australia held that, as annexures to an affidavit form part of the affidavit, it was essential, in order to comply with the requirements of s 459G(3)(b) that a "copy of the supporting affidavit" be served on the person who served the statutory demand, that a complete copy of the affidavit, including all of the annexures, be served within the stipulated period of 21 days. In a further decision of the Full Court of the Supreme Court of Western Australia in Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd (2002) 20 ACLC 352, the Court held (at 357 [22]) that, whether such a consequence followed was a question of degree depending upon the extent of the deficiency. Neither decision was concerned with the consequence of exhibits to an affidavit not being served within the time for service of the supporting affidavit. 17 In Kortz Ltd v Data Acquisition Pty Ltd, Greenwood J said (at 562 [30]) that it would be an odd result if a plaintiff were not obliged to serve documents marked as an exhibit whereas it would be required to serve the documents if they were annexures to the supporting affidavit. In my respectful view, the question rather is what is meant by the expression "affidavit", coupled with the further question as to whether, on the proper construction of s 459G(3), any failure to serve the document or documents which comprise the "affidavit", however serious or inconsequential, leads to the conclusion that the application has not been made in accordance with the section. Considerations discussed in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 389-393 [91]-[100] may be relevant to the second question. However, unless the exhibits form part of the affidavit, the second question does not arise. Nor does it lead to an odd result that the non-service of exhibits which do not form part of an affidavit should lead to a different result from the non-service of annexures which do. 18 Greenwood J supported his conclusion as to the meaning of the word "affidavit" in s 459G(3) by reference to the asserted purpose of the section. His Honour suggested that the true purpose of s 459G is to "cast an obligation on a plaintiff to provide the defendant with a copy of the material relied upon by the plaintiff so that the defendant might understand, test and respond before the forum to that material in a way which addresses the merits of the application in the interests of justice" (at 562 [30]). 19 Whilst there can be no question that a defendant is entitled to understand, to test and to respond to the material upon which the plaintiff relies, in my view, that is not the purpose of s 459G. All that s 459G requires is that the application and supporting affidavit be filed and served within 21 days of service of the statutory demand. How the application is then dealt with to ensure the defendant knows the case against him is a matter for the ordinary pre-trial procedures to ensure a fair hearing. The courts have implied from the requirement that there be a supporting affidavit that the affidavit filed in support of the application must raise the grounds to be relied upon to set aside the demand, and have further implied that the plaintiff is restricted to the grounds so raised. However, it has not been suggested that the plaintiff can rely only on the material served within the 21-day period in support of the application. Rather, the authorities recognise that, exceptionally, in this area of the law an affidavit may take the form of a pleading so as to raise the grounds upon which the plaintiff will rely to set aside the statutory demand. After the expiry of the 21-day period, the plaintiff may file and serve further affidavit evidence in support of the grounds raised in the supporting affidavit (Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund at 459, 460; Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 at 296; Energy Equity Corporation Ltd v Sinedie Pty Ltd (2001) 166 FLR 179 at 184-185). The stringency of the 21-day period for making an application under s 459G reflects the legislative purpose "for quick resolution of the issue of solvency and the determination of whether the company should be wound up without the interposition of disputes about debts, unless they are raised promptly." (David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 270). That is not the same as a legislative purpose that the defendant should be apprised within the 21-day period of the material relied on by the plaintiff so that he can test and respond to it. 20 In Jem Number Two Pty Ltd v St Hilliers Pty Ltd [2007] NSWSC 245, Macready AsJ said (at [13]) that: "The purpose of the section is to ensure that the plaintiffs file their application in a timely fashion but, more importantly, to ensure that the defendant has the information necessary to effectively exercise the choice that it has on how to proceed. " 21 In my respectful view, there is a danger in ascribing as a legislative purpose what individual judges may consider to be a desirable policy. In at least most cases, a defendant, when it serves the statutory demand, will be in a position to know whether the plaintiff company disputes the debt, and will be in a position to assess whether the dispute is genuine, or whether the plaintiff company has a genuine offsetting claim. Whilst the defendant is entitled to procedural fairness so as to make an informed choice as to whether to contest an application under s 459G, in my view, one cannot discern any legislative purpose in s 459G as to whether the defendant should be in a position to make that choice simply from the materials advanced by the plaintiff company in its supporting affidavit. Macready AsJ was not dealing with the present issue. He was rather dealing with the question whether the grounds to be relied upon by the plaintiff must be raised expressly or by necessary inference in the supporting affidavit, or whether it is sufficient that they be raised: whether expressly, by necessary inference, or by reasonably available inference. That is not the present question. However, his Honour's observations as to the purpose of s 459G might be thought to support the construction of that section advanced in Kortz Ltd v Data Acquisition Pty Ltd at 562 [30]. In my respectful view, both passages which I have quoted attribute to Parliament a purpose in enacting s 459G which goes beyond what can be inferred from the words of the section, the context in which it appears, and the extrinsic material which can be relied on to construe the section. There is nothing in the Harmer report (Australian Law Reform Commission Report, General Insolvency Inquiry, No. 45 (Canberra AGPS, 1988)), or in the Second Reading Speech (Parliamentary Debates (Cth), House of Representatives, 3 November 1992 at 2400, or in the explanatory memorandum to the Corporate Law Reform Bill 1992 (Cth) (Explanatory Memorandum, Corporate Law Reform Bill 1992 (Cth)) which descends to this level of particularity as to the purpose of the section. 22 In any event, in my respectful view, there is nothing ambiguous about the word "affidavit" in s 459G(3) to be resolved by recourse to asserted legislative purpose. 23 For these reasons, I respectfully decline to follow the observations in Kortz Ltd v Data Acquisition Pty Ltd at 562 [30]. The application is not invalid by reason of the fact that the exhibits were not served within the period of 21 days prescribed by s 459G for the filing and service of the application and supporting affidavit. Second and Third Issues: Absence of an Accompanying Affidavit to the Statutory Demand 24 Subsection 459E(3) provides that: " 459E Creditor may serve statutory demand on company

... (3) 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 (b) complies with the rules. "

25 In the present case, the demand was not for the whole of the debt for which judgment was given but for the unpaid balance of the judgment debt. No affidavit accompanied the demand. In reliance on the decision of Anderson Formrite Pty Ltd v CASC Hire Pty Ltd, the plaintiff contends that an affidavit was required to accompany the statutory demand because the demand was only for the balance of the judgment debt. 26 The first question is whether it is open to the plaintiff to rely on this ground. 27 As noted above, the plaintiff did not annex or exhibit the statutory demand to the affidavit of Ms Fletcher filed and served in support of the application. Nor did she describe the statutory demand. She did not say that the demand was not accompanied by an affidavit. Although she deposed that the balance of the judgment debt is $31,370, she did not say that that was the amount claimed in the statutory demand. 28 In Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd (2007) 61 ACSR 321, I said that it is sufficient that a supporting affidavit filed and served within the 21-day period prescribed by s 459G raise, either expressly or by reasonable inference, the grounds upon which the plaintiff seeks to set aside the demand. It was submitted by counsel for the plaintiff that in determining whether the present ground was raised, the Court should put itself in the position of the parties, who may be taken to have known the terms of the statutory demand and whether or not the demand was accompanied by an affidavit. Hence, it was submitted, it was a reasonably available inference to a person cognisant of the authorities on s 459G that, because the statutory demand was not accompanied by an affidavit, and because, as disclosed in the supporting affidavit filed pursuant to s 459G, part of the judgment debt had been paid, the plaintiff would contend that s 459E(3) had not been complied with, and that that was a reason why the demand should be set aside. 29 I do not accept this submission. The principles derived from Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund require that the ground relied on be raised in the supporting affidavit. The fact that the ground should be reasonably apparent to the defendant from what has passed between the parties is not to the point if the ground is not raised by the affidavit (Infact Consulting Pty Ltd v Kyle House Pty Ltd [2007] NSWSC 56 at [16]-[30]). As it does not appear from the affidavit what was the amount of the debt demanded, or whether it arose from a judgment, or whether it arose from the judgment referred to in the affidavit, or whether the demand was accompanied by an affidavit, this ground of challenge was not raised in the supporting affidavit and cannot be relied on. 30 It is therefore unnecessary to consider the correctness of Anderson Formrite Pty Ltd v CASC Hire Pty Ltd, or whether the present case can be distinguished from that decision for the reasons in Jargon Pty Ltd v Good Earth Garden Products Pty Ltd (2006) 206 FLR 244. 31 There is no principle that it is essential that the supporting affidavit include the statutory demand sought to be set aside. In Expressway Spares Pty Ltd v CTK Engineering Pty Ltd [2005] NSWSC 1200, Austin J observed (at [3]) that: " If there were no proof of the statutory demand, the plaintiff would be bound to fail, as the Court cannot set aside something which has not been proven to exist. " 32 In that case, it appears that the statutory demand was not even tendered. However, because there was sufficient evidence from which to infer both the existence and the content of the demand, and because there was a genuine dispute, the demand was set aside. In the present case, the plaintiff belatedly tendered the statutory demand. The demand was clearly relevant. I allowed the tender. However, the tender and admission of the statutory demand as an exhibit does not affect the availability of the arguments that the grounds for disputing the debt claimed could not be relied upon because they were not raised in the supporting affidavit which did not annex or refer to the statutory demand. Fourth Issue: Genuine Dispute over $8,688.66 Pursuant to Costs Order in Favour of the Plaintiff Against the Defendant 33 The only issue raised in relation to this ground for disputing part of the claimed debt, or for raising an offsetting claim in the amount of costs found to be due, is based on the non-service of the exhibits within the period of 21 days prescribed by s 459G. For the reasons I have given, the non-service of the exhibits it not itself a ground for rejecting the application under s 459G. It is clear from the text of the affidavit, without the exhibits, that the plaintiff was asserting a set-off or an offsetting claim based upon the costs order it obtained against the defendant in earlier proceedings to set aside a statutory demand. 34 Because the affidavit did not identify the fact that the statutory demand was for a judgment debt, it may be that the supporting affidavit did not raise as a ground that there was a genuine dispute as to part of the debt based on the principles of set-off between judgment debts. However, for the purposes of s 459H, it is immaterial whether the offsetting claim operates as a set-off which reduces the amount of the debt to which the creditor is entitled, or whether it operates as a cross-demand. The supporting affidavit clearly advanced the liability of the defendant to the plaintiff pursuant to the earlier costs order as giving rise to a cross-demand. 35 If the plaintiff was entitled to rely upon this ground, there was no dispute that the statutory demand should be varied by the amount of the certificate of determination of costs of $8,688.66. Fifth and Sixth Issues: Set-Off of Costs Order in Favour of Ms Fletcher Against the Defendant 36 The debt which is the subject of the statutory demand is the balance of a judgment debt owed jointly and severally by the plaintiff and Ms Fletcher to the defendant. The defendant owes $11,000 to Ms Fletcher pursuant to an order for costs made in the Federal Magistrates Court. The plaintiff submitted that it was entitled to set off against the debt it owes to the defendant the amount of $11,000 owed by the defendant to Ms Fletcher. Counsel for the plaintiff submitted: " 8. ... First, notwithstanding that the identity of parties benefiting from the judgments may not be the same, a set-off should occur if it was just, having regard to the parties truly interested in the judgments. Thus, where A was a judgment creditor of B on one claim, and A had agreed to indemnify C against the judgment obtained against him by B on another claim, this principle applied because A was the party who as a matter of substance, had the burden of this second judgment: Derham, The Law of Set-off , 3rd Edition, 2003, at para 2.8.1/pages 52-53. Secondly, where A has a judgment against B and C and B has a separate judgement against A, the courts have been prepared to set-off the judgments: Derham, at para 2.8.3/page 53. Thirdly, were the Plaintiff and Ms Fletcher now to be sued together by the Defendant, there could be no doubt that their joint and several liability would be reduced to the extent that each had several claims against the Defendant: see Goodwin v Duggan (1996) 41 NSWLR 158 at 166-167.

In this case, there is no reason why equity should differentiate between the position obtaining before judgment was entered against the Plaintiff and Ms Fletcher and the position where judgment has been entered against them. If, in the case of the former, the joint and several liability would be reduced by reference to the several claims available to each of the Plaintiff and Ms Fletcher, there is no reason in principle why the joint and several liability crystallised in the judgment against them should not now be reduced.

Further, the Plaintiff should be entitled to invoke the set-off available to Ms Fletcher, because it would be just in the circumstances. If the Plaintiff was required to pay the full amount of the debt claimed by the Defendant, it would then be entitled to seek contribution from Ms Fletcher, who in turn would have to meet that obligation without being able to benefit (absent court process) from the claim she undoubtedly has against the Defendant. " 37 Counsel for the defendant submitted that this ground was not raised in the supporting affidavit and was therefore not available to the plaintiff. However, it is clear from the supporting affidavit that the plaintiff did rely on the order for costs made in Ms Fletcher's favour as giving rise to a cross-demand of which the plaintiff could avail itself. The supporting affidavit also disclosed that the judgment debt was a judgment entered in favour of the defendant against both the plaintiff and Ms Fletcher. What was missing from the supporting affidavit was a copy of the statutory demand or a description of the statutory demand. It is an essential part of the plaintiff's submission that Ms Fletcher and the plaintiff are each liable for the debt which is the subject of the statutory demand. That fact is not disclosed in the supporting affidavit. 38 Nonetheless, I consider it open to the plaintiff to raise this contention. Whilst the supporting affidavit must raise the grounds of dispute, it need not set out all the evidence which will be relied upon to make good the grounds of dispute. In my view, the ground that the plaintiff was entitled to rely on a set-off based on the costs order made against the defendant in favour of Ms Fletcher was clearly raised in the supporting affidavit, and that is sufficient to satisfy the Graywinter principles. 39 However, I do not accept the plaintiff's submission. As is evident from the written submissions of counsel for the plaintiff, three separate propositions are relied upon. The first is that, if A has agreed to indemnify C against a judgment obtained by B against C, then A can set off a judgment obtained by A against B. It is unnecessary to consider the correctness or scope of this principle. That principle, applied to the facts of this case, would mean that if Ms Fletcher had agreed to indemnify the plaintiff against the judgment which the defendant has obtained against the plaintiff, she could set off the two amounts. That is not this case. 40 The second proposition is based upon the following passage in Derham, The Law of Set Off, 3rd ed at para 2.83: " Where A has a judgment against B and C, and B has a separate judgment against A, the Courts have been prepared to set off the judgments. " 41 However, it is clear from the authorities cited in support of this passage (Roberts v Biggs (1754) Barnes 146, 94 ER 848; Mitchell v Oldfield (1791) 4 TR 123, 100 ER 929; Dennie v Elliott (1795) 2 HBL 587, 126 ER 719) that the party asserting the set-off was the person who was both liable with a co-obligor under one judgment and entitled as against the judgment creditor to the benefit of a separate judgment against the judgment creditor. In other words, in the present circumstances, the cases are authority for the proposition that Ms Fletcher could set off the judgment for costs in her favour against the defendant against the judgment obtained by the defendant against her and the plaintiff. The cases are not authority for the proposition that the plaintiff can set off the judgment obtained by Ms Fletcher against the defendant, against the judgment the defendant has obtained against the plaintiff. 42 The third proposition was based upon the decision of the Court of Appeal in Goodwin v Duggan (1996) 41 NSWLR 158 at 166-167. There, co-trustees were jointly and severally liable for a breach of trust in a suit brought against them both by a beneficiary. One of the trustees was entitled to a sum by way of just allowance for the maintenance of the beneficiary during her infancy, and was entitled to set off the sum to which he was entitled by way of just allowance against his liability to pay compensation for breach of trust. Such a set-off, when given effect to, operates as if it were a payment. The Court of Appeal held that the amount of equitable compensation which the co-trustee was liable to pay was reduced by the amount of the set-off available to the first trustee. Handley and Beazley JJA said (at 166-167): " The liability of trustees for breach of trust is joint and several and gives rise to an equitable debt. Each trustee is liable for the whole amount, and a judgment against the trustees may be enforced against one of them without regard to any rights to contribution or indemnity that trustee may have. If the appellant had been sued alone it is possible that she could not have relied on a set-off available only to her co-trustee: see Bowyear v Pawson (1881) 6 QBD 540 and S R Derham, Set-Off (1987) at 152-153. However both trustees were sued and the brother established his set-off. Owen v Wilkinson (1858) 5 CB (NS) 526; 141 ER 213 (especially at 527; 213) establishes that the set-off found for the other defendant should have operated for the benefit of the appellant who was jointly and severally liable for the same debt: see also Derham (at 152-153). However if one of the trustees becomes bankrupt, a beneficiary who has obtained judgment against the trustees may be able to prove for the full amount without giving credit for later part payments by other trustees until full satisfaction has been received: see Edwards v Hood-Barrs [1905] 1 Ch 20, although this decision has been persuasively criticised by Glanville Williams in Joint Obligations (1949) at 160-161, and compare Re Houlder [1929] 1 Ch 205. The appellant is not bankrupt. Equity follows the law, and the judgment against the appellant should reflect any existing set-off available against the beneficiary from another trustee, just as it should reflect any part payment by such trustee: see Glanville Williams (at 92-94). "

Powell JA said (at 167-168): " (1) in a case such as this was, where each of two trustees has acted in breach of his or her duty to the beneficiaries and the beneficiaries have suffered loss, the trustees are jointly and severally liable to recoup that loss. However, as there is but one loss, any payment made by either of the trustees to the beneficiaries goes to reduce the loss and, to that extent, enures for the benefit of the other trustee as against the beneficiaries ; (2) if, in proceedings brought by the beneficiaries against the trustees seeking to have the trustees recoup the loss, one of the trustees raises a set-off which is given effect to , then that, as it seems to me, is to be regarded as equivalent to a payment pro tanto of the amount of any loss (see, eg, Owen v Wilkinson (1858) 5 CB (NS) 526; 141 ER 213); if, however, proceedings were brought against one only of the trustees, and that trustee was not, although the other trustee was, entitled to raise a set-off, that would not avail the trustee who was sued: see, eg, Bowyear v Pawson (1881) LR 6 QBD 540; (3) in a case in which a set-off had been raised and given effect to , the amount of that set-off would, as it seems to me, need to be brought to account in any proceedings brought by one trustee against the other for contribution; ... " 43 Hence, it was argued that if Ms Fletcher had been entitled to her debt against the defendant before proceedings were brought by the defendant against her and the plaintiff, then, as the proceedings brought by the defendant against her and the plaintiff were for a joint and several obligation, the debt owed by Ms Fletcher to the plaintiff could have been set off against the debt for which the defendant obtained judgment against both of them. It was submitted that the availability of the set-off should not depend upon the accident that judgment had already been obtained. To the contrary, so it was argued, the plaintiff should be entitled to set off against the judgment owed by it the amount owed by the defendant to Ms Fletcher where she was also jointly and severally liable on the same judgment debt as the plaintiff, in order to avoid circuity of action. Counsel submitted that if the plaintiff paid the whole of the judgment debt pursuant to the defendant's demand, it would be entitled to recover contribution from Ms Fletcher for half of the judgment debt paid, but she could recover $11,000 from the defendant. The same result is reached if the plaintiff, availing itself of the set-off available to Ms Fletcher, paid the defendant the difference between the two judgments, and if Ms Fletcher was given the benefit of the set-off on the claim for contribution. 44 However, this submission demonstrates the reason why one joint and several obligor who is sued alone cannot raise a set-off to which his or her co-obligor is entitled (Bowyer v Pawson (1881) 6 QBD 540). The reason is that, in a suit so constituted, rights of contribution between the co-obligors cannot be resolved. To take the present case, if the plaintiff were obliged to indemnify Ms Fletcher against her liability under the judgment in favour of the defendant, it would be unjust to allow the plaintiff to rely upon the set-off available to her against the defendant. If that were permitted, she would have to look to the plaintiff, rather than to the defendant, to recover the $11,000 owed to her by the defendant. There is no equity in allowing the plaintiff to distort the true position by taking advantage of a set-off available to her (Lord v Direct Acceptance Corporation Ltd (in liq) (1993) 32 NSWLR 362 at 369). The position would be different if the co-obligors are both joined in a suit so that a set-off available to one is actually given effect to, and rights of contribution between them can be determined. In the absence of such a suit, the plaintiff is not entitled to avail itself of the set-off available to its co-obligor (Bowyer v Patterson). 45 It is true that in Goodwin v Duggan, Handley and Beazley JJA said that it was possible that if the trustee had been sued alone, she could not have relied on a set-off available only to her co-trustee, rather than categorically stating that position. However, as a matter of principle and authority (Bowyer v Pawson), and conformably with the reasons of Powell JA in Goodwin v Duggan, in a suit so constituted, the trustee should not be entitled to raise the set-off available to her co-trustee. 46 It follows that in an action to set aside the statutory demand, to which the only parties are the plaintiff and the defendant, and in which the set-off available to Ms Fletcher cannot be given effect to, nor rights of contribution between the plaintiff and Ms Fletcher determined, the plaintiff cannot avail itself of the set-off available to Ms Fletcher. 47 As this question is purely one of law, it can be decided on the present application even though the question of law is fairly arguable (Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379 at 384-385 per Cohen J). 48 Once the asserted right of set-off is rejected, the costs order in favour of Ms Fletcher provides no reason for setting aside the statutory demand. Conclusion 49 The result of the proceedings is that:

(a) the application to set aside the statutory demand was made in time, notwithstanding that the exhibits were not served within the period prescribed by s 459G;

(b) the plaintiff cannot rely upon the absence of an affidavit under s 459E(3) as a ground for setting aside the statutory demand because that ground was not raised in the supporting affidavit. It is accordingly unnecessary to consider whether Anderson Formrite Pty Ltd v CASC Hire Pty Ltd should be followed, or whether it can be distinguished;

(c) the plaintiff is entitled to rely upon its cross-demand for costs owing by the defendant to it under the costs order of 6 December 2006 which have been assessed in the sum of $8,688.66. The statutory demand should be varied by this amount;

(d) the plaintiff is entitled to advance the argument that it is entitled to the benefit of the order for costs made in the Federal Magistrates Court in favour of Ms Fletcher against the defendant, but that claim fails. 50 Accordingly, I order that the statutory demand dated 20 December 2006 served by the defendant on the plaintiff be varied by substituting the sum of $22,681.34 for the sum of $31,370 as the amount of the debt. I declare that the demand is to have had effect, as so varied, as from when the demand was served on the plaintiff. 51 The exhibits may be returned after 28 days. 52 I will hear the parties on costs.

17/09/2007 - Incorrect citation corrected. - Paragraph(s) 31

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