Toubia v Allianz

6059/03 - TOUBIA CONSTRUCTIONS PTY LIMITED v ALLIANZ AUSTRALIA INSURANCE LIMITED

1 MASTER: This is an application under s 459G to set aside a statutory demand dated 4 November 2003 for an amount of $35,452.46. The amount claimed was the amount paid by the defendant company as insurer to the insured. 2 The background facts are as follows:

The defendant company issued a policy of insurance whereby it insured the plaintiff in respect of construction damage in relation to construction work being carried out by the plaintiff at 52 President Avenue, Caringbah. The period of insurance described in the initial policy was 09.11.01 to 09.03.03 at 4.00 pm. The plaintiff paid to the defendant company the premium payable in respect of the aforementioned period of insurance.

The plaintiff sought and the defendant agreed, subject to the terms of the policy, to extend the period of the cover up to and including 5 August 2003. The plaintiff had received an invoice for the premium payable in respect of the last mentioned period being the tax invoice of the plaintiff's broker, OAMPS Insurance Brokers Limited ("OAMPS"), on 3 April 2003.

On or about 15 April 2003, damage occurred to the aforementioned property constituting an event which was an event covered by the terms of the policy. The defendant company appointed Crawford International Loss Adjusters in respect of the claim [paragraph 7 Oakland; paragraph 7 Iann].

Mr John Moon, an adjuster employed by Crawford International Loss Adjusters, undertook an inspection of the said property and of the damage. On or about 22 May 2003, Mr Moon gave approval to the performance by the plaintiff of the works necessary to remedy the damage, the subject of the claim. In giving such approval, Mr Moon had the authority of the defendant company.

The plaintiff undertook works to the extent of $35,452.46 which were completed by the 30 June 2003. Clearly, the plaintiff would not have undertaken the said works or would not have done so without making some other arrangement with the owner of the property but for the said approval.

On or about 23 July 2003, the Claims Department of the defendant company notified OAMPS that a premium in the sum of $13,749.23 was outstanding in respect of the policy claimed on by the plaintiff. Mr Ferdinando Ianniello ("Mr Ianniello"), an employee of the defendant company, was told that this was communicated to the plaintiff by Mr Ken Scott of OAMPS.

On or about 23 July 2003, Mr Ianniello had a telephone conversation with Mr David Krepp of the plaintiff in which he said words to the effect: "The reason OAMPS have not forwarded the cheque for $35,452.46 to your office is that the extension premium of $13,474.23 has not been paid. Ken from OAMPMS will be happy to hand over the cheque once they receive the premium." To which Mr Krepp said words to the effect: "If the premium is paid, can you forward future payments directly to our office?" To which Mr Ianniello replied with words to the effect:

"I do not have a problem with this." 8. On or about 23 July 2003, Mr Ianniello had a further conversation with Mr Ken Scott of OAMPS during which he said words to the effect: "I have spoken with the insured and they agree to hand over the cheque for the premium when you hand over the cheque for the payment under the policy." 9. On or about 24 July 2003, a cheque provided by the plaintiff was presented to the bank. The cheque was in the sum of $13,749.23 that at the same time the defendant's cheque for $35,452.46 was handed to the plaintiff, which it then banked.

10. On or about 8 August 2003, a letter was sent to the defendant company from OAMPS enclosing a dishonour notice for the cheque referred to in paragraph 15 hereof. The notice states that payment on the cheque was stopped.

11. The plaintiff stopped payment of its cheque. This occurred according to the plaintiff because it was incorrectly believed that the premium had already been paid.

12. On or about 27 August 2003, the defendant company wrote to the plaintiff demanding that the premium be paid in the sum of $13,749.23. This letter also states that: "If the premium is not paid, there is no claim under your policy". 13. On or about 11 September 2003, the defendant company wrote to the plaintiff requesting repayment of the sum of $35,452.46 paid out under the policy. Annexed to the affidavit of Mr Ianniello sworn 9 February 2004 is a copy of that letter.

14. The policy was in existence and a question is whether it was extended. The policy contained the following clause: "Subject to the payment of the premium, the underwriter provides insurance cover to the insured as stated in this policy, including the schedule and any certificate, renewal certificate or endorsement". 3 The plaintiff submitted that: 1. There was no debt due as the only debt due was for the outstanding premiums; 2. There was a genuine dispute as to the amount due as the defendant was estopped from claiming the refund as it had approved the work and the work had been done. 3. There was some reason under s 459J(1)(b) to set aside the demand.

4 The plaintiff tendered to the defendant a bank cheque for the outstanding premium of $13,749.23 at the commencement of the hearing, and relied upon that as justifying the setting aside under s 459J(1)(b). That tender was rejected by the defendant. It was not tendered as proof of solvency as that is irrelevant under s 459J(1)(b): See Chippendale Printing Co Pty Limited v DFC of T (1995) 13 ACLC 229 and Master Paving Contractors Pty Limited (1997) 15 ACLC 1025. I had the benefit of having a number of submissions in respect of the principles to be applied and I think the most useful summation of what is a genuine dispute is that given by McLelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At page 671 his Honour made the following comments in respect of the expression "Genuine Dispute": "It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s 459H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the 'serious question to be tried' criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit 'however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be' not having 'sufficient prima facie plausibility to merit further investigation as to (its) truth' (c/f Eng Em Yong v Letchumanan (1980) AC 331 at 341), or 'a patently feeble legal argument, or an assertion of facts unsupported by evidence' (cf South Australia v Wall (1980) 24 SASR 189 at 194). But it does mean that, except in such an extreme case, a Court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments (at ACLC 1066; ACSR 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Part 5.4 of the Corporations Law, and to the terms of division 3: 'These matters taken in combination, suggest that at least in most cases, it is not expected that the Court will embark upon an extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute'.

In Re Morris Catering (Australia) Pty Limited (1993) 11 ACLC 919 at 922; (1993) 11 ACSR 601 at 605 Thomas J said: 'There is little doubt that Division 3 ... prescribes a formula that requires the Court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the Court will examine the merits or settle the dispute. The specified limits of the Court's examination are the ascertainment of whether there is a "genuine dispute" and whether there is a "genuine claim".

It is often possible to discern the spurious and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.

The essential task is relatively simple - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it'.

5 The first problem is to identify the plaintiff's claim for the recovery of the $35,000. There is no doubt it could recover the premium. The defendant says it was based upon a total failure of consideration. The author of the CCH insurance repairer describes the payment of premium and consequent liability in these terms: "A contract of insurance may come into existence and the insurer place at risk even though the premium has not been paid, but this proposition is subject to whatever terms are agreed upon by the insured at the time the contract is made. The general principle is that as soon as the contract is agreed the insured becomes liable to pay the premium, but failure to do so does not relieve the insurer of liability unless there is a provision in the contract to this effect. Normally, the insurer stipulates that the premium must be paid before it accepts the risk. If the event insured against does occur, the insured has the option of claiming on the indemnity provided for in the policy. The insured is not legally obliged to do so but his or her right of recovery depends upon his or her complying with conditions set out in the policy in relation to claims. Once the insured has complied, the insurer is under a contractual obligation to indemnify him or her."

6 In the present case, given the terms of the insurance to which I have earlier referred, the insurer could have declined to cover when the claim was made. However, it did not do that but accepted liability and authorised the builder to carry out rectification work. It would seem therefore that it may have waived its right to decline cover. Presumably its books disclosed that the premium was unpaid at that time. 7 It does not seem to me that there has been a total failure of consideration as the defendant has engaged the plaintiff pursuant to the policy to do building rectification work which has been done by the plaintiff. The question of sections 59 and 60 of the Insurance Contracts Act are not relevant as any cancellation was after the payment, and the cancellation only takes effect under those sections on the appropriate notice being given. 8 Probably there would be a restitutionary claim based upon payment under a mistake of fact. The mistake of fact would not have been that there was no liability to make payment under the policy, such as occurred in Norwich Union Fire Insurance Security Limited v W.H. Price Limited (1934) AC 455. More likely it would be that it was receiving in exchange a payment of the premium of $13,000-odd which in fact it did not get. This analysis of the mistake indicates that the extent of the unjust enrichment is the amount of the premium it failed to receive. 9 The circumstances of approving the work make it clearly arguable that the defendant's only claim is that which I have just identified and accordingly, there is a genuine dispute of the amount of $21,703.23. 10 After hearing oral submissions the parties, at my suggestion, made further written submissions and one of those was that the genuine dispute as to the nature of the debt was not articulated in the affidavit in support. 11 The most recent discussion of the extensive case law in this area and its development is that of Austin J in POS Media v B Family [2003] NSWCSC 147. There his Honour said: "26 The principle asserted by the defendant is that the plaintiff cannot succeed on the 'no debt' ground, because that ground was not set out in Mr Patkin's affidavit of 9 December 2002, and cannot be characterised as an extension of the grounds set out in that affidavit. 27 The principle is said to arise out of s 459G, which states:

'459G(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.'

28 In David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 the High Court of Australia held that an application to set aside a statutory demand is to be made within 21 days of service of the demand, and not at some time thereafter, and that to treat s 1322 as authorising the Court to extend the 21 day period would be to deprive the word 'only' in s 459(2) of effect (per Gummow J at 276). The David Grant case implied that the plaintiff must file and serve, within the 21 day period, not only the application but also an affidavit falling within the description of 'an affidavit supporting the application'; in assessing whether these requirements have been satisfied, the Court is not to have regard to any supplementary affidavit filed and served by the plaintiff at a later time.

29 Section 459G does not prescribe the content of the application. That is left to the Rules of Court, which are now substantially uniform. The application is made by an originating process, which according to Rule 2.2 of the Corporations Rules of the various Courts, and the associated Form 2, must set out the relief sought and the sections of the Corporations Act under which the proceeding is brought, but need not plead the grounds upon which the relief is sought. The defendant's interest in knowing the plaintiff's claim is catered for by the general rules of Court regarding particulars and the Court's power to order that the matter proceed by pleadings or points of claim in an appropriate case.

30 In the absence of authority, one might have thought that an affidavit would 'support' such an application if it deposed to facts that would (alone or together with other evidence) justify the grant of some such relief as the application sought once the plaintiff articulated (at the hearing, if not earlier) the reasoning by which those facts would warrant that relief. One would not expect the supporting affidavit to supply the intermediate reasoning, in the nature of a pleading. Assertions in an affidavit in the nature of submissions are normally held inadmissible, if challenged.

31 However, the law has taken rather a different course. In Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452, Sundberg J was dealing with an application to set aside a statutory demand on the basis that there was a genuine dispute as the existence of the debt. Perhaps influenced by a supplementary Federal Court Rule in force at the time, he said (at 459); 'In a s 459H(1)(a) casse, the affidavit must in my view disclose facts showing there is a genuine dispute between the parties. A mere assertion that there is a genuine dispute is not enough. Nor is a bare claim that the debt is disputed sufficient. It follows from the fact that the affidavit need not go into evidence, which is the customary function of affidavit, that it may read like a pleading.' 32 Those observations have been taken up and applied frequently in first instance decisions - for example, Zenaust Imports Pty Ltd v Olympic Chemicals Works Co Ltd (1998) 28 ACSR 465; Z-Tek Computers Pty Ltd v Aus Linx International Pty Ltd (1997) 15 ACLC 1233; SMEC International Pty Ltd v CEMS Engineering Inc (2001) 38 ACSR 595. In the Zenaust case, however, Santow J added (at 469) the qualification that an affidavit in support of a notice to set aside a statutory demand could not fairly be expected to rise higher than the level of articulation of the claimed debt in the statutory demand. 33 These cases dealt with the minimum content requirements for the affidavit in support of the application. A corollary of their reasoning is that if the affidavit discloses certain grounds only, the plaintiff should be limited to those grounds at the hearing. That proposition was accepted in D & S Group of Companies Pty Ltd v O'Connor Investments Pty Ltd (1997) 15 ACLC 1794, where Perry J remarked (at 1798), in respect of an affidavit filed on behalf of the plaintiff well after the expiration of the period of 21 days, 'insofar as it raises any ground offered in support of the application not identified in the affidavit ... filed within time, [it] could not be taken into account in determining the application'. The same point was accepted by Mandie J in Missay Pty Ltd v Seventh Cameo Nominees Pty Ltd (in liq) [2000] VSC 397.

34 Those decisions should be compared with Callite Pty Ltd v Adams [2001] NSWSC 52. In that case the statutory demand was by solicitors who sought to recover in respect of fees charged for legal work. At the hearing the plaintiff (the client) wanted to assert that there was a genuine dispute because the defendant (the solicitor) had not complied with mandatory requirements of the Legal Profession Act 1987(NSW). The affidavit supporting the client's application to set aside the statutory demand annexed the relevant invoices but did not assert the ultimate facts that would allow the legal conclusion to be drawn that there had been no proper fee disclosure as required by the Legal Profession Act. However, it was evident on the face of the invoices that they did not comply with the requirements of that Act in various ways. Santow J held that it was unnecessary for the affidavit to point out explicitly that omissions had occurred, since it was self-evident from a perusal of the annexed accounts that they lacked certain mandatory inclusions. He concluded (at [12]) that: 'the legal consequences which follow are not required to be pleaded in such an affidavit'.

35 We now have the benefit of three decisions by an intermediate appellate court. The Full Court of the Supreme Court of Western Australia has followed Sundberg J's observations and their corollary in Meadowfield Pty Ltd v Gold Coast Holdings Pty Ltd (in liq) [2001] WASCA 360; Energy Equity Corporation Ltd v Sinedie Pty Ltd (2001) 166 FLR 179 and Financial Solutions Australasia Pty Ltd v Predella Pty Ltd (2002) 167 FLR 106. However, the Financial Solutions case has reduced the Graywinter 'principle' to a more fact-specific inquiry.

36 The Meadowfield case applied Sundberg J's observations about the 'minimum requirements' for the affidavit without adding anything of general application. In the Energy Equity case, the question was whether the plaintiff could seek to establish at the hearing that it had an offsetting claim in negligence in relation to a particular contract, when all that had been relevantly said in the affidavit filed within time was that there were 'a string of off-setting claims'. After examining the authorities Wallwork J (with whom Steytler J and Olsson A-UJ agreed) concluded (at 185, in a passage described in the Financial Solutions case as an obiter dictum)(: 'In my view it now seems to be accepted that an affidavit filed outside the 21 day period which raises a new ground or grounds to set aside a statutory demand (as opposed to an affidavit which expands on grounds in an earlier affidavit which has satisfied the threshold test) cannot be used in an application of this nature.' 37 In the Financial Solutions case, the plaintiff contended at the hearing that there was a genuine dispute as to the existence of the debt claimed in the statutory demand, for two reasons. First, the plaintiff said that the defendant claimed as assignee under a deed of assignment which mistakenly identified the deeds of loan to which the assignment related, and secondly, the plaintiff said that the defendant was not a permitted assignee under the terms of the deeds. The affidavit supporting the application said only that the plaintiff had not sighted the deed of assignment and genuinely believed that the assignment might be void and ineffective, and was seeking discovery of the documents referred to in the statutory demand in order to establish whether the defendant had a legally enforceable claim against it. 38 Applying the observations of Sundberg J in Graywinter, and also the views of Young J in John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716, Parker J (with whom Anderson and Scott JJ agreed) held (at 115) that the material facts on which the plaintiff intended to rely to show a genuine dispute were sufficiently, 'though less than ideally', set out in the affidavit and its annexures. He observed, applying the views of Young J in the John Holland case, that the affidavit went beyond mere assertion. As to Sundberg J's observations, he said that they were apt to the circumstances with which Sundberg J was concerned, but 'there is reason to hesitate and hold back from acceptance of the apparent effect of the submission for Financial Solutions that the concluding paragraph of the passages cited earlier from Sundberg J's reasons in Graywinter reveal a settled and universal principle, which must be satisfied by an affidavit before it can be accepted as 'supporting the application' within the meaning of s 4 59G(3)(a) and as satisfying the jurisdictional requirement being considered. The statutory yardstick remains that the affidavit should support the application. The precise nature of the application may well influence what this requires.'

39 Barrett J of this Court carefully reviewed the case law in Process Machinery Australia Pty Ltd v ACN 057 260 590 Pty Ltd [2002] NSWSC 45, although his judgment was delivered before the Financial Solutions decision. Barrett J's conclusions were as follows: '[21] It is thus reasonably clear that the relevant concept of "raising" or "identifying" a particular ground involves some verbal delineation of that ground in the s 459G(3)(a) affidavit. If a debt of $10,000 were claimed as one year's interest under a contract providing for interest at the rate of 9% per annum on a principal sum of $100,000, it would not , in my opinion, be sufficient for the affidavit to annex the loan agreement and say no more. It would have to refer at least to the connection between the contract and the debt claimed and put in issue the calculation of interest - even if it merely said, "The debt does not accord with the annexed contract". [22] The real point is that the application and affidavit is filed and served within the 21 day period must fairly alert the claimant to the nature of the case the company will seek to make in resisting the statutory demand. The content of the application and affidavit must convey, even if it be by necessary inference, a clear delineation of the area of controversy so that it is identifiable with one or more of the grounds made available by s 459H and s 459J. That process of delineation may not be extended after the end of the 21 day period, although it is open to the plaintiff to supplement the initial affidavit by way of additional evidence relevant to the area of controversy identified within the period.' 40 With respect, these observations are a logical application of the principle enunciated in Energy Equity. However, they might arguably take Sundberg J's observations in Graywinter further than the Financial Solutions case would now take them, and be inconsistent with the decision in Callite. If it was unnecessary for the supporting affidavit in Callite to do anything more than annex the solicitor's invoices, on the face of which there were non-compliances with the Legal Profession Act, why would it be necessary for the supporting affidavit in Barrett J's hypothetical example to do anything more than annex the loan agreement showing a different rate of interest from the one claimed? 12 The affidavit was in these terms:

"1. I am the General Manager of the Debtor. 2. I believe there is a genuine dispute about the existence or amount of the above debt. 3. Previous to January 2003, another person, Charlie Georges was in charge of the insurance policies of the debtor. 4. In January 2003, Charlie Georges went overseas, and I was in charge of all of the debtor's insurance policies. 5. Throughout that time, BMI Insurance Brokers, ACN 005 543 920, ("BMI") acted as the insurance brokers for the debtor. 6. On 12 May 2003, storm damage occurred at 52 President Avenue, Caringbah, pursuant to which the debtor lodged a claim. 7. The claim was assessed and accepted by Crawford Loss Adjusters, the amount being $35,452.46 for the cost of the damage with an unspecified amount being for the remainder of the claim. 8. It was at that time that the debtor's broker, Oamps, ACN 005 543 920, ("Oamps") informed BMI Insurance Brokers, by way of letter that the cheque for $35,452.46 ("insurance moneys") was in their office waiting to be collected, but that there was an outstanding premium on the insurance policy for the amount of $13,749.23 ("premium moneys"). 9. BMI notified the debtor of the outstanding premium. 10. According to the debtor's preliminary records, the premium had already been paid as the debtor was in possession of two summary sheets, annexed hereto and marked "BO1". 11. The debtor assumed that part of the summary sheet to the amount of $14323.10 had been used to pay for the premium on the above property. 12. On 8 August 2003, the debtor stopped the cheque to the value of $13,749.23 in the belief that the premium had already been paid. 13. The debtor informed Oamps that they were of the belief that the premium had already been paid, and Oamps was unable to verify whether it had been paid or not. 14. I believe that there is a genuine dispute in relation to the alleged debt and such debt is not due and owing by the debtor to the creditor.

13 It is clear that the affidavit when referring to the "debt" is referring to the debt in the demand. It was described in these terms:

Payment made by the creditor to The company under policy number 171015095CAR (which was $35,452.46 subsequently terminated) 14 Clearly it is talking of the recovery of a paid amount. When one adds that to the other facts dealt with in the affidavit there is a reference to all the necessary facts. The fact that the precise dispute is not articulated is probably because the description of the debt in the demand did not descend into any particularity: see the comments of Santow J in Zenaunt at 469. In my view there was a sufficient delineation of the area of controversy. Accordingly, the demand should be reduced to $13,749.23. 15 The plaintiff raised an estoppel or change of position defence. There is no evidence of change of position after payment was made. That is of course necessary during the discussion in Restitution Law of Australia by Carter Mason, paragraphs 2406-8. 16 That leaves the plaintiff's claim to set aside for some other reason based upon the tender of the cheque made yesterday morning. If I reduce the demand to $13,749.23 there would be no non-compliance with the demand until seven days after my order: see section 459F(2)(a)(ii). In such circumstances the payment can be made and the company can avoid the consequences of non-payment, namely, deemed insolvency. 17 I would, of course, pursuant to section 459H(4)(b) declare that the demand is to have effect as so varied as from when it was served on the company. 18 In those circumstances I see no reason to set aside the demand under section 459J(1)(b). I find that the substantiated amount is $13,749.23. I order that:

1. The demand dated 4 November 2003 served on the defendant by the plaintiff be varied by reducing it to $13,749.23; 2. I declare that the demand to have effect as so varied as from when the demand was served upon the company; 19 There has been tendered a letter of 28 November 2003 in which an offer was made to pay on 1 December 2003 by way of bank cheque the sum of $13,749.23. In those circumstances it seems to me that the defendant should pay the plaintiff's costs and I so order. 20 I order that the exhibits be returned.

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