Prime Property Pty Ltd v Nerri Pty Ltd
[2011] QSC 119
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- Notable Unreported Decision
- Prime Property Pty Ltd v Nerri Pty Ltd[2011] QSC 119
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Prime Property Pty Ltd v Nerri Pty Ltd[2011] QSC 119
Prime Property Pty Ltd v Nerri Pty Ltd[2011] QSC 119
SUPREME COURT OF QUEENSLAND
PARTIES: | PRIME PROPERTY INVESTMENT (QLD) PTY LTD |
FILE NO/S: | |
Trial Division | |
PROCEEDING: | Application |
ORIGINATING COURT: | |
DELIVERED EX TEMPORE ON: | 1 February 2011 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 1 February 2011 |
JUDGE: | Margaret Wilson J |
ORDER: | The Court orders that: 1.A declaration that the demand served by the respondent on the applicant on 15 December 2010 does not substantially comply with the essential requirements of section 459E of the Corporations Act 2001 and Form 509H under the Corporations Regulations and non compliance with it is insufficient to support an application to wind up the applicant; and 2.the application to set aside the demand be dismissed; and 3.there be no order as to costs. |
CATCHWORDS: | CORPORATIONS – GENERALLY – where respondent served a statutory demand on applicant – where applicant applied for statutory demand to be set aside pursuant to the Corporations Act 2001 (Cth) s 459G and s 459J – where correct form for demand Form 509H under Corporations Regulations 2001 (Cth) – where demand was issued on the letterhead of the respondent and took the form of a letter – where source of any obligation to pay subsequent interest not identified – where respondent set out conditions for "granting leave or setting aside" the demand in the demand – whether substantial departure from the prescribed form – whether statutory demand effective – whether statutory demand should be set aside. Building and Construction Industry Payments Act 2004 (Qld) Corporations Act 2001 (Cth), s 459E, s 459F, s 459G, and s 459J Corporations Regulations 2001 (Cth) LSI Australia Pty Ltd v LSI Holdings Ltd (2007) 25 ACLC 1602, cited Re Beralt Pty Ltd [2001] 1 Qd R 232; [1999] QSC 202, cited The Hire Works Pty Ltd v Elexpo Pty Ltd (1995) 19 ACSR 114, cited Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226, cited |
COUNSEL: | R O'Hair for the applicant/ defendant M Piper (sol) for the respondent/plaintiff |
SOLICITORS: | Hemming + Hart for the applicant/ defendant Budd & Piper Solicitors for the respondent/plaintiff |
[1] MARGARET WILSON J: This is an application to set aside a statutory demand. A demand was served on 15 December 2010. This application was filed on 24 December 2010 and served on 5 January 2011.
[2] Non-compliance with a statutory demand gives rise to deemed insolvency, which is a ground for winding up a company. Because of this serious consequence, the law surrounding statutory demands and applications to set them aside is technical, and strict compliance with it is required.
[3] It is instructive to begin with some background as to the relationship between the parties. On 23 February 2009 there was an adjudication decision under the Building and Construction Industry Payments Act 2004 (Qld) in favour of the creditor. Subsequently, on 6 March 2009 pursuant to that decision, judgment was entered in favour of the creditor against the debtor by the Magistrates Court at Maroochydore in the sum of $23,028.56.
[4] On 23 March 2009, the debtor commenced a proceeding in the Magistrates Court at Brisbane. It claimed equitable damages in an amount equivalent to that in the adjudicator's certificate, on the basis the certificate had been procured by fraud. On 23 October 2009, that proceeding in the Brisbane Magistrates Court was stayed pending payment into Court of an amount equivalent to the adjudicated sum. No payment into Court has been made.
[5] Meanwhile, the creditor had begun enforcement proceedings in the Magistrates Court at Maroochydore. The debtor applied to the Magistrates Court at Maroochydore to have the judgment set aside because the creditor was an unlicensed builder when the work was performed. In the upshot, the enforcement proceedings have been adjourned.
[6] As I have said, a demand purporting to be a statutory demand, was served on 15 December 2010 and subsequently, this application to set it aside was filed and served. I will turn to the contents of the demand in a moment.
[7] At this stage, I note that the application to set it aside included the following:
"On the facts stated in the supporting affidavit, the Applicant claims the following relief:
- That the Respondent's statutory demand for payment of debt in the sum of $54,157.58, served by the respondent on the applicant on 15 December 2010, be set aside pursuant to ss 459G and 459J of the Corporations Act 2001 (Cth);
- That the respondent and Darcy Ringland pay the applicant's costs of and incidental to this application on an indemnity basis; and
- Such further or other order as the Court thinks just."
[8] Section 459G of the Corporations Act 2001 (Cth) is that provision which allows a company to apply to the Court for an order setting aside a statutory demand. It provides a time limit, and it provides for the filing and serving of an affidavit in support of the application.
[9] Section 459J is headed, "Setting aside demand on other grounds". It follows s 459H, which is concerned with setting aside a demand where there's a dispute or offsetting claim.
[10] Returning to s 459J, it reads as follows:
"459J(1)Defect or other reason
On an application under s 459G, the Court may, by order, set aside the demand if it is satisfied that:
(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b) there is some other reason why the demand should be set aside.
(2) Mere defect
Except as provided in subsection(1), the Court must not set aside a statutory demand merely because of a defect."
[11] I will return to the application for setting aside the demand in due course. I will turn first to the requirements for a demand. These are contained in section 459E. In particular, I refer to s (2), which is in these terms:
"459E(2) Contents of demand
The demand:
(a) if it relates to a single debt must specify the debt and its amount; and
(b) if it relates to two or more debts - must specify the total of the amounts of the debts; and
(c) must require the company to pay the amount of the debt, or the total of the amounts of the debts, or to secure or compound for that amount or total to the creditor's reasonable satisfaction within 21 days after the demand is served on the company; and
(d) must be in writing; and
(e) must be in the prescribed form; and
(f) must be signed by or on behalf of the creditor."
[12] Then subsection (3) provides:
"459E(3) Demand to be accompanied by affidavit
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."
[13] There is a prescribed form for a statutory demand. It is contained in a schedule to the Corporations Regulations 2001 and is Form 509H.
[14] In the present case the demand was issued on the letterhead of the creditor and it took the form of a letter. After an introductory sentence referring to section 459E of the Corporations Act 2001 (Cth), the document continued:
| 1a | Judgment(Maroochydore) | $23,028.56 |
| 1b | Reduction of interest on 1a | $ 278.06 |
| 1c | Total interest on 1a(to 31/12/10) | $ 4,935.58 |
| 2 | Other outstanding invoice (as per attached) | $26,471.50 |
| Summary | $54,157.58 | |
[15] It continued:
"We understand that you and your client may wish to, and have the right to dispute/challenge the above mentioned accounts. We will grant leave and/or set aside this demand on the following relief:
●Current judgement amounts and interest amounts are secured; and
●Directors personal guarantee is provided; and
●Security of costs are provided.”
[16] The above point 1 is due and payable by the company i.e. attached is the current
(i) court judgement; and
(ii) interest calculation along with;
(iii) the statutory declaration of Darcy Ringland dated 10 December 2010 verifying that the second amount is due and payable by the company.
[17] The creditor requires the company, within 21 days after service on the company of this demand:
(a) to pay to the creditor the total of the amounts of the debts; or
(b) to secure or compound for the amount of the debt, to the creditor's reasonable satisfaction (as per above).
[18] The creditor may rely on a failure to comply with this demand within the period for compliance set out in s 459F(2) as grounds for an application to a court having jurisdiction under the Corporations Act 2001 for the winding up of the company."
[19] The document then contained a notice of the company's right to apply to have the demand set aside and the address for service of the creditor.
[20] The combination of s 459E(2) and the words "described in the Schedule" which appear in the prescribed form makes it necessary to identify the debts claimed with a sufficient degree of particularity for a reasonable person in the shoes of a director of the debtor company to be able to assess whether there is a genuine dispute as to the existence or amount of the debt or debts or any offsetting claim. See LSI Australia Pty Ltd v LSI Holdings Ltd.[1]
[21] In the present case the schedule was divided into two parts. The first related to a judgment debt. It began with the words, "Judgement (Maroochydore) $23,028.56". In my view, that would be sufficient for a director of the debtor company to be able to identify what was claimed, as the amount of the judgment entered consequent on the adjudication decision in favour of the creditor. However, the source of any obligation to pay subsequent interest in an amount of $4,935.58 was not identified.
[22] As to the second part of the schedule (the $26,471.50), particulars of this were provided in an invoice and in a statutory declaration which accompanied the demand. The provision of a statutory declaration rather than an affidavit was a contravention of s 459E(3).
[23] The demand contained a warning that failure to comply with it within the period for compliance would constitute a ground for winding up. That warning was not in the same terms as the warning in the prescribed form; however, it was to the same effect.
[24] Paragraph 3 of the prescribed form is in these terms:
"The creditor requires the company, within 21 days after service on the company of this demand:
(a) to pay to the creditor the amount of the debt/total amounts of the debts; or
(b) to secure or compound for the amount of the debt/total amounts of the debts to the creditor's reasonable satisfaction."
[25] In the present case, the creditor set out its conditions for "granting leave or setting aside" the demand in the demand. Whether those conditions were reasonable conditions is not a matter which can be decided on an application such as this. More to the point, in the view I take, setting out such demands was a substantial departure from the prescribed form.
[26] What then is the consequence of these various departures from the prescribed form? In Topfelt Pty Ltd v State Bank of New South Wales Ltd,[2] Justice Lockhart observed that there may be cases where deficiencies in the form of demands are so fundamental that the demands are incapable of assuming the description of statutory demands within the meaning of the Corporations Act 2001 (Cth).
[27] In Beralt Pty Ltd,[3] Justice Ambrose considered a demand which failed to inform the debtor that failure to apply to have it set aside within 21 days after service would enable the creditor to apply to a Court to have the debtor wound up. His Honour held that such a demand was ineffective as a statutory demand, and proceeded to give declaratory relief. Relevantly for present purposes, he declared that the demand did not substantially comply with the essential requirements of the legislation and the prescribed form, and that non-compliance with it was insufficient to support an application to wind up the company.
[28] In the present case there are the following problems:
- the description of the second debt; the absence of justification for the interest claimed on the first debt;
- the absence of an affidavit;
- the imposition of conditions on which the creditor would grant leave or set aside the demand; and
- the warning not being in the prescribed terms.
[29] Considering all of these matters, not only separately but as a whole, I have come to the conclusion that the demand which was served was not one satisfying the requirements for a statutory demand.
[30] Should I be wrong on this, I would then have to consider whether the requirements for an application to set aside the demand had been met. In my view they have not been met.
[31] In particular, s 459G (3) provides:
"459G(3) Affidavit and copy of application
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."
[32] The following passage appears in McPherson's Law of Company Liquidation at paragraph 3.610:
"The sufficiency of the affidavit is a jurisdictional matter and as a consequence the affidavit's sufficiency is not able to be determined in light of the circumstances in which it was made. While the Courts will apply a benevolent construction to the affidavit, as it is acknowledged that the application to set aside and the supporting affidavit must be lodged very quickly, it must contain a statement of the material facts relied on to resist the demand and may read like a pleading while 'extraneous material' in a supporting affidavit will not 'nullify its effect for the purposes of section 459G(3).'
If as a result of dealing with irrelevant matters, the affidavit fails to contain enough material relating to the statutory demand and why for example the debt claimed in it is disputed, that can result in the affidavit not qualifying under s 459G(3)."[4]
[33] The affidavit relied on in support of the application to set aside the demand is an affidavit of Sidney Charles Knell, filed 24 December 2010. It disputes the judgment debt and disputes the second debt in the schedule in the demand. It says nothing about the technical arguments.
[34] There is a certain disconnect between the application which purports to invoke s 459J and the affidavit which purports to invoke s 459H.
[35] Insofar as the application relies upon section 459J, there is need for an affidavit, even though it may be merely formal.
[36] The need for the affidavit is express in s 459G(3). In The Hire Works Pty Ltd v Elexpo Pty Ltd[5] Senior Master Mahony of the Supreme Court of Victoria said:
"An application under section 459G may be directed to a defect in the demand warranting its being set aside under section 459J (see, for example, Topfelt Pty Ltd v State Bank of New South Wales Ltd);[6] or to the respondent's failure to observe the requirements of the Corporations Law that a statutory demand in respect of a nonjudgment debt be accompanied by an affidavit (see Victor Tunevitsch Pty Ltd v Farrow Mortgage Services Pty Ltd (in liq).[7]
In cases such as these, especially the former, the affidavit required by s 459G(3) often need not be more than formal. Certainly, for the company to succeed in such a case, it need not raise a case of genuine dispute or cross-claim, and depending on the circumstances, may be able to establish its case with minimal evidence."
[37] Here, the affidavit simply does not deal with the technical arguments.
[38] In all of the circumstances, the appropriate orders are a declaration as to the ineffectiveness of the demand and an order dismissing the application to set it aside.
[39] Having regard to the history of the matter and to the faults which clearly lie on both sides, this seems to me a case where there ought not to be any order as to costs, but I will hear the parties if they wish to make any submissions.