New South Wales Supreme Court CITATION : Civil v ET Constructions [2000] NSWSC 1119 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 4419/2000 HEARING DATE(S) : 30/11/2000 JUDGMENT DATE : 15 December 2000 PARTIES : Civil Systems Pty Ltd (ACN 064 594 430) v E.T. Constructions Pty Ltd (ACN 003 655 892) JUDGMENT OF : Master Macready at 1 COUNSEL : Mr M.R. Pesman for plaintiff. Business Law Office for plaintiff SOLICITORS : Mr D. Bowles, as agent for Christine Turnbull, solicitor for defendant CATCHWORDS : Corporations Law. Application to set aside statutory demand on the basis that it was proposed to set aside judgment upon which the demand was based. Judgment set aside after expiration of 21 day period and before hearing. Held that the affidavit filed within the 21 day period was sufficient to give jurisdiction. Demand set aside. DECISION : Paragraph 18 - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION MASTER MACREADY Friday 15 December 2000 4419 of 2000 CIVIL SYSTEMS PTY LTD v E.T. CONSTRUCTIONS PTY LTD JUDGMENT 1 MASTER: This is the hearing of an application made on 31 October 2000 in which the applicant seeks to set aside a creditor's statutory demand for payment of a debt. The application refers to a demand served on 7 February 2000 but clearly that is an error as a recounting of the facts below will reveal. The relevant demand is dated 9 October 2000. The amount claimed in the demand is a sum of $50,155.86 a claim pursuant to a judgment in the Local Court on 18 September 2000. 2 The plaintiff submits that the demand should be set aside on the basis that there is a genuine dispute in respect of the debt and that, alternatively, there is no subsisting debt as the Local Court judgment upon which the demand was based has now been set aside. The defendant for its part seeks the dismissal of the proceedings. Although expressed on a separate basis it is a really a combination of:- 1. The affidavit in support not being a sufficient affidavit for the purposes of jurisdiction. 2. At the time the proceedings were commenced, when the affidavit in support was filed that there could be no dispute as the Local Court judgment had not then been set aside. 3 It is necessary to set out some of the background circumstances in order to understand the arguments put on behalf of the parties. On 28 August 1998 the plaintiff filed a Statement of Liquidated Claim in the Local Court against the defendant. That claim is a claim for work done in respect of some civil engineering works for the defendant who was a builder engaged in some school extensions at a site at Erskine Park. The claim was for $25,939 which with interest and costs came to $27,644.26. The claim is one based on contract or, alternatively, quantum meruit. After proceedings were commenced there were a number of requests for particulars of the plaintiff's claim in September, October and November. These were not answered by the plaintiff. The defendant then filed a cross claim in the proceedings together with a defence. The cross claimant claimed $43,035.73 and abandoned the amount over $40,000. It was a claim for damages for breach of contract and claimed amounts for rectification of building works. There seemed to be no activity on the plaintiff's part thereafter and on 13 December 1999 at a callover at which the plaintiff did not appear, the Registrar gave a default judgment in respect of the cross claim and struck out the Statement of Claim. In January 2000 the defendant obtained a Certificate of Judgment and then served a Creditor's Statutory Demand. That prompted some action on the plaintiff's part and on 24 February 2000 they filed a summons to set aside the demand. They also filed a motion in the local Court to set aside the default judgment. By consent that judgment was set aside as apparently was the demand. On 3 May 2000 there were appearances in the Local Court proceedings when directions were made Thereafter particulars were requested in accordance with the directions and no response was received. Once again at a callover on 28 August 2000 there was no appearance on behalf of the plaintiff. The Registrar made an order that the defence to the cross claim be struck out and gave default judgment in favour of the cross claimant. The Registrar also struck out the Statement of Claim. 4 For the second time the defendant had obtained a judgment. On 9 October 2000 a statutory demand the subject of the present proceedings was served and that led to the commencement of the present proceedings to set aside that demand. These proceedings came before the Court on 30 November 2000 that day being the return date in the application. The plaintiff had apparently taken proceedings once again in the Local Court to set aside the default judgments given in August and was successful on 30 November 2000 in having the judgments in the Local Court set aside. That hearing apparently was prior to this matter being referred to me in the ordinary course of the list on 30 November 2000 some time after 11 am. The plaintiff relies in the hearing before me upon what is the present subsisting fact, namely, a dispute in the Local Court over the payments. They submit there is a genuine dispute which would lead to the demand being set aside. They also submit that as at the present time, the default judgment having been set aside, there is no subsisting debt. I have already referred to the nature of the claim which underlies the Local Court judgment and it is a claim for damages for breach of contract. Clearly such a claim would not support a statutory demand which can only be in respect of a debt. See Rothwells v Nommack (No 100) 6 ACLC 1199, First Line Distribution v Paul Whiley 13 ACLC 1216 at 1218, Molit Pty Ltd v Lam Soon Australia Pty Ltd (1996) 21 ACSR 157 at 159, my decisions of Arrow Asset Management Pty Ltd v Sportsworld Group PLC 13 December 1999 and Reinsurance v Odyssey [2000] NSWSc 1118. 5 In order to see whether the defendant may make good its submissions it is necessary to see whether the conditions as to jurisdiction have been met. This raises the defendant's submissions which concern the sufficiency of the affidavit in support of the application. The law in this regard is conveniently set out in the Judgment of Sunburg J in Graywinter Properties Pty. Limited v Gas and Fuel Corporation Superannuation Fund, 21 ACSR, 581. At 587.8 his Honour had the following to say: "Is a complying affidavit a condition of jurisdiction? It seems to me that s 459G(3) makes plain that the Court can entertain an application to set aside only if within the prescribed period an affidavit supporting the application is filed and copies of the application and affidavit are served. The High Court in Grant said that compliance with the subsection is a limitation or a condition upon the authority of the Court to set aside a demand; it is a condition of the jurisdiction that subs (3) be observed; if the condition is not observed there is no application before the Court. I am thus unable to agree with the Senior Master that the failure of an affidavit to satisfy the minimum requirements for an affidavit to be a "supporting affidavit" is not a jurisdictional impediment. The minimum requirements in a genuine dispute case. In order to be a "supporting affidavit", an affidavit must say something that promotes the company's case. An affidavit which merely says "I am a director of the company but am too busy at present to make a full affidavit, and I will do so later" would not support the application. It would in no way advance, further or assist the company's cause, which is to have the notice set aside. At the other extreme, the affidavit need not detail, in admissible form, all the evidence that supports the contention of a genuine dispute: John Holland. That evidence must be available at the hearing of the application to set aside, because that application is for final and not interlocutory relief: 71 Paisley Street. In a s 459H1(a) case, 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 not enough. Nor is there 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 an affidavit, that it may read like a pleading. An affidavit which exhibits an exchange of correspondence between the parties or between their solicitors from which it appears that a claim is made and rejected for reasons given can qualify as a supporting affidavit. And an affidavit verifying the pleadings in an action may qualify. I am thus unable to accept the respondent's submission that the affidavit must contain sufficient material to make out a case under s 459H. In reply, that submission was somewhat retreated from. It was said that the affidavit must, as a minimum, contain a statement of the material facts on which the applicant intends to rely to show a genuine dispute - it might read more like a pleading than a story. That accords with what I consider to be the minimum requirement. ………… A multitude of affidavits? In several cases, it has been held that an applicant is not restricted on the hearing to the affidavit that is served with the application. See Scanhill at 467 and Mibor Investments Pty. Limited v Commonwealth Bank of Australia (1993) 11 ACSR 362 at 368. An applicant whose initial affidavit has satisfied the threshold test must be able to supplement the material, because while the "supporting" affidavit does not have to deploy the evidence, on the hearing only admissible evidence can be relied on. In Louisbridge, Ryan J said that "provided that an affidavit is filed and served within the 21 day period which supports the application by providing grounds for concluding that there is a genuine dispute... or that the company has an offsetting claim", supporting affidavits may be filed under the period has expired. Apart from Hire Works, the cases do not support the proposition for which the applicant contended, namely that an affidavit that does not satisfy the threshold test can be supplemented later on. That issue did not arise in Scanhill or Mibor. It did arise in Hire Works, but for the reasons I have given, I am respectfully unable to agree that the Court can entertain as an application under s 459G a case in which an affidavit containing the minimum requirements has not been served within time." 6 The affidavit in support, being that of Mr Moffatt of 26 October 2000 was made by him in his capacity as solicitor for the plaintiff. After referring to the statutory demand which he annexed to his affidavit, his affidavit contained the following paragraphs. "An application has been filed with the Local Court Sydney seeking to set aside Orders made by the Court in the absence of the plaintiff on 28 August 2000. Annexed hereto and marked with the letter "B" is a copy of the Affidavit filed in support of the Local Court Application. The contents of this Affidavit are to my knowledge true and correct. At the date hereof, I have not been advised of a hearing date for the application to reinstate aspects of the Local Court proceeding, but expect a hearing date within the next 4 to 5 weeks. The judgment entered in the Local Court was not a judgment on the merits as the Court struck out the Plaintiff's Statement of Claim and Cross-Claim in those proceedings and proceeded to enter judgment in favour of the Defendant without consideration of the original Statement of Claim filed by the Plaintiff and the Defence to the Defendant's Cross-Claim. As the Cross-Claim was not a liquidated demand, I believe that the judgment was entered by the Local Court in the absence of any evidence, other than the material contained in the Defendant's Pleadings. There is a real issue between the parties as to the Plaintiff's liability to the Defendant and further, there is a claim for moneys due to the Plaintiff by the Defendant." 7 In paragraph 3 above there is a reference to an affidavit which was annexed to the affidavit. All that affidavit did was give some explanation for the failure to attend on the occasion when the default judgment was obtained. The affidavit did, however, in its terms refer to an existing application to set aside the default judgment and referred to the issues in the local proceedings being the plaintiff's liability to the defendant and the claim for monies due to the plaintiff by the defendant. 8 If one looks at the matter at the conclusion of the 21 day period after service of the demand, clearly there was on foot an application to set aside the Local Court judgment but there had been no grant of a stay of execution. In these circumstances the possibility that the judgment might be set aside would not constitute a genuine dispute. See Wilden Pty Ltd v Greenco Pty Ltd 1995 13 ACLC 1039 and Barclays Australia v Mike Gaffikin Marine 21 ACSR 235 and (1996) 14 ACLC 1367. In the latter case His Honour Mr Justice McLelland the Chief Judge in Equity said at ACLC 1370 said:- "The assertion that there is a genuine dispute about the existence of the debt is in turn based on two grounds. The first relies on the existence of the undetermined appeal, in which orders are sought by Dan (inter alia) that the proceedings brought by Gaffikin Marine be dismissed and that Gaffikin Marine pay the costs of those proceedings. If the appeal succeeds, it is possible that the costs orders of 16 July 1995 (including the order against Barclays, although it is not an appellant) may be set aside. The answer to this submission is that the possibility that a presently existing and enforceable debt may be set aside in the future pursuant to a subsisting appeal does not give rise to a genuine dispute about the existence of the debt within the meaning of s459H (see eg Hoare Bros v Deputy Commissioner of Taxation (1995) 13 ACLC 358; Wilden v Greenco (1995) 13 ACLC 1039). The position would of course be different if there were a stay of proceedings under, or stay of execution of, the costs order against Barclays, but there is not, and in the absence of any such stay and notwithstanding the pendency of the appeal, the costs orders of 16 July 1995 against Barclays (together with the judgment of 16 May 1996), unless and until set aside on appeal, operate as res judicata determining the matter of Barclays' costs liability to Gaffikin Marine (see Spencer-Bower and Turner Res Judicata 2nd ed page 144; Lahoud v B and M Quality Constructions (22 July 1994, McLelland CJ in Eq, unreported))." 9 The question that thus arises is whether it is sufficient for the affidavit in support to identify what might be considered as a conditional genuine dispute a condition in respect of which is satisfied prior to the hearing of the proceedings. Before moving to this point I will refer to the fact that the defendants submitted that the terms of the affidavit would not have disclosed the existence of a conditional genuine dispute. Given that the parties had been locked in litigation with claims and cross claims in the Local Court since August 1998 I would have thought that the very existence of those proceedings continuing to be prosecuted albeit in a somewhat erratic fashion would be sufficient for me to infer the existence of what I have termed a conditional genuine dispute. 10 The circumstances of the present case indicate a fairly common situation in respect of the statutory demand procedure. Default judgments frequently come about because proceedings do not come to the attention of a party. Judgment is obtained and then a statutory demand is served. Not infrequently it is the receipt of a statutory demand which then makes the recipient aware that a judgment has been obtained against him. In these circumstances if the defendant were right not only would the recipient of the demand have to make application to set aside the demand within 21 days, but would also have to have heard an application to set aside the underlying judgment or have obtained a stay pending such a hearing from the Local Court. In Graywinter Sunberg J took the view that the initial affidavit could be supplemented given the fact that the initial affidavit did not have to be in admissible form. He was of the view that an affidavit that did not satisfy the threshold test could not be supplemented at a later stage. 11 There is a clear dispute in the cases at first instance as to whether or not, provided there has been a supporting affidavit filed within the 21 day period, that the application may be amended by allowing additional grounds raised after the 21 day period. In Eden Bay Pty Ltd v Bennett & Co (1997) 15 ACLC 1634 Acting Master Chapman held that a supplementary affidavit could be filed beyond the 21 day period if it was merely supportive of the original grounds of the application but an affidavit could not be filed out of time if it raised a new ground. A similar opinion was expressed by Perry J in D & S Group of Companies Pty Ltd v O'Connor Investments Pty Ltd (1997) 15 ACLC 1794. Lee J also came to the same conclusion sitting in the Supreme Court of Queensland in the matter of Brentwood Terrace Pty Ltd 28 November 1997 unreported. To the contrary are decisions of Ryan J in Re Louisbridge Pty Ltd (1994) 1 Qd R 144 and Hill J in Sandina Pty Ltd v Sydney Autolac Centre Pty Ltd 5 December 1997. This conflict in the authorities was referred to by Beaumont J in Bluecrest Holdings Pty Ltd v Steve Blyth Electrical Engineering & Contracting Pty Ltd 23 February 1998. In that case His Honour did not decide the point as he decided on a case management basis to see whether the ground that was within the original supporting affidavit might be successful. 12 It is s 459H(1) which refers to the determination by the court of whether a genuine dispute exists. Section 459H(1) is in the following terms:- "This section applies where on an application under s 459G, the court is satisfied of either or both of the following:- (a) there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates; (b) that the company has an offsetting claim." 13 The decision as to the existence of a genuine dispute is one which is made at the hearing when the court determines the matter. 14 As has been pointed out by Sunberg J in Graywinter and the High Court it was a condition of jurisdiction that there be a supporting affidavit. In the words of Sunberg J for an affidavit to be a supporting affidavit the affidavit must say something that promotes the company's case. It is interesting to note that in Graywinter the initial affidavit was one which is very like the affidavit in question in the present matter. The statutory demand referred to a judgment and the affidavit spoke of facts relating to a compromise and a forebearance to sue. It then referred to the judgment being entered erroneously and that application had been made to set aside the judgment. It then went on to refer to the fact that there was a genuine dispute as to the alleged liability. The decision in the case was that the application and the affidavit to which I have referred, constituted an application for the purpose of s 459G of the Corporations Law. The court also ordered that the applicant be at liberty to file a further affidavit or further affidavits in support of its application. In that case there does not seem to be any reference to the cases to which I have referred above which show that an existing judgment is conclusive and, absent a stay of the judgment, there can be no genuine dispute. One does not know what ultimately transpired in the litigation in Graywinter Properties when the additional affidavits were filed. 15 In the present case, before me, there has been an agreed fact, namely, that the judgment in the Local Court was set aside shortly prior to the commencement of the hearing of the matter before me. This is similar in nature to that of a supplementary affidavit filed outside the 21 day period. This additional fact does not seem to me to really be the raising of a new ground and thus I do not have to resolve the conflict in the cases to which I have referred. The basis of the ground which the court would be asked to find on the hearing seems to have been fully articulated in the affidavit in support. The ground was that it was intended to have the Local Court judgment set aside and that the underlying debt on which the judgment was based was disputed in the Local Court proceedings. In the event that it was not stayed or set aside prior to the hearing there is no doubt the ground would fail. The fact that it was set aside is no more than supplementing the articulated ground in the first affidavit. 16 The requirement under s 459H for the court to determine at the hearing that there is a genuine dispute will no doubt mean in some cases that a perfectly genuine dispute articulated in an affidavit filed within time ceases to exist by reason of some fact occurring after the 21 day period but before hearing. Such fact could emerge through cross examination or defendant's affidavits which are filed after the 21 day period. It is obvious that the court would be required to take such a fact into account. This obverse situation to the present case perhaps assists by drawing attention to when the dispute has to exist. In the present case the affidavit promoted the applicant's case by articulating a ground which would be made out at the hearing the date for which was specified in the revised application. That one of the facts necessary for that ground to exist might only occur after the 21 days and before the hearing does not mean, in my view, that the affidavit failed to promote the applicant's case. To hold otherwise would confuse the two different temporal requirements. One is the establishment at the hearing of the existence of the genuine dispute and the other is the filing of an appropriate affidavit within the 21 days. The legislation in its terms does not also require the establishment of the existence of a genuine dispute at some time within the 21 days. 17 In these circumstances, I am satisfied that the initial affidavit is a sufficient supporting affidavit in order to ground jurisdiction. I am also satisfied, as at the date of hearing this application, having regard to the fact there is no longer any judgment and that there are proceedings on foot in the Local Court regarding the underlying debt, that there is a genuine dispute in relation to the debt. 18 Accordingly, I order:- 1. The creditor's statutory demand for payment of debt issued by the defendant pursuant to s 459E of the Corporations Law dated 9 October 2000 be set aside. 2. Order the defendant to pay the plaintiff's costs. **************** Last Modified: 12/18/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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