New South Wales Supreme Court CITATION : Canon Australia Pty Ltd v Yong Bros Pty Ltd [2009] NSWSC 842 HEARING DATE(S) : 11 June 2009 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 11 June 2009 DECISION : Interlocutory process dismissed with costs CATCHWORDS : CORPORATIONS - winding up – creditor's statutory demand – whether statutory demand served on plaintiff by defendant should be set aside on ground that it is defective - whether statutory demand identifies general nature of debt to sufficient degree that reasonable person in shoes of director can assess whether genuine dispute as to existence or amount of debt or offsetting claim - where demand is not ambiguous - where particularisation of debt is defective - Held: There was a defect in the statutory demand. LEGISLATION CITED : (CTH) Corporations Act 2001 s 459 G(3), s 459H, s 459J, s 459J(1)(a), s 459J(1)(b), s 5609H CATEGORY : Procedural and other rulings A R Pilot Pty Ltd v Gouriotis [2007] NSWSC 396 Hansmar Investments Pty Limited v Perpetual Trustee Co Ltd [2007] NSWSC 103, (2007) 61 ACSR 321 LSI Australia Pty Ltd v LSI Holdings [2007] NSWSC 1406, (2007) 25 ACLC 1602 CASES CITED : Meehan v Glazier Holdings [2005] NSWCA 24, (2005) 53 ACSR 229 POS Media Online Ltd v B Family Pty Ltd [2003] NSWSC 147, (2003) 21 ACLC 533 Saferack Pty Limited v Marketing Heads Australia Pty Limited [2007] NSWSC 1143, (2007) 25 ACLC 1392 Spencer Constructions v D & M Aldridge Pty Ltd (1997) 76 FCR 452, (1997) 24 ACSR 353 Topfelt Pty Ltd v State Bank of New South Wales (1993) 47 FCR 226, (1993) 12 ACSR 381 PARTIES : Canon Australia Pty Ltd (plaintiff) Yong Bros Pty Ltd (defendant) FILE NUMBER(S) : SC 5805/08 COUNSEL : Mr J K Chippindall (plaintiff) Mr J T Johnson (defendant) SOLICITORS : McLachlan Chilton (plaintiff) Yates Beaggi (defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BRERETON J Thursday 11 June 2009 5805/08 Canon Australia Pty Ltd v Yong Bros Pty Ltd JUDGMENT (ex tempore) 1 HIS HONOUR: By interlocutory process filed on 4 June 2009 the plaintiff Canon Australia Pty Ltd seeks the separate determination of questions said to arise under (CTH) Corporations Act 2001 s 459J(1)(a) and (b) respectively as to whether a statutory demand served on it by the defendant Yong Bros Pty Ltd should be set aside (1) because of a defect in the demand which could cause substantial injustice if the demand were not set aside, or (2) because of some other reason. It would be appropriate to determine those issues as separate questions only if their determination would effectively determine the proceedings. That may not be the universal test, but in the present application I am satisfied that unless I came to that view, I should decline to determine the questions separately. As there are other bases – including disputed indebtedness and offsetting claims – on which Canon relies to impugn the demand, I would decide the proposed seperate questions only if their determination brings the proceedings to an end in Canon's favour. 2 The demand – which was served on or about 3 November 2008 – asserted that Canon owed Yong $67,715.86 "being the total of the amounts of the debts described in the Schedule", and was accompanied by an affidavit of Mr Yong. The Schedule was as follows: (iv) Requests by the Creditor for payment for the services which were itemised in reports of outstanding Commissions and Brokerage and provided to the Company on 1 July 2008, copy annexed hereto and marked "A". 3 No Annexure A was attached to the demand. Mr Yong's affidavit, however, included the following: 2. The Debtor is indebted to the Creditor pursuant to requests for outstanding commission in the sum of Fifty Thousand Two Hundred and Seventy Four Dollars and Zero cents ($50,274.00). 3. The Debtor is indebted to the Creditor pursuant to requests for outstanding brokerage in the sum of Seventeen Thousand Four Hundred and Forty One Dollars and Eighty Six Cents ($17,441.86). 4 It was accompanied by spreadsheets setting out what appear to be total commission claims "from CFA" of $15,856.24 and "total hardware sales commissions" of $45,703.64. Those amounts do not on their face correspond with the amounts referred to in paragraphs 2 and 3 of the affidavit and do not total the debt claimed of $67,715.86. It has subsequently been explained, in the course of argument, that the difference is 10 percent and represents GST. There is no reference in the Schedule to the creditor's statutory demand to GST. In my view, it could not be said it would be apparent to a reasonable person in the position of the company how the total of the debt claimed was made up, but it would be apparent that, in order to comply with the demand, the company was required to pay $67,715.86 within 21 days after service of the demand. 5 Solicitors for the company raised in correspondence, dated 19 November 2008, an assertion that it had a genuine dispute in relation to the debt, and also that there were further "technical defects in your client's documentation", including failure to include the note required by s 509H, failure to refer to the proper date of Mr Yong's affidavit on the face of the demand, and "the fact that the debt claimed has been overstated in that Canon Australia is not liable for any brokerage payment. This liability, which is denied, due to additional set offs would be owed by Canon Finance Australia Pty Limited." 6 Although in the letter and sometimes in argument that issue has been described as giving rise to a "defect", it seems to me that it is really a dispute as to part of the debt. Subsequently, by letter of 21 November 2008, solicitors for Yong implicitly acknowledged that they could not substantiate a claim against Canon in respect of the brokerage, stating as to the amount of the debt claimed under the demand: We are instructed that said amount should be read down from the amount claimed (namely $67,715.86) to $50,274. The revised amount concerns only sales commissions which our client asserts are due and payable to it under the Master Agency Agreement executed between the parties on around 15 April 2005. Accordingly, we are instructed to advise that our client will accept the amount of $50,274 in full and final satisfaction of the demand. 7 On 24 November 2008, Canon filed its Originating Process, seeking an order setting aside the demand, supported by an affidavit of Bronwyn Chalmers sworn on the same date which, amongst other things, annexed the Statutory Demand and Mr Yong's affidavit. 8 The arguments that there are defects in the Statutory Demand depend on the face of the Statutory Demand, and to some extent on the content of Mr Yong's affidavit. Those arguments can be made good, if at all, by reference to the face of the Statutory Demand and the affidavit. In my opinion, the supporting affidavit required by Corporations Act, s 459G(3), is sufficient if it contains or annexes evidence from which the ground relied upon to impugn the demand can be made good. It may be that authority now establishes that such affidavit does not have to be in a form that would be admissible evidence at a final hearing, and can even take the form of a pleading; however, I do not accept that such authority compels lawyers to depart from the practice of preparing affidavits that contain only admissible evidence and are not in the form of pleadings. Even if something less may suffice, an affidavit plainly supports an application if it contains (or annexes) the evidence necessary to make good the application. Where the grounds depend on arguments based on the face of a document, it must be sufficient that the affidavit annexes the relevant document or documents. In this view, I am fortified by the observations of Austin J in POS Media Online Ltd v B Family Pty Ltd [2003] NSWSC 147, (2003) 21 ACLC 533; of White J in Hansmar Investments Pty Limited v Perpetual Trustee Co Ltd [2007] NSWSC 103, (2007) 61 ACSR 321; and of Barrett J in Saferack Pty Limited v Marketing Heads Australia Pty Limited [2007] NSWSC 1143, (2007) 25 ACLC 1392, [25]. 9 So far as the disputed part of the debt is concerned, that can sufficiently be addressed – and without opposition – under s 459H: the defendant concedes that it can substantiate only a lesser amount, to which (unless other objections to the demand succeed), the demand could then be varied under s 459H. 10 I turn then to consider whether there is a defect in the creditor's statutory demand. In A R Pilot Pty Ltd v Gouriotis [2007] NSWSC 396, Barrett J reiterated, at [29], (with reference to Topfelt Pty Ltd v State Bank of New South Wales (1993) 47 FCR 226, (1993) 12 ACSR 381 and to Spencer Constructions v D & M Aldridge Pty Ltd (1997) 76 FCR 452, (1997) 24 ACSR 353), that the purpose of a statutory demand is to place the recipient company fairly and squarely on notice of what it must pay in order to satisfy the debt of the creditor serving the demand: The demand must be unambiguous; it must leave the recipient in no doubt as to the course that should be taken. Where ambiguity exists within a statutory demand, such as to produce doubt in the mind of any reasonable reader as to the course that must be taken in order to avoid a situation where the statutory presumption of insolvency is created, the demand is defective as contemplated by s 459J(1)(a). 11 In LSI Australia Pty Ltd v LSI Holdings [2007] NSWSC 1406, (2007) 25 ACLC 1602, Austin J said, at [54], that a demand must identify to a reasonable director of the recipient the general nature of the debt sufficiently to permit assessment of whether it is genuinely disputed: A statutory demand is required by Form 509H to "describe" the debt that is claimed. If the demand is so vague or ambiguous that it fails to identify, to a reasonable person in the shoes of a director of the debtor company, the general nature of the debt to a sufficient degree that the director can assess whether there is a genuine dispute as to the existence or amount of the debt or an offsetting claim, then there is a lack of something necessary for completeness, and therefore a defect in the demand. 12 In the present case, I do not think that the demand is ambiguous. It is quite clear that in order to comply with it, the company must pay $67,715.86. However, the particularisation of the debt is defective, in the sense that it does not make clear how that sum of $67,715.86 is comprised. It refers to requests itemised in reports of outstanding commissions and brokerage said to be annexed; although those documents were apparently not annexed, they were served together with the verifying affidavit at the same time, but they did not total $67,715.86. Even having regard to those documents, it would not have been clear to a reasonable person in the position of a director of the company, how the total was comprised. I do not think that the mind of such a person would automatically have gone to GST as the explanation for the difference. Accordingly, I am satisfied that in failing adequately to describe the debt, there was a defect in the statutory demand. 13 However, that is not the end of the matter, because the Court is authorised to set aside a statutory demand in the case of a defect only if substantial injustice would be caused unless the demand is set aside; otherwise, the Court must not set aside the statutory demand merely because of a defect. In LSI, Austin J found that there would be substantial injustice if the demand were not set aside, because of the application of the Graywinter principle in the circumstances of that case. It was central to the finding of substantial injustice that the omission of certain matters from the demand led to the company failing to assert in its supporting affidavit a ground on which it would otherwise have wished to rely to impugn the demand. His Honour said, at [57]: The vague and ambiguous statutory demands, neither of which identify to a reasonable observer the true nature of the alleged debts, have put LSIA's director, Mr Hughes, in the position of not having realised the true claims asserted against his company and therefore not realising the potential relevance of the indemnity, and consequently have led to his failure to put forward the indemnity ground in the affidavits supporting the applications. Unless the court sets aside the statutory demands, LSIA will in those circumstances suffer the substantial injustice of having the presumption of insolvency raised against it in any subsequent winding up proceedings. 14 In A R Pilot Pty Ltd v Gouriotis Barrett J, having found that there was a defect in a demand which was ambiguous because it contained different demands for $6,486 and $8,646, said that there would be substantial injustice because the company, having reasonably paid the lesser of the amounts demanded, which appeared to be consistent with earlier correspondence, would be prejudiced by an adverse presumption of insolvency unless it then paid the unexplained balance. The injustice in that was plain enough. His Honour said, at [32]: As to the question of substantial injustice, the position is that the plaintiff has paid the smaller of the two amounts referred to in the demand, being the amount that is consistent with the prior correspondence and the understanding of the position that was engendered on the part of the plaintiff by the defendant's solicitors. For a company that has taken that course in the particular context to be exposed to the possibility of an adverse presumption for the purposes of winding up proceedings, unless it pays some unexplained balance not dealt with the prior correspondence, would clearly be a source of substantial injustice. 15 The explanation of the defect in the present case is, as it transpires, an unexpressed claim for GST. If it were the position of Canon that it disputed that GST was payable, and being unaware that GST formed part of the claim had failed to raise that dispute, then there would be an indisputable case of substantial injustice for the purpose of s 459J(1). However, it raises no such issue. I cannot see how it would be substantially prejudiced by the defect identified. 16 The claim for prejudice was articulated in Ms Chalmers' affidavit as being the need to plead and particularise the various offsetting claims that Canon wishes to propound. That is not the type of substantial injustice that is contemplated by s 459J, because it is not an injustice related to the defect, or the failure to set aside the notice on account of the defect. Mr Chippindall did not suggest that any other technical defects in the creditor's statutory demand gave rise to substantial prejudice. In my view, although the demand is defective in the way in which I have described, and although there is also admittedly a genuine dispute as to a substantial part of the debt claimed, the defect is not such that substantial injustice would be occasioned unless the demand is set aside, and the genuine dispute can be addressed under s 459H. 17 So far as s 459J(1)(b) is concerned, the nature of that jurisdiction was described by Young CJ in Eq, as his Honour then was, speaking for the Court of Appeal, in Meehan v Glazier Holdings [2005] NSWCA 24, (2005) 53 ACSR 229 where his Honour said: [58] Although the wording of s 459J(1)(b) of the Corporations Act appears wide, its context and history requires reading it down to encompass in general terms only cases where the Court is satisfied that injustice will be caused unless the demand is set aside because of a defect relating to, but not in, the demand, see Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11 at 17. [59] In Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746, 757, Bryson J truly said that the discretionary power under s 459J(1)(b) should not be activated "unless the decision to do so is supported by some sound or positive ground or good reason which is relevant to the purposes for which the power exists." [60] It is not possible to set out fully the cases that might fall within s 459J(1)(b) nor if it were possible would it be wise to do so. The sort of case that will be covered will include gross defects in supporting affidavits and documentation and where the alleged creditor has made statements or representations relating to the statutory demand which have reasonably induced a change of the alleged debtor's position. There is nothing in the facts of this case which bring it within what his Honour there said. In particular, there is no evidence that the company has changed its position in any relevant way on the faith of statements or representations relating to the statutory demand. 18 It was argued that it was obvious from the outset that there was a dispute, that Canon is obviously a substantial corporation, and that in those circumstances it was in substance an abuse of process to serve a creditor's statutory demand rather than suing at law. However, where a powerful corporation resists paying an employee's remuneration entitlements on the basis of a need to investigate unspecified matters and unparticularised allegations or suspicions, I do not think it can be said to be unreasonable for the employee to resort to an expeditious method of bringing the issue to a head. It has often been said that a creditor is entitled to use the statutory demand procedure to test the waters – albeit ultimately at its own risk if it turns out that there is a genuine dispute. 19 As I am, therefore, satisfied that I would not set aside the demand under s 459J(1)(a) or (b), it would be inappropriate to order that those issues be determined as separate questions. I dismiss the interlocutory process with costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.