Supreme Court New South Wales Medium Neutral Citation: In the matter of International Materials & Technologies Pty Limited [2013] NSWSC 787 Hearing dates: 11 July 2013 Decision date: 11 July 2013 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: Creditor's statutory demand for payment dated 3 April 2013 served by the defendant on the plaintiff is null and void. Defendant to pay plaintiff's costs in the sum of $5,000. Catchwords: CORPORATIONS - insolvency and winding up - where creditor's statutory demand served in New South Wales - where demand specified address for service in Victoria - where necessary for debtor company to comply with Service and Execution of Process Act 1992 - whether statutory demand so defective as to be a nullity- statutory demand null and void Legislation Cited: (Cth) Corporations Act 2001 s 459E, s 459G, s 459H, s 459J, s 109X (Cth) Service and Execution of Process Act 1992 s 9, s 15, s 55 Cases Cited: Beralt Pty Ltd v Joe Battaglia Plastering Pty Ltd [2001] 1 Qd R 232 Elan Copra Trading Pty Ltd v JK International Pty Ltd (2005) 56 ACSR 416 Energy Conservation Systems Pty Ltd v Downer EDI Engineering Electrical Pty Ltd [2008] NSWSC 1139 Everkind Pty Limited v Hazenforn Pty Ltd [2010] NSWSC 1031 Falgat Constructions Pty Ltd v Equity Australia Corp Pty Ltd [2006] NSWCA 259 Highfield Woods Pty Ltd v Bayview Crane Hire Pty Ltd (1996) 19 ACSR 429 Howship Holdings Pty Ltd v Leslie [1996] NSWSC 314 Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 51 FCR 446 Vicbar Pty Ltd v Development Constructions (Newcastle) Pty Ltd (1995) 13 ACLC 1220 Crema (Vic) Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd (2006) 58 ACSR 631 Re Marlan Financial Services Pty Ltd (1999) 33 ACSR 259 Sheslow v Diamond Rose (2005) 54 ACSR 376 Spencer v Bamber [2012] NSWCA 274 Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226 Ultimate Manufacturing Pty Ltd v Lyell Morris Pty Ltd (1995) 13 ACLC 1268 World Square Realty Pty Ltd [2013] NSWSC 307 Category: Principal judgment Parties: International Materials & Technologies Pty Ltd (plaintiff) Hougen Australia Pty Ltd (defendant) Representation: Counsel: V Culkoff (plaintiff) A Kaufmann (defendant) Solicitors: Russo Salvatore (plaintiff) Kalus Kerry Intelex Solicitors (defendant) File Number(s): 2013/133148 Judgment (ex tempore) 1HIS HONOUR: By originating process filed on 30 April 2013, the plaintiff International Materials & Technologies Pty Ltd seeks relief under (Cth) Corporations Act 2001, s 459G setting aside a creditor's statutory demand dated 3 April 2013 and served on it by the defendant Hougen Australia Pty Ltd. 2The demand claimed a debt of US$161,698.13 and was accompanied by an affidavit of Sven Burchartz, a director of the defendant. The demand was addressed to the plaintiff at an address in Sydney in the State of New South Wales. Although the evidence does not seem otherwise to establish it, I infer that that was the registered office of the plaintiff. Paragraph 8 of the demand specified: The address of the creditor for service of copies of any application and affidavit is Kalus Kenny Intelex, xxxxxx xxxx, South Yarra, Victoria 3141. 3The registered office of the defendant, as appears from an ASIC search, is a different address of Hawthorn East in the State of Victoria. 4As I have said, the present application was filed in this Court on 30 April 2013, the twenty-first and last day within which an application to set aside the demand could be made. It was (purportedly) served that day by email addressed to info@williambuckvic.com.au, covering a letter addressed to The Manager, Kalus Kenny Intelex, at the South Yarra address. 5The defendant concedes that its solicitors Kalus Kenny Intelex received the originating process and supporting affidavit by fax at their office and by email to two email accounts of that firm, and concedes also that the originating process and supporting affidavit came to the attention of its director Sven Burchartz on the same day, 30 April 2013. Notwithstanding that, the defendant submits that the originating process was not served within the 21 day period, and accordingly that the application was not made as required by s 459G within that period and, on authority now well established, cannot therefore be considered by the Court. This submission is founded on a line of authority to the effect that where such an application is served in a state other than the state of the court from which it is issued, it must be served in compliance with the (Cth) Service and Execution of Process Act 1992: see Ultimate Manufacturing Pty Ltd v Lyell Morris Pty Ltd (1995) 13 ACLC 1268; Highfield Woods Pty Ltd v Bayview Crane Hire Pty Ltd (1996) 19 ACSR 429; Re Marlan Financial Services Pty Ltd (1999) 33 ACSR 259; Elan Copra Trading Pty Ltd v JK International Pty Ltd (2005) 56 ACSR 416; Energy Conservation Systems Pty Ltd v Downer EDI Engineering Electrical Pty Ltd [2008] NSWSC 1139. 6For the plaintiff, Ms Culkoff argued that I should not follow those decisions but rather should apply the line of authority that it is sufficient service if by some means or another the defendant actually has notice of the application within the relevant time: see Howship Holdings Pty Ltd v Leslie [1996] NSWSC 314; Falgat Constructions Pty Ltd v Equity Australia Corp Pty Ltd [2006] NSWCA 259, [58]; Spencer v Bamber [2012] NSWCA 274, [202]; World Square Realty Pty Ltd [2013] NSWSC 307, [15]. Although it was submitted that this line of authority had not been referred to in the first line cases which I have cited, it seems to me that it was considered by Byrne J in Marlan, as at [23] of that decision his Honour identified a distinction between an address for service within the jurisdiction of the court in which the application is filed, which was merely "an address for service at which the debtor may serve the creditor if it chooses", referring inter alia to Howship Holdings, and on the other hand where service was effected under the Service and Execution of Process Act: [T]his option is not available and service on a company must be effected at the registered office or by personal service upon the director resident in Australia. 7It was submitted that the line of authority which treated the provisions of Corporations Act s 109X(1) as merely facultative in providing various means that were sufficient service but not excluding other means of service which had the effect of actually bringing the process to the notice of the company was equally applicable to Service and Execution of Process Act, s 9(1) and s 9(2). In particular, it was said that the use of the permissive or facultative word "may" in subsection (2) had the same effect as that word in Corporations Act s 109X(1). 8I am unable to accept this argument. In my view, the context is quite different. In s 109X, all four means of service specified are governed or preceded by the chapeau which contains the word "may", thus indicating that all four of them are means by which a document may, not must, be served on a company. However, in Service and Execution of Process Act s 9, subsection (1) is mandatory and provides how service on a company "is to be effected" - that is to say, by leaving it at or sending it by post to the company's registered office. Subsection (2) is expressed to be without limiting the operation of subsection (1), and has the effect that in addition to the means of service prescribed by subsection (1), one other means may be used, namely, delivery of a copy personally to a director. It does not authorise service on a director otherwise than by personal delivery to a director. Service and Execution of Process Act s 15(3) provides that service on a company must be effected in accordance with s 9. It does not admit of any other means of service where the Service and Execution of Process Act is applicable. 9It is not suggested that the originating process was left at or sent by post to the company's registered office. Nor is it suggested that the originating process was delivered personally to a director of the defendant. In those circumstances, it follows from the statutory provisions, as well as from the authorities to which I have referred, that there was not effective service of the originating process within the 21 day period and, accordingly, that the application was not made in time. Accordingly, it is not open to me to set aside the application under s 459G, s 459H or s 459J. 10The consequences of this have been adverted to in a number of cases. In Ultimate Manufacturing, Mahony M said: If there were a winding up proceeding based on the applicant's non-compliance with the defective demand, the applicant's inability - through no fault of its own or its solicitors - to make an application under s 459G would surely be regarded as having been caused by "substantial injustice ... that cannot ... be remedied" save by dismissing the motion for winding-up: cf s 467A(b). An adjournment or an order for costs would not impact on the injustice suffered ... Most creditors in the position of the respondent in this proceeding would be sufficiently deterred by that consideration from seeking to rely on a similarly defective demand. I have no reason to suppose that the respondent in this proceeding will not be so deterred. As I have mentioned, however, it is appropriate when the court has the opportunity that it so express its view that the likelihood of that result will be increased as much as possible ... One way in which this might be done - and the course I shall follow in this case (unless the respondent provides an undertaking to the Court which will obviate the need for it) - is to order the respondent to inform any court to which it makes an application for the winding-up of the applicant based on the defective demand that in this Proceeding - (a) the demand was held defective in that it did not specify an address of the respondent for service in Victoria; (b) it was also held that the applicant had not made an application under s 459G but that this was due to the defect and was not the fault of the applicant; (c) it was further held that if there were a winding-up application based on the defective demand the respondent could expect to be required to show cause why s 467A(b) should not apply so as to require that the application be dismissed - and further to order that a copy of the order as authenticated be attached to the winding-up application. 11In Highfield Woods, Mahony M adopted the same views and indicated that he would make orders to similar effect were an undertaking not forthcoming. The Master referred to the requirement in the prescribed form of statutory demand that the address specified be an address in the state or territory in which the statutory demand is served and added (at 434): If there is compliance with that requirement, there can be no question of service out of the jurisdiction or of the operation of the Service and Execution of Process Act. I mention ss 9 and 55(3) in particular simply to indicate that the assumption in Scandon that effective service under the Act had occurred may have been mistaken; and that the requirements of those sections are further indications that it is wholly improper for a creditor to place a company served with a statutory demand in a situation where it cannot validly apply to set aside the statutory demand unless, apart from compliance with the requirements of s 459G, it achieves effective service outside the jurisdiction. 12In Marlan Financial Services, Byrne J, having referred to Ultimate Manufacturing and Highfield Woods, said of the Senior Master's judgment in Highfield Woods (at [22]): He concluded, as in the Ultimate Manufacturing case, that service of the s 459G documents interstate, without the Service and Execution of Process Act notices attached to the notice of motion, was not effective service and that the court accordingly lacked jurisdiction to entertain the application to set aside the notice. He went on, however, to observe (at ACSR 433-4), that service on a company, even with the prescribed notices attached, at the nominated interstate address would not satisfy the requirements of the Service and Execution of Process Act, s 9 unless the nominated address were also the registered office of the company. The consequence of this conclusion, with which I respectfully agree, is that the insertion in the demand of an interstate address for service upon a corporate creditor is not only a non-compliance with the prescribed form but creates the possibility of being positively misleading. 13The requirements of a creditor's statutory demand are specified by Corporations Act s 459E(2), as follows: The demand: (a) if it relates to a single debt - must specify the debt and its amount; and (b) if it relates to 2 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 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 (if any); and (f) must be signed by or on behalf of the creditor. 14The prescribed form is Form 509H. Paragraph 5 of the prescribed form is as follows: 5. Section 459G of the Corporations Act 2001 provides that a company served with a demand may apply to a court having jurisdiction under the Corporations Act 2001 for an order setting the demand aside. An application must be made within 21 days after the demand is served and, within the same period: (a) an affidavit supporting the application must be filed with the court; and (b) a copy of the application and a copy of the affidavit must be served on the person who served the demand. 15Paragraph 6 of the prescribed form is as follows: 6. The address of the creditor for service of copies of any application and affidavit is [insert the address for service of the documents in the State or Territory in which the demand is served on the company, being, if solicitors are acting for the creditor, the address of the solicitors]. 16In the present case, and as in most of those to which I have referred, the difficulty arises from a non-compliance with the requirements of paragraph 6 of the form. Here, the demand was served on the company in New South Wales. The address for service specified in paragraph 6 ought to have been an address in New South Wales. In that event, no difficulty with service outside the jurisdiction, nor any need to rely on the Service and Execution of Process Act, would have arisen. Moreover, the address for service specified in Victoria was not the registered office of the company but the address of solicitors acting for it. In those circumstances, service at that address for service could not have been effective service under the Service and Execution of Process Act. In other words, paragraph 6, by inviting service at the offices of the solicitor, effectively was calculated to entrap the debtor into failing to comply with the requirements of the Service and Execution of Process Act and thereby precluding it from making a valid and effective application to set aside the creditor's statutory demand. I do not for a moment suggest that this was intended, but that is the plain effect of the use in paragraph 6 of an address for service other than one in the state and even, if out of the state, other than the registered office. This is what Byrne J referred to as potentially misleading. In my view, it goes far beyond potentially to be positively misleading and, as I have said, practically having the effect of entrapping the debtor into not making a valid application to set aside the demand. 17Byrne J in Marlan Financial did not make orders of the type that Mahony M had made in the cases to which I have referred, because his Honour did not regard them as of utility. In my view, it would be a travesty of justice if a creditor, having entrapped a debtor into not making a valid application to set aside a notice in the way I have described, could then rely on that notice in winding-up proceedings. 18Although s 459J makes provision for setting aside a creditor's statutory demand because of a defect in the demand that will cause substantial injustice unless set aside, a defect for those purposes does not extend to fundamental deficiencies that deprive the demand of the character of a demand under s 459E(2). The reference in s 9 of the Corporations Act - which defines "defect" as including "an irregularity", "a misstatement of an amount or total", "a misdescription of a debt or other matter" and "a misdescription of a person or entity" - while an inclusive definition and while, as Lockhart J said in Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226; 12 ACSR 381, is not to be rigorously or narrowly read down, does not exclude the possibility that major deficiencies in a document which purports to be a demand go beyond the scope of mere defects so as to render the demand a nullity. 19In Topfelt, Lockhart J accepted (at FCR 238) that it may be arguable that a deficiency in the form of a demand was so fundamental that it would be incapable of assuming the description of a statutory demand within the meaning of the legislation; see also Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 51 FCR 446, 452; Vicbar Pty Ltd v Development Constructions (Newcastle) Pty Ltd (1995) 13 ACLC 1220, 1224 - 5. In Crema (Vic) Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd (2006) 58 ACSR 631, Dodds-Streeton J held that only deficiencies of a gross and exceptional character would deny a document the status of a statutory demand. However, in Sheslow v Diamond Rose (2005) 54 ACSR 376, a document was held not to be a demand because it did not purport to be served under the Corporations Act, but under another nonexistent Act and, as such, did not fall within the definition in s 9. More relevantly, in Beralt Pty Ltd v Joe Battaglia Plastering Pty Ltd [2001] 1 Qd R 232, Ambrose J held that the purported statutory demand was fundamentally deficient because it did not contain the requisite words referred to in paragraph 5 of Form 509H "that the application must be made within 21 days after the demand was served". His Honour held that this was a fundamental requirement of a statutory demand in that it informed the debtor company of an essential matter and, in not satisfying that requirement, the demand was ineffective for the purposes of s 459E. 20In my view, the defect in the present case is at least as serious and fundamental as the one referred to by his Honour in Beralt. Both of those requirements of Form 509H are intended to enable a debtor to make a valid application to set aside the demand. Just as the failure to include the words referred to in paragraph 5 failed to notify the debtor of that matter in Beralt, so in this case the non-compliance with the requirement to provide an address for service within the state in which the demand was served deprived the debtor company of the ability to make a valid application to set aside the demand, and was calculated to mislead it into making an ineffective application. That defect was in my view so serious and fundamental as to deprive the demand of the quality or character of a demand under s 459E in that it failed, in a material and fundamental way, to comply with the prescribed form referred to in s 459E(2)(e). 21As it is a nullity, in my view the appropriate course is to declare that the demand is null and void, which will have the effect of precluding any subsequent reliance on it. THE COURT DECLARES: 22That the creditor's statutory demand for payment dated 3 April 2013 served by the defendant on the plaintiff is null and void. 23After the above judgment was delivered, the defendant has drawn to my attention, in connection with the question of costs, the judgment of Barrett J (as his Honour then was) in Everkind Pty Limited v Hazenforn Pty Ltd [2010] NSWSC 1031 in which his Honour (at paragraph 19) took the view that the inclusion of a Victorian address in paragraph 6 of a statutory demand, involving as it did non-compliance with the prescribed form, was not one that caused the statutory demand to be a nullity, nor provide a basis on which the Court would have ordered statutory demand be set aside. Everkind is distinguishable from the present case in that, as his Honour pointed out in that case, other possibilities for service were open, including service at the registered office of the defendant, which was in New South Wales: see paragraph 18. If that not be sufficient distinction, then I regret that, for the reasons set out above, I have felt compelled to reach a conclusion that differs from Barrett J as to the fundamental nature of the requirement for specification of an address for service within the jurisdiction in a notice of demand. 24In these proceedings the plaintiff sought to impugn a creditor's statutory demand served on it by the defendant. At the end of the day, the result of the proceedings is that the Court has declared that creditor's statutory demand to be null and void, albeit not on the bases advanced in the plaintiff's originating process. 25By procuring the declaration that I have made, the plaintiff has achieved substantive success in the proceedings, and I think it follows that the plaintiff is entitled to some costs order. However, the quantum of that order is affected by the circumstance that the plaintiff was not entitled to raise the issues relating to bona fide dispute, to which much of the evidence and submissions were directed. It seems to me that the appropriate order is that the defendant pay a portion of the plaintiff's costs and that portion, I think is in the order of $5,000. 26THE COURT ORDERS that the defendant pay the plaintiff's costs assessed in the sum of $5,000. ********** 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. Decision last updated: 17 March 2014