FRAYSON PTY LTD -v- STIRFRY ENTERPRISES PTY LTD [2008] WASC 301 (22 December 2008)

Last Updated: 23 December 2008

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION : FRAYSON PTY LTD -v- STIRFRY ENTERPRISES PTY LTD [2008] WASC 301

CORAM : MASTER SANDERSON

HEARD : 16 DECEMBER 2008

DELIVERED : 22 DECEMBER 2008

FILE NO/S : COR 151 of 2008

BETWEEN : FRAYSON PTY LTD (ACN 050 161 398)

Plaintiff

AND

STIRFRY ENTERPRISES PTY LTD (ABN 33 121 217 132)

Defendant

Catchwords:
Corporations Act 2001 (Cth) - Application to set aside statutory demand - Affidavit supporting demand sworn before solicitor who prepared demand - Whether 'affidavit in support of demand' filed with demand - Contents of affidavit - Whether failure of defendant to swear no genuine dispute defect leading to demand being set aside - Whether 'genuine dispute' about debt

Legislation:
Nil

Result:
Demand set aside

Category: A

Representation:

Counsel:

Plaintiff : Mr P J Hannan

Defendant : Mr C P Stokes

Solicitors:

Plaintiff : Arns & Associates

Defendant : Chris Stokes & Associates

Case(s) referred to in judgment(s):

1 MASTER SANDERSON: This is the plaintiff's application to set aside a statutory demand. The plaintiff says that there are three grounds upon which the demand ought be set aside. First, it is said that there was no affidavit accompanying the demand when it was served. Second, it is said that if what was served with the statutory demand is properly regarded as an affidavit, its contents are defective. Third, it is said that there is a genuine dispute as to whether or not the plaintiff is indebted to the defendant. In relation to the first two grounds, the application is made under s 459J of the Corporations Act 2001 (Cth). The third ground relies on s 459H of the Act.

2 A copy of the statutory demand appears as annexure AN1 to the affidavit of Mr Armand Noor sworn 15 October 2008 and filed in support of the plaintiff's application. Forming part of the demand that was served on the plaintiff is what is described as an 'Affidavit Verifying Debt'. It is sworn by one Stephen Albert Turfrey, the managing director of the defendant. The affidavit is witnessed by 'C P Stokes'. During the course of the hearing, Mr Stokes, who appeared for the defendant, confirmed that it was he who had witnessed the deponent's signature. He also confirmed that he had prepared the statutory demand and the affidavit. Under Western Australian law, Mr Stokes, having prepared the affidavit, is not a person authorised to witness that affidavit. Section 9(7) of the Oaths, Affidavits and Statutory Declarations Act 2005 (WA) (Oaths Act) provides:

An experienced lawyer who has participated in any way in preparing an affidavit, or in the proceedings in which an affidavit is intended to be used, is not an authorised witness for the affidavit.

3 To ascertain whether this provision of the Western Australian legislation applies to an affidavit accompanying a statutory demand, it is necessary to examine what is required by the Corporations Act 2001 (Cth) and the Supreme Court (Corporations) (WA) Rules 2004 (WA).

4 Section 459E of the Corporations Act provides that a creditor may serve a statutory demand on a company. Section 459E(3) is in the following terms:

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.

5 The term 'rules' is defined in s 9 to mean:

(a) rules of the Federal Court; or

(b) rules of the Supreme Court of a State or internal Territory;

as the case requires.

6 The effect of this definition was considered by the Full Court of the Federal Court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452. The court (Northrop, Merkel and Goldberg JJ) said:

In our view the expression 'as the case requires' in s 9, when applied to the relevant rules in s 459E(3), enables the creditor to swear its accompanying affidavit in the form provided by the rules of any court which would have jurisdiction to order the winding-up of the appellant or in which an application to set aside the demand could be brought. In the present case this includes the Federal Court, the Supreme Court of New South Wales and the Supreme Court of Victoria (461).

7 This view, on the proper interpretation of the definition of 'rules', is consistent with r 2.6 of the Western Australian corporations rules. That rule, which is headed 'Form of affidavits', is in the following terms:

An affidavit must be in a form that complies with -

(a) the Rules of the Supreme Court 1971;

(b) the rules of the Supreme Court of the State (if any) or Territory (if any) where the affidavit was sworn or affirmed; or

(c) the rules of the Federal Court of Australia.

8 In Western Australia, the Rules of the Supreme Court do not contain any provision as to who can witness affidavits. That is the province of the Oaths Act. So, if this affidavit is to stand, it must comply with the rules of the Federal Court of Australia.

9 Rule 2.6 of the Federal Court (Corporations) Rules 2000 (Cth) provides:

An affidavit must be in a form that complies with:

(a) the rules of the Court; or

(b) the rules of the Supreme Court of the State (if any) or Territory (if any) where the affidavit was sworn or affirmed.

10 In respect of r 2.6(a), O 14 of the Federal Court Rules (Cth) deals with the form and use of affidavits, but not the person before whom they are sworn. Order 14 r 2(9)(b) of the Federal Court Rules simply refers to 'the person before whom the affidavit is sworn or affirmed'.

11 Section 45(1) of the Federal Court of Australia Act 1976 (Cth) provides that affidavits to be used in a proceeding in the court may be sworn within the Commonwealth before:

(a) a Judge of the Court, the Registrar, a Deputy Registrar, a District Registrar, a justice of the peace, a commissioner for affidavits or a commissioner for declarations; or

(b) a person not mentioned in paragraph (a) who is authorised to administer oaths for the purposes of the Court or for the purposes of the High Court or the Supreme Court of a State or Territory.

12 Section 186(1) of the Evidence Act 1995 (Cth) provides:

(1) Affidavits for use in:

(a) an Australian court [defined to include this court] ... in proceedings involving the exercise of federal jurisdiction; or

(b) a court of a Territory in proceedings involving the exercise of jurisdiction conferred by an Act of the Parliament;

may be sworn before any justice of the peace, notary public or lawyer [defined to mean 'a barrister or solicitor'] without the issue of any commission for taking affidavits. (emphasis added)

13 On behalf of the plaintiff, it was submitted that s 186(1) of the Evidence Act 1995 has no application to an affidavit that is not for use 'in proceedings'. An affidavit made for the purposes of s 459E is not an affidavit in proceedings. This submission is consistent with authority. In B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 13 ACLC 88, McLelland CJ in Eq said:

So far as s 81 of the Supreme Court Act (NSW) is concerned, I do not think that either the statutory demand or the affidavit verifying it is yet a document 'in' any 'proceedings' within the contemplation of s 81(1)(a). The present application [an application to set aside a statutory demand] can hardly be regarded as proceedings of the kind contemplated, and no winding up proceedings have yet been commenced (91).

14 In Dromore Fresh Produce Pty Ltd v W Paton (Fertilizers) Pty Ltd (1997) 15 ACLC 424, Young J reached the same conclusion. His Honour said:

I thought at one stage that s 81 of the Supreme Court Act (NSW) which puts into the category of defects anything which might be otherwise a nullity, could be used by the creditor to ensure that any fault in the service of the statutory affidavit would be a defect rather than a nullity. However, in the B & M case, McLelland CJ in Eq ... convincingly demonstrated that that section cannot have any application to a statutory demand or its accompanying affidavit because neither was a document 'in' any 'proceedings' within the contemplation of s 81 (427).

15 On that basis, then, I accept that s 186(1) has no application to this case.

16 The only other provision that might rescue the defendant is the reference in s 45(1)(b) to a person authorised to administer oaths for the purposes of the High Court. Rule 24.01.7 of the High Court Rules 2004 (Cth) provides:

An affidavit may be sworn before a Justice, a Registrar, a person having authority to administer an oath and to take and receive affidavits for the purposes of the Federal Court of Australia, or the Supreme Court of a State or Territory, or a Justice of the Peace.

17 That rule, then, does not save the defendant. The defendant must comply with the law in Western Australia to produce a valid affidavit. On behalf of the defendant, it was submitted that if there had been no compliance with s 9(7) of the Oaths Act, then this was no more than an 'irregularity' which could, in effect, be overlooked. In support of this proposition, counsel for the defendant relied on Hawthorn Football Club Ltd v Arfmas Pty Ltd (Unreported, WASCA, Library No 6896, 22 October 1987) 6 (Wallace J). Two things can be said about this case. First, it was decided at a time when the swearing of affidavits was governed by O 37 of the Rules of the Supreme Court 1971 (WA). Under O 37 r 12, an affidavit could not be sworn before a solicitor or his agent. However, irregularity could be excused under O 37 r 5. The Oaths Act came into force on 1 January 2006. Being a statute, it overrules any provision of the Supreme Court Rules with which it is in conflict. In any event, O 37 r 12 has now been repealed. While O 37 r 5(2) remains, it cannot assist the defendant in the light of the clear provisions of the Oaths Act.

18 Second, there is clear authority for the proposition that a demand verified by a document that is not an 'affidavit' will be set aside. In Carb Royale Pty Ltd v Tonkin [2000] VSC 399, Senior Master Mahony said:

If it [the affidavit] is not made before a person authorised to administer an oath or affirmation for an affidavit, the document, despite its form, will not be an affidavit; and the statutory demand will be liable to be set aside on that ground alone [11].

19 Always mindful of the fact that the Corporations Act is a national statute, it would be inappropriate to ignore the failure of the defendant to produce an affidavit sworn before an authorised person even if there was power to ignore such an irregularity.

20 On this basis, then, the statutory demand ought be set aside under s 459J of the Corporations Act.

21 The second complaint concerns the contents of the affidavit. Rule 5.2 of the Federal Court (Corporations) Rules is in the following terms:

For the purposes of subsection 459E(3) of the Corporations Act, the affidavit accompanying a statutory demand relating to a debt, or debts, owed by a company must:

(a) be in accordance with Form 7 and state the matters mentioned in that Form; and

(b) be made by the creditor or by a person with the authority of the creditor or creditors; and

(c) not state a proceeding number, or refer to a Court proceeding, in any heading or title to the affidavit.

22 Form 7 is, in effect, a pro forma affidavit to accompany a statutory demand. By par 1 of the affidavit, the deponent identifies his relationship with the creditor, specifies the amount of the debt, says by whom the debt is owing and states briefly the nature of the debt. Paragraph 2 is relevant if the deponent is not the creditor. In that paragraph, he states the facts entitling him to make the affidavit. Paragraph 3 requires the deponent to state the source of his knowledge as to the matters stated in the affidavit in relation to the debt. Paragraph 4 requires the deponent to state the total amount of the debt said to be owing and confirm that the debt is due and payable. Paragraph 5 then is in the following terms:

I believe that there is no genuine dispute about the existence or amount of the debt.

23 It is difficult to imagine that anything could be more straightforward than adapting this pro forma affidavit, having it sworn by an appropriate person and serving it with the statutory demand. After all, r 5.2 says that the affidavit 'must' be in accordance with Form 7. But for some reason, the defendant in this case did not follow Form 7. The affidavit runs to four paragraphs. Paragraphs 1 and 2 effectively pick up pars 1, 2 and 3 in Form 7. Paragraph 3 of the affidavit, while not precisely in accordance with the wording of par 4 of Form 7, satisfies its requirements. The complaint the plaintiff makes is as to par 4 of the affidavit. It is in the following terms:

The company has not disputed paying the amount of any part of the amount at all.

24 The omission in this paragraph is, of course, that the deponent does not swear that he believes there is no genuine dispute about the existence of the debt. There is no doubt that this is a defect in the affidavit. The question is as to whether the defect is such as to justify the statutory demand being set aside.

25 It was the plaintiff's submission that failure to include a statement in terms of par 5 of Form 7 is a fundamental defect giving rise to a substantial injustice. This submission was supported by reference to the decision of the Full Court of the Supreme Court of Western Australia in Wildtown Holdings Pty Ltd v Rural Traders Co Ltd [2002] WASCA 196. In that case, the affidavit accompanying the demand contained no statement to the effect that the deponent believed there was no genuine dispute about the existence or amount of the relevant debt or debts. Templeman J (70) regarded this defect as 'a major omission from the affidavit'. His Honour was of the view that there was then no substantial compliance with the requirements of the rules and, on that ground alone, the statutory demand could be set aside. In reaching that conclusion, Templeman J relied upon what was said by Miller J in Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [2001] WASCA 299. His Honour said:

... The failure of the deponent to swear that there was no genuine dispute between the parties was a significant omission. It is essentially because there is no genuine dispute that the legislation has provided for the (statutory demand) procedure [32].

26 This case is not quite the same as either the Four Seasons Construction case or the Wildtown Holdings case. The deponent does say that the company has not disputed its liability to pay the amount of the debt. But it remains the fact that the form requires that the deponent swears that there is no genuine dispute as to the debt. The two authorities I have cited indicate how important a statement to that effect is. Counsel for the plaintiff during his submissions referred to O 14 and the requirement under r 2(1) that the deponent of an affidavit in support of a summary judgment application swear that he believes there is no defence to the claim. With respect, the comparison is apt. It is of fundamental importance that a deponent to an affidavit supporting a statutory demand swear that in his belief there is no genuine dispute as to the amount of the debt. That is because if there is no compliance with the demand, then a winding up order can be made. Only insolvent companies should be wound up. If the debt is disputed and the deponent knows that it is disputed, then there is a risk that the company is not in fact insolvent and winding up is not appropriate. So although the inclusion of a paragraph such as par 5 of Form 7 may, as counsel for the plaintiff put it, be 'ritual incantation', it is nonetheless of prime importance.

27 In my view, par 4 of the affidavit in this case does not satisfy the requirements of Form 7 and, on this basis, the demand ought be set aside.

28 The third and final ground upon which the plaintiff says that the demand ought be set aside is that there is a genuine dispute as to whether the debt is due and payable. Given the conclusion I have reached that the demand is defective and ought be set aside, I will deal with this issue only briefly.

29 No detailed consideration of the facts in this case is required. It is sufficient if I say that in the first half of 2008, the plaintiff and the defendant entered into what might have been a partnership, or perhaps a joint venture, to undertake certain construction works for a firm known as Weldtronics. The relationship between the parties was discussed. It seems that these discussions took place between Mr Noor and Mr Turfrey. Both men have a different recollection of what was agreed. In any event, as at 26 June 2008, the defendant had rendered a series of invoices to the plaintiff. The defendant accepts that Mr Noor on behalf of the plaintiff disputed these invoices. A meeting was held on 27 June 2008. As a consequence of that meeting, the defendant says that agreement was reached with the plaintiff to the effect that the plaintiff was indebted to the defendant in the sum of $186,583.25. That is confirmed by par 16 of the affidavit of Mr Turfrey sworn 6 December 2008 and filed in opposition to this application.

30 During the course of submissions, I put it to counsel for the defendant that the statutory demand was really based upon the agreement allegedly reached between Mr Noor and Mr Turfrey on 27 June 2008. Counsel confirmed that was so. Doubtless the defendant would argue that there had been give and take by both parties in the course of negotiations so that there was consideration to underpin the alleged agreement. Be that as it may, there can be no doubt that the statutory demand was based upon the agreement allegedly reached on 27 June 2008.

31 (I should point out that the statutory demand itself was for an amount of $191,704.14. Apparently the parties, or at least the defendant, had overlooked GST. They therefore added an amount in to allow for GST which, it seems, the defendant regarded as the liability of the plaintiff. It is nowhere alleged in the affidavit that there was any agreement about a GST component. Apart from anything else, the demand could have been reduced on that basis. Given the way the matter was resolved, this is a side issue of no concern.)

32 Mr Noor responded to Mr Turfrey's affidavit in an affidavit of 20 November 2008. At par 13 of that affidavit, he says:

To the extent that it is alleged by Mr Turfrey that the plaintiff accepted liability for payment of the defendant's invoices, the allegation is denied. I had made clear to Turfrey that I would endeavour to recover from Weldtronics the reasonable costs and charges that the defendant had incurred in the project. Turfrey was insistent that the defendant's charges were reasonable and there was no reason why they should be rejected by Weldtronics. Implicit from those discussions was that payment of the defendant's charges was dependent on acceptance and payment by Weldtronics.

33 It is clear, then, that there is a dispute between the parties as to the liability of the plaintiff to pay the defendant. It is the case that the defendant's position is supported by two officers of the defendant who say they were present when agreement was reached between Mr Noor and Mr Turfrey. But that is not to the point. There is nothing inherently unbelievable in the evidence of Mr Noor. It may be at trial that his evidence will not be accepted. But these proceedings are not the place to determine issues of credibility. It is clear that within the terms of s 459G there is a genuine dispute and on that basis the demand ought be set aside.

34 At the conclusion of the hearing in this matter, I indicated to the parties that I would set aside the demand and that order was made. There is then the outstanding question of costs. Subject to receiving further submissions from the parties, it seems that the appropriate order would be that the defendant pay the plaintiff's costs of this application, including the reserved costs.