Chadmar Enterprises Pty Ltd v Iga Distribution Pty Ltd [2005] ACTSC 39 (10 May 2005)

Last Updated: 11 May 2005

CHADMAR ENTERPRISES PTY LTD v IGA DISTRIBUTION PTY LTD

[2005] ACTSC 39 (10 May 2005)

CORPORATIONS LAW - application to dismiss statutory demand notice - affidavit verifying debt predates demand notice - whether demand notice complies with statutory requirements - whether a defect in demand or a defect in affidavit - whether pre-dated affidavit sufficient to set aside demand notice or whether a need for "substantial injustice" - whether a "genuine dispute" constitutes "substantial injustice".

Corporations Act 2001 (Cth), ss 459E, 459G, 459H, 459J, 459S, 467A, 1322

Supreme Court (Corporations) Rules 2003 (ACT), r 2.6

Supreme Court Rules 1970 (NSW) r 5.2, Pt 38

David Grant & Co Pty Ltd v Westpac Banking Corp (1995) 184 CLR 265

Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452

Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226

B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433

Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11

Dolvelle Pty Ltd v Australian Macfarms Pty Ltd (1998) 43 NSWLR 717

Dornay Nominees Pty Ltd v Blackbutt Nominees Pty Ltd (2001) 36 ACSR 749

Technology Licensing Ltd v Climit Pty Ltd [2002] 1 Qd R 566

McDermott Projects Pty Ltd v Chadwell Pty Ltd [2002] 2 Qd R 363

Wildtown Holdings Pty Ltd v Rural Traders Company Ltd (2002) 172 FLR 35

Ambir Pty Ltd v Perfect Touch Painting Services Pty Ltd [2003] NTSC 21 (18 March 2003)

Peak Hill Manganese Pty Ltd v Hydraplant Equipment Pty Ltd (2003) 179 FLR 382

Tokich Holdings Pty Ltd v Sheraton Construction NSW Pty Ltd (in liq.) (2004) 22 ACLC 955

Lester v Garland (1808) 15 Ves. 248

Clarke v Bradlaugh (1881) 8 Q.B.D. 63

Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785

Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452

Graywinter Properties Pty Ltd v Gas and Fuel Corporation Superannuation Fund (1996) 70 FCR 452

Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456

No. SC 657 of 2004

Judge: Higgins CJ

Supreme Court of the ACT

Date: 10 May 2005

IN THE SUPREME COURT OF THE )

) No. SC 657 of 2004

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: CHADMAR ENTERPRISES PTY LTD (ACN 008 613 974)

Plaintiff

AND: IGA DISTRIBUTION PTY LTD

(ACN 004 391 422)

Defendant

ORDER

Judge: Higgins CJ

Date: 10 May 2005

Place: Canberra

THE COURT ORDERS THAT:

1. The statutory demand notice be set aside.

1. 1. This is an application to set aside a statutory demand notice issued 7 September 2004. The application was dated 1 October 2004 and supported by two affidavits of that same date.

2. Mr Erskine, for the applicant plaintiff (Chadmar), contended that the demand itself was defective and was not validly supported. This is because the demand notice was issued on 7 September 2004; the affidavit purporting to support the demand was dated 2 September 2004. Mr Erskine contended that an affidavit in support should depose to the existence of the debt and the lack of any genuine dispute concerning it as at the date of the demand, not as at five days previous to it.

3. Mr Smith, for the respondent defendant (IGA), contended that, by virtue of s 459J of the Corporations Act 2001(Cth) (the Act), if there was a defect in the demand, the application to set it aside by reason merely of such a defect, should fail unless some substantial injustice would otherwise be caused.

4. In the affidavit supporting the demand notice, Mr Michael Laird, on 2 September 2004, had deposed -

4.1 the debt of $1,275,425.66 mentioned in the statutory demand is due and payable by the debtor company, Chadmar Enterprises Pty Limited ("the Company"); and

4.1(sic) the debt is payable to IGA as payment for goods supplied to the Company.

5. Clearly, there is a logical difficulty in Mr Laird deposing to the existence and truth of a statement made in a document that is to be brought into existence five days in the future. Nevertheless, the demand does assert that the debt is the amount "described in the Schedule" and that it "is due and payable by the [applicant]". The amount of the debt, so deposed to, is consistent with the Schedule to the demand notice, that is, $1,275,425.66.

6. Mr Smith contended that it should be accepted that the demand notice purportedly verified on 2 September 2004 was in the same form as the notice in fact signed and delivered on 7 September 2004. Further, he suggested that the "defect" in question, if it be one, was a "defect" in the affidavit but not in the demand itself. He further urged that, even if I was of the view that the demand notice was defective because it was unverified, I should still consider whether there was "substantial injustice". That, he contended, involved a decision as to whether or not there was a "genuine dispute" as to the claimed debt; if there was a genuine dispute, the demand would have to be set aside. Mr Smith, of course, contended that there was no genuine dispute.

7. It is apparent that the plaintiff's application must succeed if the defect or deficiency in the affidavit accompanying the demand notice is sufficient to render the demand statutorily ineffectual. So also, if it appears that there is a "genuine dispute" or "offsetting claim" (see s 459H(l)) in respect of the claimed debt. Further, it must be noted that, even if the defect or deficiency could only justify setting aside the demand notice if "substantial injustice" would otherwise result, then the existence of a "genuine dispute" or "offsetting claim" would support the existence of such a "substantial injustice".

8. I will consider first the question whether the deficiency in the supporting affidavit must result in the demand notice being set aside.

Does the demand notice comply with s 459E?

9. It was not disputed that the statutory demand complied with s 459E(2). However, it was contended that the demand did not comply with s459E(3), that is -

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.

10. The reference to "the rules" is a reference to the Supreme Court (Corporations) Rules 2003 (ACT) (effective 12 November 2003). Those rules are in similar form in each Australian jurisdiction, including the Federal Court. No particular prescription is made otherwise for an affidavit supporting the demand. Rule 2.6 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 or Territory (if any) where the affidavit was sworn or affirmed

11. This affidavit was sworn at Blacktown in the State of New South Wales. Therefore, it had to comply with Pt 38 of the Supreme Court Rules 1970 (NSW). Relevantly, Rule 5.2 provides that -

For the Corporations Act, section 459E(3), 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.

12. There are some relatively minor discrepancies. Paragraph one of the affidavit refers to "the creditor named in the statutory demand to which this affidavit accompanies". "To" obviously ought not to have been included. In paragraph two, the deponent states "I am authorised to swear this affidavit on behalf IGA". "Of" should have been the second last word of that sentence. Nevertheless, there is substantial compliance with Form 7.

13. The issue of substance with the affidavit is that it purports to verify the debt "mentioned in the statutory demand" (par 4.1). Paragraph one refers to "the statutory demand to (sic) which this affidavit accompanies". The statutory demand recites (par 2) -

Attached is the affidavit of Michael Douglas Laird dated 2 September 2004 verifying that the amount [of $1,275,425.66] is due and payable by the company.

14. An affidavit that verifies a previously formulated and drafted notice of demand could rationally verify the debt mentioned therein as at the date of that subsequent affidavit. However, the converse does not follow. At the time this affidavit was sworn, it could only be presumed that the debt it purported to verify as then due and owing was the same as the debt demanded five days later. Even if that leap of logic could be made, the affidavit does not verify the debt as being due as at the date of delivery of the notice. Some payment, for example, might have been made. No doubt an updating affidavit might have been made and delivered with the demand.

15. If unanswered, a statutory demand, based on an assertion that a debt is due and payable otherwise than by virtue of a Court judgment has draconian consequences.

16. Section 459S provides -

(1) Insofar as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:

(a) that the company relied on for the purposes of an application by it for the demand to be set aside; or

(b) that the company could have so relied on, but did not so rely on (whether it made such an application or not).

(2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent.

17. A company served with a statutory demand may apply to set it aside within 21 days after the demand has been served upon it (s 459G(2)). In David Grant & Co Pty Ltd v Westpac Banking Corp (1995) 184 CLR 265, the High Court unanimously held that provision to be mandatory; it is incapable of qualification even under s 1322(4)(d) of the Act. Nor does a failure to comply with that time limit constitute a mere "procedural irregularity" which must be waived pursuant to s 1322(2) if "substantial injustice" would otherwise follow. In other words, the provisions for statutory demands and for setting aside of a demand notice are to be complied with strictly and it does not matter whether that strict compliance causes injustice to the company in question. Does the same principle apply to a substantially defective affidavit supporting a demand notice not itself defective?

18. If there is a timely application to set aside a statutory demand then, pursuant to s 459H(3), the Court must set aside the demand if satisfied that the "substantiated amount" of the debt is less than the statutory minimum (see s 9 "statutory minimum").

19. An amount is not "substantiated" if the Court is satisfied that "there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates" (s 459H(1)(a)). The same is true where there is "an offsetting claim" (s 459H(1)(b)), that is, "a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand".

20. Apart from reliance on a "genuine" claim or dispute leaving a balance not so disputed above the statutory minimum, an applicant may succeed if s 459J(1) applies. That is, if the Court 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.

21. Subsection 459J(2) provides -

Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.

22. Does s 459J(2) refer merely to a "defect" in the demand or does it include a defect in the affidavit? In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 application was made to set aside a demand notice. At first instance, Finn J rejected the application. The applicant had asserted that there were defects in the demand and that it should be set aside accordingly. The applicant further submitted that, in any event, there was a genuine dispute as to the debt claimed. It appealed to a Full Court.

23. Three "defects" were relied upon. Two related to errors in the address of the debtor and the address to which application to set aside the demand should be delivered. These caused no injustice to the appellant; despite the errors, the appellant was able to file its application to set aside the demand in time. The third related to the affidavit. It was in the form required under the Rules of the Supreme Court of Victoria 1986 (Vic), rather than under the Rules of the Federal Court or the New South Wales Supreme Court.

24. The Full Court (Northrop, Merkel and Goldberg JJ) accepted the first two defects as "defects in the demand". The third was not; it was "a defect in relation to the demand rather than in the demand itself" (at 457).

25. The Corporations Act specifically defines a "statutory demand" as the document "that is, or purports to be, a demand served under section 459E".

26. Their Honours approved a conclusion earlier expressed by Lockhart J in Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226. Their Honours held that a failure to state the amount demanded by calculating the interest claimed in addition to the debt led to a demand that could not be complied with unless the debtor inquired as to the interest to be paid. Hence it was fatal to the demand itself (at 459) -

This factor is not accurately described only as a "defect in the demand"; it is more than a defect as the debtor was unable to comply with the notice without making inquiries which it was not obliged to make. The substantive point was that for the purposes of the statute, in these particular circumstances, there cannot be a failure to comply with the demand made by the creditor. Accordingly, in Topfelt [(1993) 47 FCR 226] the issue of substantial injustice under s 459J(1)(a) did not arise as there was a reason under s 459J(1)(b), other than a defect in the demand, for setting the demand aside.

27. In their Honour's view, it did not follow that a demand notice may be set aside by reason of defects in it where those defects do not result in "substantial injustice". Indeed, "substantial injustice" would need to be shown in such a case.

28. Their Honours did not, however, disapprove of the conclusions expressed by McLelland CJ in Eq, in B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433. McLelland CJ held that substantial non-compliance of the accompanying affidavit with the relevant Rules was sufficient, without more, to set aside a demand under s 459J(1)(b). There was no such defect in the instant case.

29. In Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11 Austin J considered the case of a demand supported by an affidavit executed two days before the date of the demand. It was not an application for winding up, but an application to set aside the demand notice. The defendant relied upon deficiencies in the accompanying affidavit to set aside the demand under s 459J(2). That application was successful. The defects relied on were not merely formal but substantial. Hence that was sufficient "other reason" to set aside the demand.

30. What then of an affidavit pre-dating the demand?

31. In Dolvelle Pty Ltd v Australian Macfarms Pty Ltd (1998) 43 NSWLR 717, Santow J accepted that s 459E(3) had not been complied with when the affidavit pre-dated the application by two days, but held that (at 727) -

The requirement (of exact coincidence of date for verification of the statutory demand), though important, is not to be treated as an essential integer of the relief sought; there is of course no dispute that the amount remains unpaid.

32. His Honour continued (at 728) -

However, even apart from that, I would conclude that s 467A of the Corporations Law is applicable and that no substantial injustice would be caused by the defect or irregularity, subject to an affidavit now being filed in conformity with s 459E(3) stating the up-to-date position.

33. That statement does not acknowledge the fact that the affidavit purported to verify a document, the demand, then yet to be executed. That is no different from an affidavit of service verifying that on a future date a document had been served. Such an affidavit would depose to a logical absurdity.

34. However, the essence of his Honour's decision was that no application had been made to set aside the demand, either because it was ineffectually verified or otherwise. Accordingly, s 459S was applicable. That section provides -

(1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:

(a) that the company relied on for the purposes of an application by it for the demand to be set aside; or

(b) that the company could have so relied on, but did not so rely on (whether it made such an application or not).

(2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent.

35. It was not suggested that the defect was "material to proving that the company is solvent". Thus, by virtue of s 459S, on the application for winding up, a ground of opposition falling within s 459S(a) or (b) was excluded unless there was material to show, not only that there had been a genuine dispute as to the debt claimed by the demand, but that the company "was solvent". Santow J also pointed to s 467A of the Act. If there had been "a defect in a statutory demand" then, by virtue of that section, the application to wind up the company must not be dismissed "merely" because of such a defect unless "the Court is satisfied that substantial injustice has been caused that cannot otherwise be remedied (for example, by an adjournment or an order for costs)". That section will also, in the same manner (s 467A(b) aside), save an application under s 459G attended by a defect or irregularity.

36. Austin J in Kezarne decided to set aside the demand notice in question on the basis that the verifying affidavit did not comply with the rules of court. The matters of non-compliance were not merely formal. For example, they included a failure to assert a belief that there was no genuine dispute as to the debt. It was not a case of a demand predating the affidavit.

37. In Dornay Nominees Pty Ltd v Blackbutt Nominees Pty Ltd (2001) 36 ACSR 749, Senior Master Mahony considered the effect of an affidavit made the day before a demand notice. The Master noted that the express requirement of s 459E was that the demand and verifying affidavit be served contemporaneously. He continued [10] -

The affidavit cannot fulfil its statutory function if it does not prove that the debt or debts demanded are due and payable. The performance of this function, however, does not mean that the affidavit must "accompany" the demand at the time at which the demand is signed. As I have mentioned, all the section requires is that the affidavit "accompany" the demand at the time of service; and this may be achieved whether the affidavit is made before or after the demand is signed.

38. I have some difficulty with the notion that verification may anticipate a future state of affairs though I can accept that an existing demand notice may be verified prior to its signature.

39. Form 7 in the Corporations Rules 2003 (ACT) requires the affidavit to state the nature of the debt or debts owed -

... ensuring that what is stated corresponds with the description of the debt, or debts, to be given in the proposed statutory demand, with which this affidavit is to be served ....

40. The form of demand is prescribed by the Act, Form 509H. Paragraph 2 thereof refers to the verifying affidavit as being "attached". The Master makes the point that unless the affidavit is made before the demand is completed and signed, that paragraph could not be accurately completed. I do not think that is necessarily so. The affidavit must be completed before the demand is delivered and, hence, made on the debtor.

41. The note to the Rules (Form 7) makes it clear that a "proposed" demand notice may be verified. The essential requirement is that the affidavit must purport to verify the debt particularised in the demand with which it is delivered.

42. A similar issue arose in Technology Licensing Ltd v Climit Pty Ltd [2002] 1 Qd R 566. It involved an application to set aside a demand. An objection was taken by the applicant that the affidavit pre-dated the demand by four days, though the two documents were simultaneously served. Chesterman J found [24-25] -

The point is a good one. A statutory demand can only be issued with respect to a debt that is due and payable at the time of the demand. Section 459E(3) clearly intends that the demand be verified by an affidavit that speaks to the circumstances existing at the time when demand is made. Proof that a debt was owed on 15 December is not proof that it was owed on 19 December.

I conclude that the mandatory requirement of s 459E(3) was disregarded and an important safeguard in the operation of the scheme of proving insolvency to support an order winding up a company was ignored.

43. His Honour concluded that Dolvelle was distinguishable. In that case, there had been no application to set aside the demand that had been delivered; there was merely opposition to a winding up application based on failure to meet the demand.

44. In McDermott Projects Pty Ltd v Chadwell Pty Ltd [2002] 2 Qd R 363, a demand notice, served on 24 July 2001, was purportedly verified by an accompanying affidavit sworn on 20 July 2001.

45. Holmes J declined to follow Chesterman J's approach in Technology Licensing; his Honour preferred to follow Dolvelle. In his Honour's view, the "non-concurrence" of the demand with the affidavit was merely a "defect" within s 459J of the Act [9] -

In circumstances where there is no suggestion that any part of the debt was paid in the intervening four days, I do not consider that the situation is one where the defect in the demand will cause substantial injustice.

46. Holmes J felt obliged to follow Santow J's decision in Dolvelle. However, his Honour did not advert to the fact that Dolvelle was in the context of a winding up application; it was not an application to set aside the demand.

47. Dissension on this issue has not abated. In Wildtown Holdings Pty Ltd v Rural Traders Company Ltd (2002) 172 FLR 35, a Full Court of the Supreme Court of Western Australia (Steytler, Templeman and Miller JJ) contemplated a demand purportedly verified by an affidavit sworn two days before the demand was made. The issue was whether it should have been set aside on the application of the alleged debtor.

48. Templeman J, with whom Steytler and Miller JJ agreed, did not characterise the dispute concerning the effectiveness of the affidavit as a defect in the demand. Rather, his Honour characterised it as providing, if anything, "some other reason to set aside the demand (s 459J(1)(2))". There were defects in the demand by reason of overstatement of the amount due. As to the affidavit, his Honour said, referring to and distinguishing Dolvelle [57-58] -

It is noteworthy that despite the conclusion reached by Santow J, he required an affidavit to be filed "in conformity with s 459E(3) stating the up-to-date position". In other words, even though the inadequacy in the affidavit which accompanied the statutory demand was insufficient to invalidate to winding up application, it was nevertheless necessary to comply with s 459E(3) of the Law.

In my view, the position is a fortiori in the present case. An affidavit executed two days before a statutory demand cannot verify that demand. The fact that no updating affidavit was filed is, in my view, another reason why the demand should be set aside pursuant to s 459J(1)(b). With all respect to the master, I do not think it was open to him to waive compliance with a statutory requirement relating to the contents of an affidavit accompanying a statutory demand.

49. It is clear that the Full Court regarded as mandatory that an accompanying affidavit, verifying the demand as at the time it is made. It was not a case in which the demand itself was defective. There was simply no affidavit that complied with s 459E(3)(a), which verified it. That constituted "some other reason" to set the demand aside. No issue of "substantial injustice" arose.

50. The obligation to verify the debt is accompanied by a further obligation, that is, that the affidavit "complies with the rules". An affidavit, albeit with defects, may nevertheless comply with "the rules". The rules, after all, include a rule that irregularities may be waived. Merely formal defects may readily be waived.

51. So it was in Ambir Pty Ltd v Perfect Touch Painting Services Pty Ltd [2003] NTSC 21 (18 March 2003). The place and date of execution of the verifying affidavit had been left blank. However, it did appear that the affidavit was in fact executed on 17 January 2003. Martin CJ considered that, in Dolvelle, Santow J had held that the disparity in dates between the affidavit and the demand was not to be treated as an "essential integer" upon a winding up application. It does not appear that Martin CJ considered the difference between, on the one hand, an application for winding up based on an unsatisfied demand not the subject of an application to set it aside, and, on the other hand, an application to set aside such a demand. His Honour made no reference to M^cDermott Projects Pty Ltd. Nevertheless, his Honour did accept that in a case relating to defects, not in the demand (s 459J(1)(a)), but in the affidavit in support, s 459J(1)(b) applies so that the applicant need not necessarily show "substantial injustice" in order to succeed in having the demand set aside.

52. It is not clear what is meant by Templeman J, in Wildtown Holdings by the reference to the "updating affidavit". I can see no objection to the serving of an affidavit that is sworn some days before the demand is made, along with the demand and a further affidavit verifying that the debt, remained due and payable on the date the demand is made. In other words, re-affirming, as at the date of the demand, the matters stated in the prior affidavit. I do not think, however, that such an affidavit could rectify a demand that might otherwise be liable to be set aside for non-verification simply by the later delivery, after the demand is made, of an updating affidavit. A debtor only has 21 days to apply to set aside the demand. If a later "updating affidavit" could be effective, a debtor could be deprived of its right to have the demand set aside save on the ground of "genuine dispute". It could mean, if the debtor did not raise and support a genuine dispute, comforted by the failure to deliver a demand prima facie complying with s 459E(3), that the debtor might then be out of time to raise the issue. This is quite apart from the shortening of the time within which to marshal evidence to support the existence of a "genuine dispute or offsetting claim".

53. That the debtor must move promptly, and will be bound by its grounds of objection as stated by it within the 21 day time period, is illustrated not only by Peak Hill Manganese Pty Ltd v Hydraplant Equipment Pty Ltd (2003) 179 FLR 382 but also by Tokich Holdings Pty Ltd v Sheraton Construction NSW Pty Ltd (in liq.) (2004) 22 ACLC 955.

54. I acknowledge that there has been, amongst judges at first instance, a difference of opinion as to whether (a) an affidavit predating the demand it purports to verify can leave the demand standing in the absence of some substantial injustice to the debtor; or (b) whether the predated affidavit is a fatal flaw in itself.

55. It will be apparent that I incline to the latter view. I acknowledge that, on service of a demand, a debtor would not know whether the demand or affidavit, each bearing the same date was first executed. However, the rule is that, generally, the law does not take account of fractions of a day (see for example, Lester v Garland (1808) 15 Ves. 248). A document may be a "proposed demand" though it be unsigned. However, it is conceivable that if it was shown, contrary to the presumption of regularity, that an affidavit purported to verify a document yet to be brought into existence, the situation may well be otherwise (for example, Clarke v Bradlaugh (1881) 8 Q.B.D. 63). That is not a difficulty if the demand, though unexecuted, is in fact verified by the affidavit. A "proposed" demand is capable of verification.

56. However, it seems to me, that the matter is settled by the Full Court decision in Wildtown. Whilst I accept that Santow J would not have regarded a verification of the demand before it was brought into formal existence as necessarily fatal, it seems to me that Templeman J certainly did. I accept also that Dolvelle is distinguishable, as Templeman J holds. Dolvelle is explicable on the basis that whilst an unverified demand is liable to be set aside, it is not a nullity for the purposes of the Act.

57. It follows that the plaintiff is entitled to succeed in its application. Therefore, the demand notice is set aside pursuant to s 459J(1)(b).

58. The affidavit pre-dating the demand notice is no mere "defect". The affidavit is, in form and substance, ineffective to verify the demand. Hence, s 459J(2) does not save it.

59. There is also the alternative claim that there is a sufficient "genuine dispute" or "off-setting claim".

Genuine Dispute or Off-setting Claim.

60. The authorities do concur in the view that the affidavit accompanying the application to set aside a statutory demand, insofar as s 459H(1) is concerned, need only raise, as McLelland CJ in Eq said in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 (at 787)-

... a plausible contention requiring investigation, and raises much the same sort of considerations as the "serious question to be tried" criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit "however equivocal, lacking in precision, inconsistent with undisputed contemporary documents, or other statements by the same deponent, or inherently improbable in itself, it may be" not having "sufficient prima facie plausibility to merit further investigation as to [its] truth" (cf Eng Mee Yong v Letchumanan [1980] AC 331 at 341), or "a patently feeble legal argument or an assertion of facts unsupported by evidence": cf South Australia v Wall (1980) 24 SASR 189 at 194.

61. The Full Court of the Federal Court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452, said (at 464) -

In our view, a "genuine" dispute requires that -

* the dispute be bona fide and truly exist in fact;

* the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.

62. Their Honours emphasised that such a formulation was not intended to qualify or replace the statutory term.

63. In Graywinter Properties Pty Ltd v Gas and Fuel Corporation Superannuation Fund (1996) 70 FCR 452, Sundberg J pointed out (at 459) that a mere assertion that there is a genuine dispute is not enough but -

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.

64. In Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456 Austin J adopted those principles and found that correspondence complaining that invoices evidencing the alleged debt were excessive, evidenced a "genuine dispute".

65. In essence, on behalf of the plaintiff, Mr Peter Bunn deposes that the Agreements entered into with the defendant were breached by a failure by the defendant to cause suppliers to give greater discounts than were credited to the plaintiff. That loss is estimated at $299,426 for the then previous six years.

66. That complaint is supported by correspondence dated 15 January 1998.

67. The defendant does not concede that claim but it does raise an issue as to whether the plaintiff qualified for such discounts or not. There is a genuine dispute as to whether an offsetting claim exists.

68. There was a further "offsetting claim" that, over the previous 6 years, the plaintiff lost a further $206,150 by reason of non-notification of promotional allowances. Now, whether the plaintiff would have secured those allowances may be questionable. Its entitlement was claimed by a letter dated 15 July 1998. Again, it cannot be said that this offsetting claim is so "spurious, hypothetical, illusory or misconceived" as to fail the test for genuineness.

69. There is a further claim that the defendant has failed to give credit for goods returned. Again, this was the subject of correspondence in February 2000. Of course, it may be that the claimed credits were included in the total claim. However, that is not clear from the response. The defendant has declined to engage in the exercise of reconciling the accounts and credits. That is not entirely unreasonable. It would be a complex and, probably, quite expensive exercise. However, the sums in issue are also quite large. The claim on this account, admittedly also only an estimate, is $100,620. However, the estimate does have an expressed rational basis. Therefore, it is not lacking plausibility.

70. A further claim, detailed by Mr Bunn, is that an unauthorised service fee of $297 per week, totalling $89,100 was charged to the plaintiff. That is an assertion unsupported by documentation. Unfortunately, it can only be verified or dismissed if the accounts are minutely examined. This means that, though it is marginal, it cannot be said that the test of genuineness is not met. There are conversations deposed to which, if they occurred, would support the genuineness of the plaintiff's concern. There was a letter of protest dated 9 July 2003.

71. There is also an issue as to the terms of trade; they had been exceeded by the plaintiff albeit with prior acquiescence. According to Mr Bunn, Mr McLaren (manager of the defendant) was keen to reduce the period of credit. Mr Bunn pointed out that this was not possible except over time; he suggested 24 months. Mr McLaren offered a further 2% discount as an incentive to effect a reduction over a lesser time.

72. However, Mr McLaren also sought additional security by way of charge over the assets of the plaintiff. Mr Bunn deflected that request, asking for the terms to be forwarded to him and for the accounts to be reconciled. Mr McLaren agreed to do so but the reconciliation has not taken place.

73. That arrangement is apparently confirmed by a letter from Mr McLaren to Mr Bunn of 9 March 2004.

74. On 11 August 2004, Mr Bunn deposes to a conversation with Mr McLaren. Mr Bunn deposes that Mr McLaren demanded the execution of a fixed and floating charge. Mr Bunn pointed out that he had not agreed to sign such a document without first seeing its terms.

75. Next there was a letter dated 13 August 2004 from the defendant to the plaintiff. The defendant complained of dishonoured cheques; it does not seem to be alleged they were not replaced. The "overdue balance" alleged had come down to $1,074,629.94. The letter purported to allow the plaintiff only 7 days to pay that sum. The "current balance" was alleged to be $275,540.08.

76. Even that proposal was, on 17 August 2004, summarily further restricted. A facsimile demanded $98,377.24 immediately or no further goods would be supplied. That meant that supplies stopped forthwith.

77. The plaintiff complains that these demands caused it to fall behind its customary payment arrangements. It had to arrange supplies from an alternate source at a cost estimated at $66,000.

78. It is arguable that those circumstances could give rise to an off-setting claim for damages.

79. In conclusion, it seems to me that there has been verified by the plaintiff a "genuine dispute" or "off-setting claim" in respect of the sum demanded. The demand must be set aside on this basis also.

80. I will hear the parties as to costs.

I certify that the preceding eighty (80) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Chief Justice Higgins.

Associate:

Date: 10 May 2005

Counsel for the plaintiff: Mr C Erskine

Solicitor for the plaintiff: Gillespie-Jones & Co

Counsel for the defendant: Mr R M Smith SC

Solicitor for the defendant: Bradley Allen

Date of hearing: 22 and 23 November 2004

Date of judgment: 10 May 2005