In the matter of Section 459G of the Corporations Law of Victoria In the matter of Australian Underwriting Agencies Pty Ltd Australian Underwriting Agencies Pty Ltd v QBE Insurance Ltd [1998] FCA 1639

FEDERAL COURT OF AUSTRALIA CORPORATIONS LAW – application to set aside a statutory demand – whether copies of application and supporting affidavit may be served by facsimile transmission – whether failure of creditor to explain the basis of alleged indebtedness at time of or prior to service of demand is a ground to set it aside – whether there is a genuine dispute where basis of the debt is uncertain Corporations Law ss 459E, 459G, 459J Rochester Communications Group Pty Ltd v Lader Pty Ltd (1997) 23 ACSR 380 – considered Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 – applied Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 - considered

IN THE MATTER OF: SECTION 459G OF THE CORPORATIONS LAW OF VICTORIA

IN THE MATTER OF: AUSTRALIAN UNDERWRITING AGENCIES PTY LTD

AUSTRALIAN UNDERWRITING AGENCIES PTY LIMITED v QBE INSURANCE LIMITED VG 3364 OF 1998 JUDGE: MERKEL J PLACE: MELBOURNE DATE: 18 DECEMBER 1998

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY VG 3364 of 1998

in the matter OF: section 459g of the corporations law of victoria

in the matter of: australian underwriting agencies pty ltd acn 052 231 937

BETWEEN: AUSTRALIAN UNDERWRITING AGENCIES PTY Limited

acn 052 231 937

Applicant

AND: QBE INSURANCE LIMITED

acn 000 157 899

Respondent

JUDGE: MERKEL J

DATE OF ORDER: 18 december 1998

WHERE MADE: MELBOURNE

THE COURT ORDERS THAT: 1. The statutory demand by the respondent dated 15 October 1998 be set aside. 2. The respondent pay the applicant's taxed costs of and incidental to the application. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY VG 3364 of 1998

in the matter OF: section 459g of the corporations law of victoria

in the matter of: australian underwriting agencies pty ltd acn 052 231 937

BETWEEN: AUSTRALIAN UNDERWRITING AGENCIES PTY Limited

acn 052 231 937

Applicant

AND: QBE INSURANCE LIMITED

acn 000 157 899

Respondent

JUDGE: MERKEL J

DATE: 18 december 1998

PLACE: MELBOURNE

REASONS FOR JUDGMENT

Introduction The applicant has applied to the Court pursuant to s 459G of the Corporations Law to set aside a statutory demand, dated 15 October 1998, by the respondent for payment of a debt in the sum of $406,388.24. The debt was described in the demand as follows: "Amount of commission overdrawn by the Company purportedly pursuant to underwriting agency agreement between the Company and the Creditor dated 8 April 1994" The application to set aside the statutory demand raises three issues: · whether, in accordance with s 459G(3), copies of the application and the supporting affidavit were filed and served within twenty-one days after the demand was served; · whether the affidavit accompanying the respondent's statutory demand pursuant to s 459E(3) was defective and, if so, the consequences that follow from that finding; · whether there is a genuine dispute about the existence of the debt.

Service of copies of the application and the supporting affidavit A statutory demand is required to be in the prescribed form which is Form 509H of the Corporations Regulations. So far as is relevant, that form requires insertion, in paragraph 6 of the demand, of the address of the creditor making the demand for "service" of copies of any application and affidavit which may be made under the Corporations Law for an order setting the demand aside. Paragraph 6 of the statutory demand served by the respondent stated: "The address of the Creditor for service of copies of any application and Affidavit is Moray & Agnew, Solicitors, Level 28, 135 King Street, Sydney NSW 2000, DX 106 Sydney, Tel: 9232 2255, Fax: 9223 8944." The applicant transmitted, by facsimile to the "Fax" number set out in para 6 copies of the application to set aside the demand and of the supporting affidavit within twenty-one days of the demand. The copy documents were received by Moray & Agnew at the nominated address within the twenty-one day period as a consequence of the facsimile transmission. The applicant also sent a copy of the application and the affidavit by post to Moray & Agnew at the address nominated for service but the copy documents did not arrive until after the expiration of the period of twenty-one days after service of the demand. The letter enclosing the documents sent by post stated that the documents were in "confirmation of facsimile"; it is clear that the solicitors acting for the applicants intended that the documents sent by facsimile transmission constitute service in accordance with s 459G(3). The respondent contends that: · service by facsimile is not proper service for the purposes of s 459G(3) of the Corporations Law; and · as service of the documents by post occurred more than twenty-one days after service of the demand, the Court has no jurisdiction to hear the application made on behalf of the application to set aside the statutory demand: see s 459G(2). In my view, the contentions of the respondent ought to be rejected. The insertion of a facsimile number in para 6 indicated that service could be effected at the address for service by a facsimile transmission. Service in accordance with the directions as to service given by the respondent in the prescribed form will constitute service for the purposes of s 459G(3) on two grounds. First, service was effected in the manner provided for in the demand. Second, there has in fact been service at the address nominated for service by the documents being transmitted to that address by facsimile in the manner provided for in para 6 of the statutory demand. Rochester Communications Group Pty Ltd v Lader Pty Ltd (1997) 23 ACSR 380 supports the conclusions at which I have arrived. Service of documents might take place for the purpose of s 459G by bringing the served documents to the notice or attention of the intended recipient: see Beaumont J at 401 and Moore J at 409-410. Rochester Communications is also authority for the proposition that service of copy documents at the address nominated in the demand will be sufficient service of copy documents for the purposes of s 459G(3). Whilst Rochester Communications does not concern service by facsimile, in my view there is no reason why the proposition to which I have referred should not apply to documents sent by facsimile transmission. The respondent also contended that there has not been personal service of the application, being an originating process, as is required by O 7 r 1 of the Rules of Court. The contention is of no assistance to the respondent as I have concluded that s 459G(3), which relates to service of copy documents, has been complied with. In any event, any defect in relation to service under O 7 has been waived by the respondent's unconditional appearance. Further, as service was effected in the manner directed by the respondent I would grant any relief necessary in respect of non-compliance with the Rules of Court. For these reasons I am satisfied the Court has jurisdiction to deal with the application to set aside the statutory demand.

Was there a defect in the affidavit accompanying the creditors statutory demand As was pointed out by the Full Court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 461 the affidavit accompanying the demand may be sworn in any of the forms prescribed by the Rules of any court having jurisdiction in respect of the demand. The affidavit accompanying the creditor's statutory demand in the present case appears to comply with O 71 r 36AB of the Federal Court Rules and Form 93BA. The affidavit is sworn by the respondent's finance manager and states that his knowledge as to the debt to which the demand relates is derived from certain bank statements for accounts operated by the respondent between September 1994 to July 1998, deposit books and cheque books for the accounts over that period and the Underwriting Agency Agreement between the applicant and respondent dated 8 April 1994. Paragraph 4 of the affidavit, which sets out details of the debt to which the demand relates, is as follows: "Annexed and marked 'A' is a Schedule I prepared after the examination of those documents setting forth the calculation of the sum of $406,388.24." The schedule which was annexed to the affidavit purports to contain typed calculations but they are illegible. The respondent's affidavit in support of its application to set aside the demand "strongly denied" that the applicant owed the respondent the sum demanded or any other amount. The affidavit contained the following additional paragraphs: "4. The Applicant has not been provided with the basis of the calculation in the affidavit of James Dashwood sworn 15 October 1998 and will provide further and better particulars after QBE Insurance Limited gives details and the primary documents concerning its claim. 5. Until the statutory demand was served the Respondent had not made any claim for the alleged liability. 6. I verily believe that a genuine dispute exists between the Applicant and the Respondent as to the alleged liability and I therefore respectfully request that this Honourable Court set aside the statutory demand." The applicant contends that it was not in a position to respond in any more detail to the claim as the basis of calculation given in the supporting affidavit did not enable a response. There is some substance to the applicant's complaint as to the Schedule as prior to the service of the demand the respondent had not made any claim for the alleged liability. In these circumstances the failure of the respondent to have explained in a legible and understandable form how the debt it claimed was calculated or arrived at was more than a technical failure. The failure is exacerbated by the nature of the claim, the subject of the demand. It is clear from the description of the debt in the statutory demand that the claim is not for a simple debt. The debt is described as "commission overdrawn" by the applicant "purportedly" pursuant to an "underwriting agency agreement". Such a claim would usually require some explanation in order for it to be appropriately responded to in the manner required by s 459G(3): see Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452. Sundberg J (at 459) said that the supporting affidavit would be expected to advance, further or assist the applicant's cause to have the demand set aside. Sundberg J said (at 459) that in a case where the ground relied upon is that there is a genuine dispute: "…the affidavit must in my view disclose facts showing there is a genuine dispute between the parties. A mere assertion that there is a genuine dispute is not enough. Nor is a bare claim that the debt is disputed sufficient. It follows from the fact that the affidavit need not go into evidence, which is the customary function of an affidavit, that it may read like a pleading."

However, the corollary of the requirement discussed by Sundberg J is that at the time of, or prior to, service of the demand, a creditor must have informed the alleged debtor of the basis for its claim in a manner which sufficiently enables the debtor to disclose, and depose to, the facts showing there is a genuine dispute. If a creditor has failed to do so then that may constitute a reason for setting aside the demand under s 459J(1)(b). In Spencer Constructions at 458-459 the Full Court held that jurisdiction was conferred under s 459J to set aside a statutory demand in relation to a defect in the demand only if substantial justice would be caused by the defect but, in other cases, if the Court is satisfied under s 459J(1)(b) that there is some reason why the demand should be set aside. I am satisfied that in the present case there is good reason to set aside the demand. As pointed out above the complaint of the applicant in respect of the Schedule accompanying the affidavit is far from a technical complaint; it left the respondent in the position of not being able to determine the basis for the claim of an indebtedness in the sum of $406,388.24 at a time when it was obliged to elect to respond to that claim, either by paying the alleged indebtedness or applying to set aside the demand, within 21 days of its service. The claim was a matter of some complexity and clearly required explanation whether in the demand, the accompanying affidavit or in some prior communication between the parties. No such explanation was given. Those circumstances, when combined with the additional fact that prior to the service of the statutory demand the respondent had not made any claim for the alleged liability, left the respondent unable to properly or satisfactorily deal with the statutory demand in the manner provided for by the Act. These circumstances constitute good reason to set aside the statutory demand.

Genuine dispute Under s 459H a Court may set aside a demand if it is satisfied that there is a genuine dispute between the creditor and the alleged debtor as to the existence or amount of a debt to which the demand relates. In Spencer Constructions (at 464) the Full Court stated that a genuine dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived. The respondent contends that the applicant's affidavit contains no more than an assertion or denial of indebtedness and that it failed to meet the criteria stipulated by Sundberg J in Graywinter Properties Pty Ltd. Whether an affidavit will meet that criterion must depend upon the circumstances of the case, including the nature of the indebtedness claimed to be owing and the extent of the knowledge of the debtor as to the alleged indebtedness. Although there is some substance in the respondent's contention that the applicant's affidavit is mainly assertion, that contention looses its force when regard is had to the reason why the affidavit is in that form. As pointed out above the applicant had not been informed by the respondent prior to or at the time of the demand of the basis for its alleged indebtedness and how the amount of the indebtedness had been calculated or arrived at. The very statement of a claim for "overdrawn commissions" said to be "purportedly" payable pursuant to an "underwriting agency agreement", without more, raises questions about the nature of the claim which, are likely to be contentious. In my view, counsel for the applicant was correct in saying that his client had some difficulty in responding to the claim made against it in any other form than it did given the absence of the particulars it needed. In such circumstances it was not unreasonable for the affidavit in support of the application to set aside the demand to take the form it did. Although it is not strictly necessary for me to determine this point (as I am satisfied that it is appropriate to set aside the statutory demand under s 459J) there is sufficient material to satisfy me that there is, in any event, a "genuine dispute" as to the existence and quantum of the debt claimed. In that regard, it is relevant that the respondent did not adduce in evidence the agency agreement under which the alleged debt "purportedly" arises nor did it explain in adequate detail how the alleged debt is calculated or arrived at. Its failure to do so further supported the applicant's case that there is a genuine dispute.

Conclusion For the reasons set out above I have arrived at the conclusion that the statutory demand dated 15 October 1998 should be set aside. I am also satisfied that costs ought to follow the event. Accordingly, the respondent is to pay the applicant's taxed costs of and incidental to the application. I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel

Associate: Dated: 18 December 1998

Counsel for the Applicant: Mr P Searle

Solicitor for the Applicant: Pointon Grant

Counsel for the Respondent: Mr S Gardiner

Solicitor for the Respondent: Lander & Rogers

Date of Hearing: 16 December 1998

Date of Judgment: 18 December 1998