ZHEN YUN (AUSTRALIA) PTY LTD v STATE BANK OF SOUTH AUSTRALIA No. SCGRG 94/225 Judgment No. 4626 Number of pages - 4 Corporations (1994) 12 ACLC 521 (1994) 13 ACSR 801

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA BURLEY J

CWDS Corporations - application to set aside statutory notice of demand - notice sets out details of alleged debt - accompanying affidavit refers to a debt but differently constituted - whether non-compliance with statutory procedure requires notice to be set aside - notice set aside. Corporations Lawss 459E to 459N.

HRNG ADELAIDE, 18 April 1994 #DATE 1:7:1994

Counsel for plaintiff: Mr C J Townsend with

Mr N Minicozzi

Solicitors for plaintiff: N Minicozzi

Counsel for defendant: Mr R Ross-Smith with

Mr M O'Donnell

Solicitors for defendant: Thomsons

ORDER

Order setting aside the notice dated

the 8th February 1994.

JUDGE1 BURLEY J By summons dated the 17th February 1994 the plaintiff seeks, pursuant to Section 459G(1) of the Corporations Law ("the Law"), the following order:- "That a purported Statutory Demand served on the plaintiff by the defendant dated the 8th February 1994 be set aside."

2. The plaintiff has complied with the provisions of subsections 459G(2) and (3) of the Law . The matter came on for hearing on the 18th April 1994 when Mr Townsend appeared for the plaintiff and Mr Ross-Smith for the defendant. Submissions were not completed on that day but leave was given for written submissions to be filed by the parties and these were received by me at a later date.

3. It is common ground that the defendants served upon the plaintiff a statutory demand pursuant to the provisions of Section 459E of the Law ("the notice"). It was accompanied by an affidavit which purported to verify the alleged debt. A copy of the notice and verifying affidavit is exhibit LL1 of the affidavit of Mr Lee affirmed on the 17th February 1994. The debt is described in the schedule to the notice as follows:- "Description of Debt Amount of Debt Amount due and payable $13,301,284.84". by the company to the creditor as at 13 December pursuant to a cross-guarantee and indemnity dated 15 January, 1991 in respect of the debts arising pursuant to a facility agreement dated 23 August 1991 as demanded by notice demand dated 13 December, 1993 The accompanying affidavit was sworn by Mr Ritchie. At paragraph 5 of the affidavit he said:- "The debt arises under a cross guarantee and an indemnity dated the 22nd November 1990 in respect of debts arising pursuant to a facility agreement dated the 15th January 1991."

4. It is immediately apparent that the affidavit does not support the debt as described in the schedule to the notice. The notice refers to a facility agreement of the 23rd August 1991, whereas the facility agreement referred to by Mr Ritchie was dated the 15th January 1991. In addition, the guarantee referred to in the schedule is dated the 15th January 1991 whereas the guarantee referred by Mr Ritchie is dated the 22nd November 1990. There is a further complication that the date of the facility agreement referred to in the schedule is given as the 23rd August 1991 whereas it is common ground that the facility agreement was actually dated the 23rd August 1990. I do not think anything turns on this defect. I bear in mind that Section 459J(2) of the Law requires the Court not to set aside a statutory demand merely because of a defect. That requirement must be read subject to the provisions of Section 459J(1)(a) which allows a Statutory Demand to be set aside if substantial injustice will be caused unless the demand is set aside. I do not consider that substantial injustice would occur merely because the facility agreement was described as being dated on the 23rd August 1991 rather than the 23rd August 1990. It is apparent from the affidavit evidence filed by the plaintiff that the plaintiff was aware that the misdescription of the date was no more than a typographical error.

5. It was submitted by Mr Townsend that the notice should be set aside because first, the defects in the notice came within the provisions of Section 459J(1) of the Law and, second, because there was a genuine dispute in respect of the debt. As to the latter contention he relied upon Section 459H(1)(a) of the Law.

6. As to the first contention Mr Townsend submitted, in essence, that whatever may be the position with regards the indebtedness between the parties to this action, the plaintiff was required to respond to the debt as alleged in the notice, as opposed to the debt referred to in the accompanying affidavit, and that it was no answer to the plaintiff's contentions for the defendant to argue, as it did, that the plaintiff was indebted to the defendant in any event by reason of the guarantee dated the 22nd November 1990 and a facility agreement dated the 23rd August 1990. He argued that the basis of such indebtedness was referred to neither in the notice itself nor in the accompanying affidavit. In that regard I should mention that it was submitted by the defendant that whatever the contents of the notice and the accompanying affidavit, the plaintiff was, in any event, indebted to the defendant pursuant to the guarantee dated the 22nd November 1990 and the facility agreement dated the 23rd August 1990. That argument was put by the defendants to counter the argument contended for by the plaintiff that, by reason of the defects in the notice and the accompanying affidavit, substantial injustice would occur if the notice were not set aside because the plaintiff has not been called upon to meet the case relied upon by the defendant in opposing the application to set aside the notice. To some extent this is correct, but I do not consider that it addresses the actual defect in the procedure pursued by the defendant in serving a notice which referred to one basis for the alleged indebtedness and attaching to that notice an affidavit which failed to verify the alleged debt. In my view, the first contention of the plaintiff relating to the defects in the notice and accompanying affidavit is not to be determined by reference to whether the defects are such that they do or do not cause substantial injustice. The defect is more fundamental than that, namely that the affidavit fails to verify the alleged debt. The defendant has not complied with the provisions of Section 459E(3) of the Law. In those circumstances it seems to me that the question of whether or not the notice should be set aside is to be determined by reference to the provisions of Section 459J(1)(b) of the Law. In other words, I must determine whether the failure of the affidavit to verify the debt constitutes "some other reason why the demand should be set aside". In my view it does. A reading of Sections 459E to 459N of the Law requires the conclusion that the Legislature set out a detailed code which is to be strictly adhered to relating to the giving of statutory demands and the consequences that follow from the giving of such a demand. It is apparent from those sections that immaterial non-compliance will not form a proper basis for the setting aside of the notice, but, where the failure to follow the procedures set out are significant, the notice should be set aside. In my view, the defendants failure to follow the procedures of Section 459E(3) of the Law constitute a significant departure from the required procedures. This is evident from the way in which the case was argued. There was a great deal of argument put by each side as to, on the one hand, the reliance upon the indebtedness arising as stated in the notice itself and, on the other hand, as to the way in which the indebtedness arises, not by reference to the notice or the accompanying affidavit, but on some other basis. This in turn has lead the plaintiff to complain that neither the notice nor the accompanying affidavit has brought into play a legitimate consideration of a substantial aspect of the defendant's contentions. In my opinion, there is much to be said for the plaintiff's complaints. Whilst I allow for the possibility that, if the defendant in its notice of demand and the accompanying affidavit, had relied solely upon the guarantee of the 22nd November 1990 and the facility agreement of the 23rd August 1990, such a notice would not be set aside, the current terms of the notice and the accompanying affidavit do not call for a decision in that regard.

7. For the above reasons I consider that the notice dated the 8th February 1994 should be set aside. In the circumstances, I do not consider it either necessary or desirable to determine the second ground relied upon by the plaintiff to set aside the notice, namely that the plaintiff genuinely disputed the alleged indebtedness. There will be an order setting aside the notice dated the 8th February 1994. I will hear counsel as to costs.