By Jeff Brown, a Principal of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group.
A recent Supreme Court decision serves as a timely reminder of the care to be employed when deciding whether a statutory demand requires a verifying affidavit.
Merlo Group Australia Pty Ltd (“MGA”) obtained a judgment in the District Court against GTH Equipment Pty Ltd (“GTH”). A judgment/order was entered by the Court, recording that “[MGA’s] motion for summary judgment is granted so far as the claim for $143,000 is concerned. Judgment in favour of [MGA] in the sum of $143,000 together with interest under the contract from 3 February 2015.” (Emphasis added).
The claim arose under a contract which included a term that GTH would pay interest at the rate of 15% on all overdue accounts.
A couple of months after judgment was entered, GTH sent to MGA a cheque in the amount of $143,000. Just prior to receiving the cheque, MGA instructed its solicitors to issue a statutory demand in the amount of $198,425.23 comprising the judgment sum plus an amount calculated as interest at the rate of 15% per annum up to the date of the statutory demand.
GTH denied that MGA had a judgment for interest at 15% or in any quantified amount. They pointed out that the judgment/order did not identify the contract nor the interest rate. On that basis, they alleged that the statutory demand was defective as it was not verified by an affidavit in accordance with section 459E(3) of the Corporations Act.
His Honour Justice Black considered the legislative framework in the Corporations Act and the Civil Procedure Act and concluded that the $143,000 specified in the judgment/order, along with interest payable under the terms of the contract up until the date of judgment were together to be properly considered as parts of the “judgment debt”. However, His Honour concluded that any claim for interest under the contract post-judgment had to be made by reference to the Civil Procedure Act and not the terms of the contract.
His Honour then considered whether the failure to provide an affidavit verifying the part of the debt that was not a “judgment debt” warranted the setting aside of the statutory demand. After reviewing several reported cases on this issue His Honour concluded that he should set the demand aside, rather than vary it by deducting the post judgment claim for interest. In doing so, His Honour acknowledged that only a small part of the overall debt was found not to be a “judgment debt”, but His Honour had regard to the “…important statutory requirement for verification of a debt that is not a judgment debt“, and to the fact that s459J (the Court’s power to set aside a demand “on other grounds”) does not contemplate that a demand could be varied.
A copy of His Honour’s reasons for judgment can be found here: https://www.caselaw.nsw.gov.au/decision/5a166f6fe4b074a7c6e1a569
If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or jeffreyb@matthewsfolbigg.com.au
Stephen Mullette on (02) 9806 7459 or stephenm@matthewsfolbigg.com.au.
