SUPREME COURT OF WESTERN AUSTRALIA
DURO FELGUERA AUSTRALIA PTY LTD
IMP GROUP PTY LTD
CORAM : MASTER SANDERSON
HEARD : 4 SEPTEMBER 2018
DELIVERED : 18 SEPTEMBER 2018
FILE NO/S : COR 134 of 2018
- This is the plaintiff’s application to set aside a statutory demand. The application is brought under s 459G, s 459H and s 459J of the Corporations Act 2001 (Cth). The statutory demand appears as attachment VES-1 to the affidavit of Victoria Elizabeth Strong sworn 3 August 2018 and filed in support of the application. The amount of the debt is $2,459,509.92. It is made up of three separate amounts. First, the defendant’s claims for contractual entitlements, second damages for loss of use of the primary amount and third, release of retention moneys.
- There is no dispute as to the relevant facts. The defendant was a subcontractor to the plaintiff on a significant construction project in the northwest. A dispute arose between the parties. The defendant issued a notice of dispute under the contract on 24 March 2017. The matter went to arbitration and on 6 July 2018, the arbitral tribunal issued their award. The amount claimed in the statutory demand is the amount awarded by the tribunal. The plaintiff has not lodged an appeal against the tribunal’s decision. Prima facie, the debt is due and owing.
- On 19 April 2018, Trans Global Projects Pty Ltd (In liquidation), a company unrelated to the defendant, issued proceedings against the plaintiff seeking a freezing order. The application was heard by Tottle J and His Honour made the freezing order: see Trans Global Projects Pty Ltd (In liquidation) v Duro Felguera Australia Pty Ltd  WASC 136. For present purposes, it is not necessary to detail the freezing order. Suffice it to say, it was largely in standard form. It prevented the plaintiff from removing from this jurisdiction certain of its assets or otherwise disposing of its assets save in certain circumstances. The exceptions were set out in par 10 of the order which reads as follows:
This order does not prohibit you from:
(a) paying your ordinary living expenses;
(b) paying your reasonable legal expenses;
(c) dealing with or disposing of any of your assets in the ordinary and proper course of your business, including paying business expenses bona fide and properly incurred; and
(d) in relation to matters not falling within (a), (b) or (c), dealing with or disposing of any of your assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so you give the applicant, if possible, at least two working days written notice of the particulars of the obligation.
- The plaintiff raised the following three grounds upon which it is said the demand ought be set aside:
(a) there is a genuine dispute between the plaintiff and the defendant about the existence or amount of the debt to which the demand relates;
(b) there is a defect in the demand which will cause substantial injustice if the demand is not set aside; and/or
(c) there is ‘some other reason’ for setting aside the demand.
- In support of the above grounds, the plaintiff said the demand was issued for an improper purpose. This submission was broken down into three parts. First, it was said the defendant has not alleged that the plaintiff is insolvent. There is no statement to that effect in the affidavit accompanying the statutory demand. This point can be disposed of easily. There is no requirement that an affidavit supporting a statutory demand should state a deponent’s belief that the recipient of the demand is insolvent. What the affidavit has to do is verify the existence of a debt. That is precisely what the affidavit in support of the demand did and there is no requirement to do otherwise.
- Second, it was said there was no evidence from the defendant that it undertook any investigation to ascertain whether or not the plaintiff was insolvent. It was submitted that had this step been taken, the defendant would have realised the plaintiff was supported by a Spanish company Duro Felguera SA which had recently undertaken a capital raising and which could support the plaintiff. In making this submission, counsel relied upon the decision of Createc Pty Ltd v Design Signs Pty Ltd  WASCA 85.
- It may be accepted as an established principle that use of the statutory demand procedure, as a debt recovery measure or to apply pressure to a part, is an abuse of process. In Equipped Constructions Pty Ltd v Form Architects Pty Ltd  NSWSC 500 Austin J put the position as follows at :
In all the circumstances my conclusion is that there is a genuine dispute with respect to the claim for $16,500 but not with respect to the claim for $1,944.94. Section 459H(3) requires in those circumstances that the statutory demand be set aside. It may seem to Form and its directors that there is an element of unfairness in this conclusion, given that there is no dispute they have carried out the work required to produce the verification certificate report and that the report was used by Equipped for the purposes of its development application. But they must bear in mind that the statutory demand procedure is not provided by the law as a mechanism for the recovery of debt. The function of a statutory demand is to facilitate proof of insolvency in a winding-up application by creating a presumption of insolvency if the demand is properly served and not met. Courts have said, time and again, that the statutory demand procedure should not be used as a mechanism to apply pressure on a party who genuinely disputes the existence of the debt that is claimed. The proper procedure for determining entitlement to an amount claimed but genuinely disputed is to take proceedings for recovery of the alleged debt, where defences may be raised and a decision may be made by the court.
- In Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd  NSWSC 877 Barrett J drew a distinction between a debt recovery action and the service of a statutory demand :
The defendant says that the plaintiff should be required to pay into court, to abide the outcome of the appeal, the full sum of $158,051.21 to which the Master reduced the statutory demand. The plaintiff says that the defendant should not be given the form of priority or security that that would entail. I accept the plaintiff’s submission. This is, after all, not a debt recovery action. A company on which a statutory demand is served is in no sense required to comply with it. It may, if it wishes, allow the statutory presumption of insolvency to arise (by not paying the demanded sum) and, if a winding-up application follows, seek to show that it is in fact in a solvent state so that a winding-up order is not justified. The statutory demand process is no more than a process that defines where the burden of proof lies in windingup proceedings.
- In further support of this proposition, counsel referred to correspondence from the defendant’s solicitors which suggested if payment of the debt was not made, the failure to pay might receive publicity. It was the plaintiff’s submission this was indicative of the defendant’s intent to place commercial pressure on the plaintiff. This, it was said, amounted to an abuse of process.
- In my view, there is no question in this case of there being any abuse of process. The defendant had an arbitration award in its favour for a significant amount of money. The plaintiff had not met its legal obligation and paid what it owed. The defendant then issued a statutory demand. It was quite entitled to do so. The observation that some press comment, adverse or otherwise, may be made, is not in and of itself sufficient to justify a conclusion there was some unreasonable commercial pressure being placed on the plaintiff.
- A further matter was raised by the plaintiff in relation to the abuse of process argument. It was said the defendant had taken steps to have the arbitration award made an order of this court for the purposes of enforcement. In fact, subsequent to the issue of the statutory demand, I did make an order registering the judgment. It was the plaintiff’s submission the defendant was taking two inconsistent steps – on the one hand registering the judgment, presumably with a view to its enforcement under the Civil Judgments Enforcement Act 2004 (WA) and on the other hand pursuing a statutory demand.
- With respect, there is nothing inconsistent in these two approaches. The statutory demand procedure is, as Barrett J said, aimed at establishing a presumption of insolvency. It may or may not be followed by an application to wind up. On the other hand registering a judgment in this court is a preliminary step to enforcement of that judgment. The two are entirely separate and distinct. The situation is entirely different to a circumstance where a party is taking proceedings in a court and while those proceedings are unresolved, it issues a statutory demand. Apart from the fact that a party served with the demand could almost certainly have it set aside on the basis there was a genuine dispute, it would amount to an abuse of process to claim there was no genuine dispute as must be done if the statutory demand procedure is to be followed. But that is not this case. The issue of proceedings in this court to register the arbitration award as a judgment is not in any way inconsistent with the issue of a statutory demand.
- The second argument put by the plaintiff was that at the time of issue of the demand, there was no debt ‘due and payable’ by the plaintiff to the defendant. This was said because although the arbitration award had been made, it had not at that stage, been registered as a judgment of this court.
- With respect, that is a truly remarkable submission. Parties who enter into contracts with arbitration clauses do so for a variety of reasons. But in every case, the aim is to resolve disputes between them in a timely and cost effective fashion. Once all parties have had the opportunity to put their version of events to an arbitrator, an award is made. If that award requires one party to make payment to the other then that is a determination of their rights. Put simply, the party who is successful is entitled to be paid. Payment is not contingent upon registration of the award; the obligation to pay arises on the publication of the arbitrator’s decision. Quite clearly in this case, once the award was published, there was a debt due and payable by the plaintiff to the defendant.
- It was further submitted that as the plaintiff was subject to a freezing order, no debt was ‘due and payable’ because of an inability on the part of the plaintiff to pay consequent upon the freezing order. There are two points to be made about that submission. Assuming payment of this debt did not fall within cl 10(c) of the order, then it would be covered by cl 10(d). That order does not prevent the plaintiff paying the defendant. What it requires is that if the plaintiff wishes to make payment, it must give Trans Global two days’ notice. Presumably, Trans Global, if it took the view payment was not justified, could apply to the court for an injunction restraining payment. If that injunction was granted and payment was consequently not possible, a statutory demand may well be set aside, probably under s 459J. But that is not this case. As the plaintiff acknowledged, it has not given any notice to Trans Global of its intention to make payment. It can only be assumed the plaintiff has no intention of paying the debt. That is its decision. But in taking that decision, it cannot be used as a basis to justify the setting aside of a statutory demand.
- The third point raised by the plaintiff is what it describes as the ‘effect of the arbitration agreement’. The submission was put in this way. Section 5 of the Commercial Arbitration Act 2012 (WA) (the Act) provides that:
In matters governed by this Act, no court must intervene except where so provided by this Act.
- Section 8(1) of the Act provides:
A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.
- Section 2A(1) of the Act provides:
Subject to section 1C, in the interpretation of this Act, regard is to be had to the need to promote so far as practicable uniformity between the application of this Act to domestic commercial arbitrations and the application of the provisions of the Model Law (as given effect by the International Arbitration Act 1974 (Commonwealth)) to international commercial arbitrations and the observance of good faith.
- As I understand the plaintiff’s submission, it is said the use of the statutory demand procedure in some way cuts across the provisions of the Act which restrict the right of a court to interfere in arbitration. With respect, there is no substance to that argument. The arbitration process has concluded. An award has been made and the plaintiff was found to be indebted to the defendant. It cannot be suggested that enforcement of an arbitration award is itself covered by the Act. Once an award is made, it can be registered as a judgment of this court and enforced accordingly. That does not alter the fact that as I have said, when the arbitration award is handed down, there is a determination of the inter partes rights and, in this case, a debt arises which is due and payable. The fact the debt arises consequent upon an arbitration is of no relevance whatsoever. There is no basis upon which the statutory demand can be set aside.
- The application will be dismissed. I will hear the parties as to the precise form of orders and as to costs.