In the matter of Colour Metal Pty Ltd

1. [1]

   LEEMING JA: By separate originating processes each filed on 31 May 2021, Colour Metal Pty Ltd seeks orders setting aside two statutory demands issued by separate defendants, Mr Geoffrey Douglas Summers and West Horse Pty Ltd. The demands are in similar terms. Colour Metal relies on s 459J(1)(b) of the Corporations Act 2001 (Cth) and no other provision. No issue has been raised as to the service of the demands, or the timing or content of Colour Metal’s application to set them aside. There is a single point. Colour Metal maintains that the statutory demands should be set aside because they were not accompanied by an affidavit.

2. [2]

   The absence of an affidavit is not of itself is not necessarily fatal. Section 459E(3) requires a demand to be accompanied by an affidavit verifying the debt and otherwise complying with the rules “[u]nless the debt, or each of the debts, is a judgment debt”. But Colour Metal submits that the debts on which each statutory demand is based are not solely judgment debts.

Background

1. [3]

   The affidavit of Colour Metal’s sole director, Mr Junyu Su, refers to proceedings in the Federal Court commenced on 18 June 2020 and compromised on 5 August 2020 by a Deed of Settlement. The deed is said to be confidential and has not been tendered. Apparently pursuant to the deed, Mr Summers and West Horse commenced proceedings in the Supreme Court of Victoria by writ filed on 2 December 2020, with the third defendant being Colour Metal, and by summons filed on 24 February 2021 sought summary judgment. There was a contested hearing on 9 April 2021, and on 3 May 2021 the Court delivered judgment: Summers v PYCJU Pty Ltd [2021] VSC 230. Relevantly, Osborne J concluded at [52]-[53]:

2. [4]

   The Court’s sealed order is dated 7 May 2021. It states the following:

3. [5]

   The debts giving rise to the statutory demands are, in the case of Mr Summers’ demand, $1,676,221.27, and in the case of West Horse, $8,381,106.36.

4. [6]

   Mr Summers’ statutory demand provided that that debt constituted $1,600,000.00 as set out in order 1(a) of the orders of the Supreme Court of Victoria dated 7 May 2021, and the sum of $74,906.20 as set out in order 1(b) of the same orders and then, critically for present purposes, the following:

5. [7]

   Likewise, the statutory demand issued by West Horse identified the two sums in orders 2(a) and (b) made on 7 May 2021, and then stated that interest for the period from 8 May 2021 to 10 May 2021 at the rate of 10% per annum amounted to $6,575.34.

6. [8]

   Both demands correctly stated (albeit in small typeface) that there was a requirement that they be accompanied by an affidavit unless they were judgment debts.

7. [9]

   I note that 7 May 2021 when the judgment was obtained was a Friday, and 10 May 2021 when the statutory demands were issued was a Monday.

Parties’ submissions

1. [10]

   There is no dispute that the $1,600,000 and the $74,906.20 of pre-judgment interest owed to Mr Summers are judgment debts each of which is sufficient to sustain a statutory demand without a verifying affidavit. Nor is there any dispute that the $8,000,000 and the $374,531.02 of pre-judgment interest owed to West Horse are judgment debts each of which is sufficient to sustain a statutory demand without a verifying affidavit. These two proceedings turn on the inclusion of 3 days’ post-judgment interest on those debts for the period between Friday 7 May when judgment was obtained and Monday 10 May when the demands were issued.

2. [11]

   Thus Colour Metal seeks to set aside the entirety of both statutory demands by reason of the inclusion in each of a relatively trivial amount of post-judgment interest. The interest, although it is almost $8,000, is still less than 0.1% of the claimed debt. At one early stage, Colour Metal also sought to set aside the statutory demands on the basis that they were being deployed as a debt recovery tool, but that claim has played no part in its written or oral submissions.

3. [12]

   Of course, if Colour Metal is correct, there is nothing preventing the defendants from serving fresh statutory demands in the amount of the actual judgment debts excluding post judgment interest, or fresh statutory demands in amounts which include post-judgment interest but which are verified by an affidavit. There is also nothing to prevent the defendants from moving immediately to wind up Colour Metal, based on the judgment debts (although, to do so they will need to prove insolvency). In that sense, as was remarked during the hearing, the stakes involved in this aspect of the dispute between the parties are very low. Of course, that does not alter the Court’s obligation to resolve the dispute which the parties have brought before it.

4. [13]

   Unsurprisingly in those circumstances, the present is not a case which turns on whether or not “substantial injustice” will be caused; Colour Metal does not rely upon s 459J(1)(a). Rather, it maintains that insofar as the statutory demand includes an amount of post-judgment interest, that is not a “judgment debt” and therefore the ordinary rule that the statutory demand be accompanied by an affidavit applies. It relies upon the decision of this Court in In the matter of GTH Equipment Pty Ltd [2017] NSWSC 1617, where similar submissions were addressed. In that decision, Black J held, in accordance with Pearl Bay Corp Pty Ltd v Lodur Pty Ltd [2000] WASC 315; 19 ACLC 982 and Fitness First Australia Pty Ltd v Dubow [2011] NSWSC 531; 84 ACSR 296 that a “judgment debt” existed at the date on which the court handed down its reasons and rejected submissions that post-judgment interest could itself be a judgment debt for the purposes of s 459E(3): at [18]-[20].

5. [14]

   The defendants maintain that the regime governing post-judgment interest in Victoria is different. It is submitted that such interest “undoubtedly forms part of the judgment” and that “post-judgment interest … immutably attaches to a judgment by virtue of s 101 of the [Supreme Court Act]” leading to the conclusion that it is a “judgment debt” for the purposes of s 459E(3). Section 101 of the Supreme Court Act 1986 (Vic) provides:

6. [15]

   It was noted in Hartley Poynton Pty Ltd v Ali (2005) 11 VR 568; [2005] VSCA 53 at [100], in contrast with the regime governing post-judgment interest in New South Wales (Civil Procedure Act 2005 (NSW), s 101), the entitlement to interest flows “in favour of every judgment creditor and is not within the direct power of the court to award or vary.” (It is not necessary for present purposes to explore whether there are, or the extent of, any qualifications to that proposition.)

7. [16]

   Thus, rhetorically, the defendants ask what could be included, usefully, in any affidavit, if one be required to accompany their statutory demands. They also rely upon s 101(2) and note that although this is not a case of execution, had a warrant been obtained, there was a requirement under that subsection for the warrant to include the amount of interest, just as that amount was included in the statutory demands which issued on 10 May 2021.

Consideration

1. [17]

   I should commence with a small point, which is the definition of “judgment debt” in s 3 of the Civil Procedure Act 2005 (NSW). That term there is defined to include not merely amounts payable under a judgment but also “any interest after judgment that is payable on that amount under s 101”.

2. [18]

   Ms Petch introduced her submissions with the proposition that no assistance would be obtained from that definition. I agree. The question is the meaning of “judgment debt” in its context in a federal law, and is unaffected by the enlarging definition which applies to references to “judgment debt” in the New South Wales Civil Procedure Act. The decisions to which I am about to refer, insofar as they turn upon New South Wales judgment debts, are consistent with that approach.

3. [19]

   As it turns out, a deal of authority bears upon the broader point whether a judgment debt for the purposes of s 459E(3) includes post-judgment interest or other matters not apparent on the face of the court's formal record of judgment. Many of the decisions were referred to in the written or oral submissions that were exchanged in the hearing today. Without being exhaustive, there were two divergent decisions in Western Australia in 2005 and 2006. In Anderson Formrite Pty Ltd v CASC Hire Pty Ltd (2005) 147 FCR 379; [2005] FCA 1424 Siopis J at [62] stated that a verifying affidavit was required unless the statutory demand was “for the very sum of a judgment”. Shortly thereafter, in Jargon Pty Ltd v Good Earth Garden Products Pty Ltd [2006] WASC 282; 24 ACLC 1638 at [41], Newnes M doubted that it was necessary, where the difference was “obvious and plainly unrelated to any issue as to the amount of existence of the debt”, such as (in that case) where payments had been made in reduction of the amount.

4. [20]

   Mr Assaf’s work Statutory Demands and Winding Up in Insolvency (2nd ed, LexisNexis Butterworths, 2012) states, in my opinion, correctly, that the weight of authority now supports Siopis J’s decision: at [3.22], and continues:

5. [21]

   The second edition of that work was published in 2012. Since then, the position is unaltered. In In the matter of SBC Construction Pty Ltd [2019] NSWSC 310; 136 ACSR 228 at [39], White J said:

6. [22]

   It will be seen that that was a case where the (deemed) judgment debts added to $125,706.49 but because the demand for $125,890.49 included a sum of $184 as “Registration/filing fee” and was unaccompanied by a verifying affidavit, it was set aside. Like the present case, the only component of the debt claimed which was not a judgment debt was a fraction of 0.1% of the debt.

7. [23]

   I note for completeness that the precise issue which has arisen between the parties in this case could not arise had the judgment debt upon which the creditors relied been a New South Wales judgment debt. That is because of s 101(3) of the Civil Procedure Act 2005 (NSW). Section 101(1) provides that unless a court otherwise orders, interest is payable on judgment debts, as is from time to time unpaid, but the entitlement to interest is qualified by subsection (3), which provides:

8. [24]

   Ms Petch accepted, in my view properly, that a creditor’s entitlement to post judgment interest, whether it be under the New South Wales or Victorian regime, gave rise to a debt accruing from time to time. However, she maintained that that was not the relevant question. The question, which is driven by the language of s 459E(3), is: where a debtor relies upon one or more debts to give rise to a statutory demand, is each of those debts a “judgment debt” for the purposes of that section, thereby falling within the exception to the general requirement that a statutory demand be verified?

9. [25]

   Contrary to Mr Bigmore QC's submissions, I do not think the position is much altered by what appears in s 101(1) of the Supreme Court Act 1986 (Vic).

10. [26]

    First of all, the language of s 101(1) distinguishes between the judgment debt, and the interest which that judgment debt "carries". At all times after judgment is given, s 101(1) requires one to go back to identify what the “judgment debt” is, in order to determine the quantity of interest which the judgment creditor is, as a matter of right, entitled to. That is to say, rather than the interest from time to time becoming part of the judgment debt, as the creditors maintain, s 101(1) proceeds on the familiar basis that the judgment debt is the amount stated in the formal document issuing from the Court, to which statute applies a mandatory valuable entitlement on the part of the creditors to accrue interest. In this respect it is not relevantly different from s 101 of the Civil Procedure Act 2005 (NSW). In each jurisdiction statute creates an additional debt, in the form of interest accruing on an unpaid judgment debt. There are more qualifications to the judgment creditor’s statutory entitlement under the New South Wales legislation than there are under the Victorian legislation, but the essence is the same.

11. [27]

    Nor in my view does s 101(2) take the matter any further. Section 101(2) speaks of a different aspect of the administration of justice, namely, execution by the issue of a warrant. In that case s 101(2) requires that the amount of interest be stated in the warrant. So far as I can see, that is neutral on the question which is relevant to present purposes, namely whether the amount of interest itself amounts to a “judgment debt” within the meaning of that term in s 459E(3).

12. [28]

    So far as I can see, the decision which analyses the position most carefully is that which was prominent in the parties’ submissions, namely that of Black J in In the matter of GTH Equipment Pty Ltd. There the creditor obtained judgment from the District Court on 19 May 2017 expressed thus:

13. [29]

    Some 2½ months later, a statutory demand issued claiming the amount of $198,425.23, as specified in a schedule to the demand, which described the amount due as:

14. [30]

    The statutory demand was not accompanied by an affidavit.

15. [31]

    An issue arose concerning the portion of interest calculated from 19 May 2017 until 4 August 2017. The debtor claimed that this component was not a judgment debt. The creditor maintained that it was. That is of course precisely the point that arises in the litigation before me today. Black J addressed this at [18]-[20]:

16. [32]

    For those reasons his Honour reached the conclusion that the amount claimed in the statutory demand was partly a judgment debt and partly a (relatively small amount of) interest after the date of judgment.

17. [33]

    Black J thereafter addressed the consequences of a statutory demand unaccompanied by an affidavit comprising components not all of which were judgment debts. His Honour expressly noted that no reliance was placed on there being a genuine dispute about any part of the debt. (The same is true of the position before me today.) The only point was that the non-compliance with s 459E(3) meant, so it was submitted, that it should be set aside under s 459J(1)(b).

18. [34]

    His Honour referred to a series of authorities dealing with the importance in the area of statutory demands of verification of debts, including B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433 and what had been said in Four Seasons Construction Pty Ltd v Eastern Metropolitan Regional Council [2000] WASC 277; 35 ACSR 716 at [19]. His Honour referred to the same passage in Ward J’s judgment in Fitness First at [98] upon which Ms Petch relied, namely, that:

19. [35]

    Contrary to the foregoing, in Augusta Pty Ltd v Provident Capital Ltd [2011] NSWSC 807, Hammerschlag J expressed doubt, indeed “significant doubt”, as to the correctness of what Siopis J held in Anderson Formrite and, according to his Honour where an interest amount can be derived simply by “an empirical arithmetic calculation applying the statutory interest rate to the amount of the judgment” then it can “properly be regarded as part of the judgment debt.” However, Black J disagreed, stating the following at [29]:

20. [36]

    That reasoning more recently has been applied, again by Black J, in In the matter of Cooperbrown Pty Ltd [2019] NSWSC 1341 at [22]-[23], to which both parties referred, and more recently in In the matter of Ming Tian Real Property Pty Ltd [2020] NSWSC 212; 145 ACSR 329. There, Gleeson J constituting this Court was confronted with a submission that what had been said in the passages in Cooperbrown and GTH Equipment, referred to above, was to be doubted. His Honour said at [38] that:

21. [37]

    The same applies today. As it happens, I think the reasoning in GTH Equipment, Cooperbrown and Ming Tian Real Property Pty Ltd is correct, but all that matters is that I am far from persuaded that it is plainly wrong.

22. [38]

    To reiterate, in response to what may be seen to be a substantial body of authority in cases of unverified statutory demands which include amounts not identified in the court’s judgment, the creditors maintain that the Victorian regime of mandatory interest calculated immediately following the entry of every judgment serves to distinguish the present case. For the reasons I have attempted to explain, the source of that (slightly) divergent position, namely s 101 of the Supreme Court Act 1986 (Vic), does not entail that consequence. Rather, it preserves the familiar distinction between, on the one hand the judgment debt, and on the other hand, the (enhanced) entitlement to interest which judgment debts issuing from Victorian courts carry. The entitlement is enhanced because of there is considerably less scope for a Court’s order to displace the entitlement, and also because of the absence of a 28 day period during which the judgment debt may be discharged without incurring interest. However, those differences do not detract from the basal distinction between the judgment debt itself and interest which accrues upon it.

23. [39]

    It is also to be borne in mind, as I have noted, that there is no great inconvenience in that conclusion being reached. All that follows is that where a creditor wishes to avail himself, herself or itself of its rights to issue a statutory demand based on a judgment debt and its post judgment entitlement to interest under s 101, that creditor must, as is the case with every statutory demand not wholly based on a judgment debt, accompany the statutory demand with an affidavit attesting to the matters required under the regime.

24. [40]

    For those reasons, I am not persuaded that any different outcome is obtained by reason of the fact that the debts on which the two statutory demands in issue in these proceedings were based upon judgments of the Court of Victoria, attracting interest entitlements under s 101 of the Supreme Court of Victoria Act 1986 (Vic).

25. [41]

    The orders that I propose to make in each proceeding are that the statutory demand be set aside.

26. [42]

    To a large extent, the matters referred to above were identified in correspondence between the parties’ solicitors, fairly shortly after the demands were served. Colour Metal invited the defendants to consent to the demands being set aside, with a costs order in its favour, and threatened an application for indemnity costs if the hearing proceeded. That was based upon a number of authorities to which I have referred dealing with the position for post-judgment interest prevailing under New South Wales law. Ms Petch accordingly seeks indemnity costs in accordance with what had been presaged.

27. [43]

    Against this, it is said that today is the first occasion in which those principles have been applied to the entitlement to post-judgment interest upon a Victorian judgment. It is true that (perhaps surprisingly) neither party has pointed me to, neither have I been able to identify, any decision hitherto dealing with the regime for interest on Victorian judgments. However, the position is expressed in unqualified form at the level of principle in the New South Wales decisions, based on essentially the same reasoning that I have relied upon today, namely the distinction between the judgment debt itself which exists at the time judgment is entered, and interest separate from that which is accruing to it pursuant to a statutory right afterwards.

28. [44]

    I am also conscious that in the standard text the correctness of the position, which I have ultimately upheld, is put forward in unequivocal terms, and that more recently from the second edition of that work, the cases (with the exception of a qualified statement by Hammerschlag J) have all flowed in the same direction.

29. [45]

    Finally, I am conscious that the creditors chose to proceed in circumstances where, it is common ground, further statutory demands may issue on a correct basis very promptly. In short, the contest today was wholly unnecessary for reasons articulated well before the hearing. In all those circumstances I think this is as an appropriate case for costs on an indemnity basis to be awarded.

30. [46]

    Accordingly, the Court’s orders in each proceeding will be:

    1. (1)

       Set aside the statutory demand dated 10 May 2021;

    2. (2)

       The defendant to pay plaintiff’s costs of the application on an indemnity basis.