Ceramco Java Pty Ltd v Wendy Wilson Concepts Pty Ltd [2001] QSC 204

t!11h State Reporting Bureau (~ Queensland Government ~ Department of Justice and Attorney-Gen<!r.al Transcript of Proceedings Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau. SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION MULLINS J No 2238 of 2001 REVISED COPIES ISSUED State Reporting Bureau Date JJ I ,)/ c· I IN THE MATTER OF CERAMCO JAVA PTY LTD (ACN 010 910 872) CERAMCO JAVA PTY LTD (ACN 010 910 872) and WENDY WILSON CONCEPTS PTY LTD (in liquidation) (ACN 074 845 328) and WENDY WILSON NO 2 PTY LTD (in liquidation) (ACN 058 675 942) BRISBANE .. DATE 16/05/2001 JUDGMENT Applicant First Respondent Second Respondent h Floor, The Law Courts, George Street, Brisbane, a. 4000 Telephone: (07) 3247 4360 Fax: (07) 3247 5532 -- 1 of 10 -- 16052001 T1-3/SJ3 M/T 1 /2001 (Mullins J) HER HONOUR: Two statutory demands, each dated 13 February 2001, were served on the applicant. The application filed on 9 March 2001 seeks orders setting each aside. l The first respondent's statutory demand ("the first demand") 10 was addressed to the applicant as trustee of the Walin Trust and claims $80,486 alleged to be owing for the purchase of stock on 1 February 1997. The second respondent's statutory demand ("the second demand") was addressed to the applicant as the trustee of the Ruffles Trust and claims $65,834.62 as debts incurred for and on behalf of the Ruffles Trust between 1 May 1994 and 30 June 1995 to the Australian Taxation Office for 20 $31,833.69, Bechtrans for $1,422.93 and Hortz Investments 30 for $32,578. The specific matter relied on by the applicant to show that there is a genuine dispute about the existence of the debt claimed by the first respondent is that at the time the stock was purchased by the Walin Trust, Ceramco Holdings Pty Ltd was the trustee of the Walin Trust and not the applicant which did not become trustee of the Walin Trust until 1 July 2000. The applicant therefore argues that, as trustee, it cannot be liable for the debt of the trust incurred before it became trustee. This raises a question of law rather than of fact. 2 ,JUDGMENT 50 60 -- 2 of 10 -- 16052001 T1-3/SJ3 M/T 1/2001 (Mullins J) During the course of hearing in relation to the second demand Ms Muir, of counsel, on behalf of the second respondent advised that it had come to the second respondent's attention that the amount claimed to be owing in respect of the Australian Taxation Office debt was overstated by the sum of $14,146.50. The second respondent therefore sought to have the second demand varied by reducing it by the sum of $14,146.50. In addition, the second respondent withdrew its claim for the part of the total debt alleged to have been incurred by the second respondent on behalf of Ruffles Trust in respect of Hertz Investments. That reduced the debt which the second respondent was pursuing to $19,110.12. 1 10 20 The specific matter relied on by the applicant to show that 30 there is a genuine dispute about the existence of the debt claimed by the second responden~ is that the debts were alleged to be incurred by the second respondent on behalf of the Ruffles Trust when it was the trustee and that gave the second respondent the right to pursue the trust assets for 40 an indemnity but not the right to claim a debt against the successor trustee. This also raises a question of law rather than of fact. The threshold issue relied on by the respondents to attack 50 the application is whether the affidavit filed in support of the application fulfils the minimum requirements of an affidavit in support of an application to set aside a statutory demand. 60 3 JUDGMENT -- 3 of 10 -- 16052001 T1-3/SJ3 M/T 1/2001 (Mullins J) The respondents rely on Graywinter Properties Pty Ltd v. Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 at 459 and Calquid Pty Ltd v. A & DR Illes Pty Ltd (2000) 34 ACSR 523 at 531. The supporting affidavit of Brian Anthony Ruffles, the director of the applicant states: "1. I am the sole director of Ceramco Java Pty Ltd. 1 10 2. On 16 February 2001, Statutory Demands from the 20 first and second respondents were served on me by ordinary post. 3. I have no-knowledge of the debts which are referred to in the said Statutory Demands. 4. I say that the said Statutory Demands should be set aside as there is a real dispute as to the existence of such debts." In determining whether this affidavit is sufficient for the purpose of arguing the questions of law raised in respect of the first and second demands, it is relevant to consider the context of each affidavit served in support of each demand. See Zenaust Imports Pty Ltd v. Alembic Chemicals Works Co Ltd (1998) 28 ACSR 465 at 469 where Santo J stated: "Whiles 459G(3)(a) calls for 'an affidavit supporting the application', the application, is itself to set aside an imperfectly articulated statutory demand insofar as it purports to describe the debt upon which it is based. Just as the basis for a genuine dispute 30 cannot be expected to rise higher than the level of 50 articulation of the claimed debt in relation to which a genuine dispute is said to arise, Mandarin International Developments Pty Ltd v. Growthcorp (Aust) Pty Ltd (23 March 1998, Santow J, unreported), so here; thus the affidavit in support of a notice to set aside could not fairly be expected to do the creditor's job for the creditor by articulating with greater particularity its response to such a claim itself barely articulated." 4 JUDGMENT 6 -- 4 of 10 -- 16052001 T1-3/SJ3 M/T 1/2001 (Mullins J) The supporting affidavit for the first demand was sworn by Phillip Gregory Jefferson as one of the liquidators of the first respondent. After deposing to his appointment as liquidator and authority to swear the affidavit on behalf of the liquidators and the first respondent Mr Jefferson swears: 11 3. Ceramco Java Pty Ltd ACN 010 901 872 as trustee of the Walin Trust is indebted to the Company in the sum of eighty thousand four hundred and eighty-six dollars ($80,486.00). 4. The particulars as set out in the Creditor's l 10 Statutory Demand for payment of the Debt dated 13 20 February 2001 are true and correct and the sum of $80,486 is due and payable by Ceramco Java Pty Ltd ACN 010 901 872 as trustee of the Walin Trust in full to the Company. 5. I believe that there is no genuine dispute about the existence or amount of debt referred to in paragraph 2. 11 An affidavit in the same form and corresponding terms was sworn by Mr Jefferson in relation to the second demand. In relation to each demand the affidavit of Mr Jefferson is the subject of a submission by the applicant that it does not comply with section 459E(3) of the Corporations Law and therefore the demand should be set aside under section 459J. It is argued that Rule 5.2 of Schedule 1A of the UCPR provides that the supporting affidavit must be in Form 7 and state the matters mentioned in that Form and that each supporting affidavit does not include the information required by Form 7. The specific information which is missing is that which paragraph 3 of the Form seeks when the instruction in the Form is: 5 JUDGMENT 30 40 50 60 -- 5 of 10 -- 16052001 T1-3/SJ3 M/T 1/2001 (Mullins J) "3. [State the source of the deponent's knowledge of the matters stated in the affidavit in relation to the debt or each of the debts, e.g. 'I am the person who, on behalf of the creditor(s), had the dealings with the debtor company that gave rise to the debt', 'I have inspected the business records of the creditor in relation to the debtor company's account with the creditor']." I accept that paragraph 3 of Form 7 has not been complied with in respect of each of Mr Jefferson's affidavits. Rule 1.7 of schedule 1A of the UCPR provides that it is sufficient compliance with the rules in schedule 1A in relation to a document that is required to be in accordance with a Form if the ~ocument is substantially in accordance with the Form required or has only such variations as the nature of the case requires. When the entire affidavit of Mr Jefferson is considered, I consider that there has been substantial compliance with Form 7 in each case. If it were necessary to consider whether the defect in the affidavit was a reason to set aside the demand in each case under section 459J(1)(b) of the Corporations Law (see Spencer Constructions Pty Ltd v. G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 461), I do not accept the applicant's submission that the affidavit accompanying each demand was so seriously deficient that each demand should be set aside. Returning to the question of whether the affidavit filed in support of the application satisfied the jurisdictional issue, the brevity of the affidavit of Mr Ruffles is not a surprising response to the failure of Mr Jefferspn to state 6 JUDGMENT 1 10 20 30 50 -- 6 of 10 -- 16052001 T1-3/SJ3 M/T 1/2001 (Mullins J) the source of his knowledge about the debt underlying each demand. The lack of detail in Mr Ruffles' affidavit also has to be judged in the light of the legal arguments sought to be advanced by the applicant to deny the existence of the l debts. The lack of relevant facts in Mr Ruffles' affidavit 10 is consistent with the basis of the application set out in Mr Ruffles' affidavit that he has no knowledge of the debts and disputes the existence rather than the amounts of the debts. In all these circumstances there is sufficient particularity in Mr Ruffles affidavit to allow the application to proceed. In relation to the first demand the applicant's proposition is that any debt that was contracted by the trustee of the 20 Walin Trust in 1997 is not a debt for which the applicant as 30 the current trustee of the trust can be sued. The applicant relies on the statements set out in Ford and Lee, Principles of the Law of Trusts, Third Edition, at paragraph [14 000] to the effect that the successor trustee does not ordinarily become personally subject to the liabilities incurred by a 40 former trustee. That accords with principle. There is nothing otherwise in the first respondent's material to suggest that the debt of $80,486 owed to the first respondent by the Walin Trust was a debt in respect of which the applicant gave any undertaking to the first respondent 50 to pay. The applicant has therefore shown that there is a genuine dispute as to the existence of the debt claimed in the first demand. 7 JUDGMENT 60 -- 7 of 10 -- 16052001 T1-3/SJ3 M/T 1 /2001 (Mullins J) In relation to the second demand the second respondent relies on the indemnity which a trustee of a trust has in respect of expenses reasonably incurred on behalf of the trust. See Section 72 of the Trusts Act 1973. That right of indemnity continues even though there is a change of trustee. The right to give a demand pursuant to section 459E of the Corporations Law applies in respect of a debt. The term "debt" is not defined in the Corporations Law. It must therefore be given its meaning at common law. That was set out in the judgment of McPherson J, as he then was, in Rothwells Ltd v. Nommack (No 100) Pty Ltd (1988) 13 ACLR 421 at 422 as follows: "A debt is a liquidated sum in money presently due, owing and payable by one person, called the debtor, to l 10 20 another person, called the creditor." 30 This issue of whether a claim for a right of indemnity against trust assets is a claim for debt was adverted to by the Court of Appeal in Belar Pty Ltd (in liquidation) v. Mahaffey (2000) 1 Qd.R 477 at 487-489. The Court of Appeal described the former trustee's right of indemnity out of trust assets as being in the nature of a charge or lien in favour of the trustee and that a former trustee may assert its claim for indemnity against the continuing trustee by bringing an action against the continuing trustee, but it 50 must be shown that there is a fund or asset to which the lien may attach. The statements of the Court of Appeal are consistent with the submission made by Mr Jarrett of counsel on behalf of the applicant that the right of a former 8 JUDGMENT 60 -- 8 of 10 -- 16052001 T1-3/SJ3 M/T 1/2001 (Mullins J) trustee to claim indemnity from the continuing trustee is a proprietorial claim rather than a claim in debt. The applicant has therefore shown that there is a genuine dispute as to the debt claimed in the second demand. 1 10 I make orders in terms of paragraphs 1 and 2 of the application. HER HONOUR: When the application was filed on 9 March 2001 20 it sought an order that the respondents pay the applicant's costs of the application on an indemnity basis. If the only issue on the application before me had been the substantive issues on which the applicant has been successful in setting 30 aside the statutory demands, I would have been disposed to order costs on an indemnity basis. That is because those issues on which the applicant has been successful in relation to the first respondent not having a right to pursue the applicant for a debt incurred by the trust before 40 the first respondent became trustee and in relation to the second respondent as a former trustee of the Ruffles Trust not having a right to pursue a debt claim in respect of debts incurred by the second respondent on behalf of the Ruffles Trust against the applicant as the continuing trustee are fundamental matters of principle. The application was defended by the respondents, however, on the basis that the affidavit in support of the application 9 JUDGMENT 50 60 -- 9 of 10 -- 16052001 T1-3/SJ3 M/T 1/2001 (Mullins J) made by Mr Ruffles was not sufficient to invoke the jurisdiction. It is argued on behalf of the respondents l that it was reasonable for them to continue with their opposition to the setting aside of the statutory demands in order to agitate that argument. There was substance in that 10 jurisdictional isue that did require consideration before proceeding with the hearing of the substantive matters of the application. In those circumstances I consider that the appropriate order is that the respondents pay the applicant's costs, including reserved costs, of the application to be assessed on a standard basis. 10 JUDGMENT 20 30 50 6 -- 10 of 10 --