TGIF 25 February 2022 – Potential pitfalls in drafting statutory demands

This week’s TGIF considers Re C88 Project Pty Ltd [2022] NSWSC 126, a New South Wales Supreme Court case which provides guidance on the effect of omitting prescribed information, and including claims for disputed judgment interest, on the validity a statutory demand.

Key Takeaways

• The omission of notes in the prescribed form of a statutory demand will not cause it to be set aside unless substantial injustice would result. There is no substantial injustice where there is no difference between the matters notified by the statutory demand and the matters that would have been notified if the demand included the notes.
  
  
• There is unlikely to be a ‘subversion of the scheme of Part 5.4’ of the Corporations Act 2001 (Cth) (Corporations Act) justifying setting a statutory demand aside for ‘some other reason’, where interest is clearly stated separately and the manner in which it was calculated is set out in sufficient detail in an accompanying affidavit.
  
  
• While the statutory demand was not set aside in this case, the above should be kept in mind in drafting statutory demands, including ensuring compliance with any prescribed requirements.

What happened?

C88 Project Pty Ltd (C88) applied to set aside a statutory demand issued to it on 8 November 2021 by the defendant, The Property Investors Alliance Pty Ltd (TPIA).

Previously, Hammerschlag J gave judgment against C88 and made an order that C88 pay interest on it from 1 October 2019 ‘up to the date of judgment’ (see The Property Investors Alliance Pty Ltd v C88 Project Pty Ltd [2021] NSWSC 1175).

The statutory demand was for the combined total of that judgment sum and interest.

C88 applied to set aside the statutory demand on two grounds:

• that the omission from the demand of notes that were in the prescribed form constituted a substantial injustice; and
  
  
• that there was a dispute about the judgment interest calculation because it included interest on the day of judgment, which was not due and payable.

Whether omitting the prescribed notes was a substantial injustice

Section 459E(2)(e) of the Corporations Act provides that a statutory demand must be in the prescribed form, being Form 509H. Notes 1 to 5 of Form 509H were omitted from the statutory demand.

C88 submitted that this omission would cause substantial injustice if not set aside, because note 5 informs the debtor company of the time by which it must either comply with the demand or apply to have it set aside within the statutory period.

However, Williams J noted that note 5 does not provide a definitive answer about the statutory period that applies, rather it directs the company to the legislation and regulations to ascertain the correct statutory period. Therefore, regardless of whether C88 had the benefit of the notes, it still would have been required to revert to the legislation and regulations to determine the period in which it must act.

Justice Williams was not satisfied substantial injustice flowed from the omission. Williams J found there was no difference in substance between the matters notified to C88 by the statutory demand and those that would have come to its notice if the demand included the notes.

Interest calculation

C88 submitted that the terms of the order for interest made by Hammerschlag J required interest to be paid up to, but not including, the date of judgment.

Ultimately, while not considering it necessary to resolve that dispute, Williams J found the inclusion of the disputed interest in respect of the date of judgment was not ‘an attempted subversion of the statutory scheme of Part 5.4’ justifying the demand being set aside.

In particular, Williams J noted that the amount of interest was clearly stated separately from the amount of the judgment in the schedule to the demand. Justice Williams also found that the manner in which interest had been calculated was set out in sufficient detail in the accompanying affidavit. That was enough to allow C88 to ascertain whether it disputed the amount of the debt.

Conclusion and takeaways

Ultimately, Williams J dismissed the application. However, it is important to take care when drafting statutory demands to ensure they comply with the prescribed requirements to avoid any doubt about their validity.

Further, if there could be any question about amounts of interest claimed, it may assist to set out those amounts and the basis for their calculation separately from the principal debt due.