This article was first published in Kott Gunning's
Insolvency Case Note of 17 April 2013.
Commonwealth Bank of Australia v Garuda Aviation Pty
Ltd WASCA 61
Rohanna Pty Ltd v Nu-Steel Homes Adelaide Pty
Ltd WASC 109
During the last 18 months, there has been significant
uncertainly about whether or not a statutory demand is valid when
issued in relation to a portion of a debt.
In 2011, the South Australian case of Candetti Constructions Pty
Ltd v M & I Samaras (No 1) Pty Ltd determined that a statutory
demand for only part of a debt was invalid, even if that part was
undisputed. In April last year, Master Sanderson of the Supreme
Court of Western Australia reluctantly found that he was bound to
follow that South Australian Judge's view when he set aside the
Commonwealth Bank's statutory demand for an undisputed portion
of a debt in Garuda Aviation Pty Ltd v Commonwealth Bank of
The Commonwealth Bank appealed Master Sanderson's decision
and on 6 March 2013, the WA Court of Appeal found that Candetti was
wrongly decided and allowed the appeal.
Creditors can now be confident that it is possible to issue a
valid statutory demand for an undisputed portion of a debt.
However, unless a portion of a debt is disputed, a single statutory
demand should be issued for the whole of a debt. The Court of
Appeal observed that in the absence of good reasons for doing so,
serving multiple statutory demands for various parts of a single
debt can be found to be an abuse of process.
On the subject of abuses of process, a particularly serious
example was found to have occurred in another decision of Master
Sanderson handed down last week.
In Rohanna Pty Ltd v Nu-Steel Homes Adelaide Pty Ltd, the
defendant, Nu-Steel, served two statutory demands on the plaintiff,
immediately before Christmas, for debts that were allegedly
assigned to it by a third party.
Prior to receiving the demands, the plaintiff had not been
contacted by Nu-Steel at all. The plaintiff had, in fact, settled
with the third party and paid it $50,000. When the solicitors for
the plaintiff wrote to Nu-Steel, providing clear evidence of the
payment to the third party, the defendant failed to respond.
The solicitors for the plaintiff issued an application to set
aside the statutory demand but did not serve it in time, so they
amended the application to seek an injunction against the winding
up of the company.
When they wrote to Nu-Steel's solicitor, explaining that the
debt had been paid, the solicitor said that in the absence of an
application to set aside the demand, his client would be entitled
to proceed with, and advertise, the winding up application.
When the plaintiff provided clear evidence of its solvency,
showing that, in the words of Master Sanderson, it was not just
solvent but "a massively successful commercial
enterprise" Nu-Steel's solicitor said the winding up
application would not be withdrawn unless the plaintiff paid costs
In granting the application to set aside the demand and injunct
the winding up application, Master Sanderson was scathing about the
conduct of Nu-Steel, its director Mr Pearse and its solicitor,
saying that it "looks very much like an attempt by the
defendant to extort money from the plaintiff."
The Court was critical of many aspects of Nu-Steel's
conduct, but was particularly unimpressed by the fact that Mr
Pearse (who appeared for Nu-Steel at the hearing; the solicitor did
not show up) had previously, unsuccessfully, attempted to bring
winding up proceedings in similar circumstances against another
company in New South Wales.
And the Court was even more critical of the lawyer. Master
Sanderson said that his conduct in demanding $25,000 in costs for
writing three or four letters "was tantamount to
extortion." Master Sanderson indicated that he would be
referring the matter to the WA police to examine Mr Pearse's
conduct and would refer his lawyer to the regulators of the legal
profession in South Australia.
This was an extreme case, both in terms of both the behaviour of
the "creditor", and the outcome - you have to do pretty
badly in court to end up being referred to the police. However, it
is certainly not the only WA case in recent years where the motives
and behaviour of a creditor who has issued a statutory demand have
been closely examined. Any creditor who issues a statutory demand
to exert pressure or collect a debt, rather than to establish
insolvency, should tread carefully.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Kott Gunning is a proud member of
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Peter Sise explores how your contractual clause for recovery of legal costs might not do what you think it does.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).