Summary

In a recent case before an Associate Justice in the Supreme Court of Victoria (unreported) a creditor who issued a statutory demand pursuant to a judgment debt and claimed additional interest without a verifying affidavit withdrew the demand. The court ordered the creditor to pay the alleged debtor's costs on an indemnity basis.

Due to a fatal oversight by the creditor’s solicitors, the demand failed to include an affidavit setting out the basis upon which the additional non-judgment interest claimed was calculated.

The demand was withdrawn because it did not comply with section 459E(3) of the Corporations Act. It did not include an affidavit verifying the interest claimed in addition to the judgment debt.

Key principles when claiming interest

An affidavit setting out the amount of “non-judgment debt” claimed (ie the interest on top of the judgment debt) is a requirement pursuant to section 459E(3) of the Corporations Act.

There is clear and binding Victorian authority regarding s 459E(3) that interest in addition to a judgment debt must be verified by an affidavit: Business Structures Pty Ltd v D’Amico [2012] VSC 146.

The word “verifies” in the context of s 459E(3) requires a formal affirmation: Azed Developments Pty Ltd v Frederick & Co Ltd (in liq) (1994) 14 ACSR 54 per Hayne J.

The apparent reason for the requirement is so that a debtor knows the precise basis upon which interest has been calculated and can understand the figures. No doubt it also assists the Court.

In correspondence between the parties, several other key authorities were cited in support of the need for an affidavit setting out the calculations for interest claimed in addition to a judgment debt, including:

Topfelt Pty Ltd v State Bank of NSW Ltd (1993) 47 FCR 226 - requirement to state the actual amount of interest claimed.
Victor Tunevitsch v Farrow Mortgage Services Ltd v Victor (in liq) (1994) 3 Tas R (NC) N20; 14 ACSR 565 - verification on oath that debt is due and payable, including interest.
Microjet Imaging Pty Ltd v Charara [2010] VSC 446 at [13] - narrowing the words ‘judgment debt’ in s 459E(3) to exclude additional interest.

Costs: standard or indemnity?

After the creditor had conceded their fatal defect regarding the claim for interest and acknowledged that the demand was liable to set aside for ‘some other reason’ pursuant to section s 459J(1)(b) of the Corporations Act, the parties appeared in court to fight over whether standard or indemnity costs were payable.

Significant related issues were that the demand had been issued by a top-tier firm of corporate solicitors (thus ostensibly raising the standard of conduct required) and that there had been a 2-year effluxion of time since the demand had been issued.

The debtor had also put the creditor on written notice that an application for indemnity costs would be brought: Huntsman Chemical Company Australia Pty Ltd v International Pools Australia Ltd 36 NSWLR 242 at [249] per Kirby P.

The creditor sought to downplay the ‘false start’ and relied upon Business Structures Pty Ltd v D’Amico [2012] VSC 146 to argue that the Supreme Court had determined a case ‘on all fours’ with the current case, but in that case it only ordered standard costs.

The debtor sought to play up the ‘false start’ and relied upon Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd & Ors 81 ALR 397 at [401] per Woodward J:

“I believe that it is appropriate to consider awarding “solicitor and client” or “indemnity” costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some willful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion.”

Conclusion re costs

Ultimately the submissions based on the principles above in Fountain, the written warning pursuant to Huntsman, and a ‘glaringly deficient’ statutory demand were persuasive. The creditor was ordered to pay the debtor's costs on an indemnity basis.