Sceam Constructions Pty Ltd v Clyne [2021] VSCA 270

What must an affividat in support of an application to set aside a statutory demand include?

The Victorian Court of Appeal in Sceam Constructions Pty Ltd v Clyne [2021] VSCA 270 has recently clarified the language around the ‘supporting affidavit’ to be filed within 21 days, and provided helpful reminders of what they should contain.

Key takeaways for practitioners

Sceam sets out what an affidavit supporting an application to set aside a statutory demand pursuant to section 459G(3)(a) of the Corporations Act must include.
The use of the terms ‘Graywinter principle’ and ‘fair notice’ are outdated and should be replaced with the words of s 459G(3)(a) which refer to an affidavit ‘supporting’ the application to set aside.

Affidavit must ‘support’ the application

What is required to satisfy the statutory yardstick of ‘supporting’ the application depends on the context of the application. The minimum requirements are:

In the context of an application to set aside on the basis of a genuine dispute, material is required to show, or from which it can be inferred, that there is a real, or genuine, dispute.
Where there are extrinsic materials in dispute (such as a written agreement) it should be annexed to the affidavit.
Where the dispute goes beyond a written agreement, reference must be made to the issues in dispute.
Include all grounds that are in ‘genuine dispute’ in the affidavit.
Failure to include them may be fatal, as a supplementary affidavit filed after 21 days may not be able to ‘cure’ any omissions from the statutory affidavit filed within 21 days.
The temporary Covid regulations extending the statutory period from 21-days to 6 months have now expired (the Coronavirus Economic Response Package Omnibus Act 2020 (Cth)).

‘Graywinter principle’ now outdated

In practice for many years, the term ‘Graywinter principle’, in reference to the case of Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452, was short-hand for a requirement of ‘fair notice’.

The phrase ‘fair notice’ or ‘fairly alert’ was used to say that the recipient of a statutory demand must be able to understand what the dispute is about. ‘Fair notice’ as a term meant that grounds of dispute must be raised ‘expressly, by necessary inference or by a reasonably available inference.’

The Court of Appeal says several times in Sceam that the law has evolved, and it is preferable to move away from referring to the ‘Graywinter principle’ or ‘fair notice’ so as not to distract from the language of the statute:

“It is more appropriate to use the language of the statute and to consider whether the statutory affidavit ‘supports’ the application.” [at 42]

Perhaps we should refer to it now as the ‘principle formerly known as Graywinter’.

Procedural fairness

While the recipient of a statutory demand must be able to understand what the dispute is about, the requirement for ‘fair notice’ does not enliven concepts of procedural fairness.

Supplementary affidavits

If the statutory period affidavit (21 days) ‘supports’ the application, then it may be further supported by evidence filed outside the statutory period, i.e. a supplementary affidavit.

Do not introduce new grounds (or a new dispute) in any supplementary affidavit. By that stage it is too late and there is no jurisdiction to consider those new grounds.

Facts in Sceam

The fatal error in the Sceam application to set aside a statutory demand was that Sceam Construction Pty Ltd (via its director, Mr Allen) did not exhibit the pages containing the terms and conditions of the contract upon which the ‘genuine dispute’ was founded.

He also failed to mention the relevant letter of demand, notice of default, or notice of termination, all of which had been served on Sceam.

Mr Allen also referred to ‘previous correspondence’ via an exhibited email, but did not exhibit the actual ‘previous correspondence’.

At first instance, the Associate Judge found that Mr Allen’s affidavit failed to ‘fairly alert or provide fair notice of the grounds on which the application [to set aside to statutory demand] relies’.

The affidavit did not give ‘fair notice’ to the other side of one of the main disputes ventilated at the hearing. Another dispute referred to in the affidavit was not relied upon at the hearing.

It was also noted there was no contemporaneous correspondence where the validity of the notices of default, termination and architect’s certificate had been raised, which were at the heart of the dispute.

Neither the affidavit itself, not the exhibits to it, went to the validity of the termination or architect’s certificate which were at the centre of the dispute.

The dispute was not found to be genuine. The application to set aside the statutory demand was dismissed.

Court of appeal finding

The Court of Appeal held that the Associate Justice applied the correct legislative test (i.e. whether the statutory affidavit supported the application) and correctly looked at:

1. The statements in the affidavit;

2. The exhibits to the affidavit;

3. Explicit references to the relevant dispute; and

4. Inferences that might be drawn from the material.

Mr Allen’s affidavit did not raise as a basis for setting aside the demand an attack on the notice of default. That was the linchpin which would arguably bring down the termination and the architect’s certificate.

All the affidavit did was exhibit correspondence which repeated the language of the statute by saying there was a dispute about the defects and that the dispute was genuine. It was mere ‘bluster’.

In order for an inference to be reasonably available (directed to the identification of the real or genuine dispute) there must be a solid foundation from which such inference can be drawn. There was no documentary foundation for the suggested inferences.

Leave to appeal on ground 1 (whether the associate judge misapplied s459G(3)(a) of the Corporations Act). was allowed, but ultimately dismissed. The other three grounds were dismissed.

The appeal was dismissed.