Setting aside a statutory demand — with proper material

The ability to issue a statutory demand, and the ability to have a demand set aside, are provided for in the Corporations Act 2001 (Cth). One of the bases on which a demand might be set aside is where there is a ‘genuine offsetting claim’. The recent Federal Court decision in Gucce Holdings Pty Ltd v Bank of Queensland Limited[1] illustrates a set-aside application made on such grounds, and is worth noting for the interface it has with the law of evidence and parties’ procedural obligations.

The facts

Gucce Holdings Pty Ltd (‘Gucce’) and other plaintiffs were parties to a proceeding commenced against the Bank of Queensland in the Supreme Court of Western Australia in December 2013. Gucce and its co-plaintiffs sought declarations that the Bank was not entitled to payment under certain guarantees. The plaintiffs argued that the Bank had sold certain properties at less than market value. The Bank counterclaimed.

In June 2015, the Supreme Court made orders deferring the trial of the plaintiffs’ claim. The Court went on to hear the Bank’s counterclaim and awarded judgment in favour of the Bank. Before the end of that year, Gucce received a statutory demand from the Bank in relation to the judgment.

Gucce applied to the Federal Court for the demand to be set aside. At around the same time, Gucce appealed the Supreme Court’s decision to the Western Australian Court of Appeal.

The bases for the set-aside application

The matter was heard before Barker J of the Federal Court. Gucce raised three main grounds for seeking to have the statutory demand set aside.

First, it was Gucce’s case that the matters which it and its co-plaintiffs raised in the Western Australian proceeding — the trial of such matters having been deferred by order of the Western Australian Supreme Court — constituted an offsetting claim to the statutory demand.

Section 459H of the Corporations Act permits an offsetting claim to be raised against a statutory demand in order to potentially reduce or defeat that demand. That section defines an ‘offsetting claim’ as:

‘[A] genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates)’.

Secondly, the Bank had previously issued a statutory demand for the amount the subject of the present demand. The parties consented to that demand being set aside, and Gucce argued that the Bank’s current demand was an abuse of process.

Thirdly, as things transpired, after the set-aside application had been filed with the Federal Court the Western Australian Court of Appeal dismissed Gucce’s appeal. Gucce applied to the High Court for special leave to appeal, and Gucce argued that the existence of this special leave application was a sufficient ‘other reason’ (pursuant to section 459J of the Corporations Act) to set aside the Bank’s demand.

The Federal Court’s consideration

Was there an offsetting claim?

In resisting Gucce’s set-aside application, the Bank argued the sole piece of evidence upon which Gucce relied regarding the alleged sale of the properties at an under-value was an internal business record of the Bank from May 2010. The Bank argued that the document was not something that would be provided to customers, borrowers or guarantors, and that the only reason it was before the Federal Court was because Gucce and its solicitors had beached the implied undertaking not to use a document discovered in one proceeding — namely, the Western Australian proceeding — in another.

Barker J found in favour of the Bank. His Honour held of Gucce’s offsetting claim that:

‘The claim is ultimately based on a suggestion that an internal Bank document from 2010, some three years before the material valuation dates … somehow provides a plausible basis for proving a later undervalue sale by receivers’.[2]

His Honour found that there was no real evidence before the Court on the question of the valuation because the evidence on which Gucce sought to rely — the Bank’s internal business record — could not be properly relied upon in the Federal Court. His Honour also remarked that ‘[a]ll that Gucce has done is focus on figures in a document — the informal Bank document — in order to try to contrive an undervalue case’.[3]

Was there an abuse of process?

The Court dealt swiftly with Gucce’s contention that the statutory demand was an abuse of proceeds in circumstances where the Bank had previously issued a demand for the debt. His Honour noted the ability of a party to issue separate demands, and that the demands which the Bank had issued were sequential rather than concurrent.

What about the High Court special leave application?

Gucce had argued that the existence of its application for special leave to appeal to the High Court was sufficient to have the demand set aside. On this point, Gucce relied upon the case of Eumina Investments Pty Ltd v Westpac Banking Corp.[4] There, Emmett J of the Federal Court considered that certain arguments to be raised in a special leave application regarding a judgment to which a statutory demand related were based on ‘reasonable and arguable grounds’, and hence his Honour was persuaded there was some other reason to set aside the statutory demand.

Barker J rejected Gucce’s argument, holding that matters raised in the special leave application ‘fail[ed] to provide a sufficient reason for doubting the decision of the [Western Australian] Court of Appeal’ and, unlike the situation in Eumina Investments, were not of ‘sufficient relevance’ to require the demand to be set aside.[5]

Conclusion

When seeking to set aside a statutory demand, it is crucial to have appropriate, admissible evidence in support of one’s case. This is true, then, when arguing an offsetting claim, as Gucce Holdings Pty Ltd v Bank of Queensland Limited shows how relying on evidence of questionable probative value and apparently in breach of the implied undertaking proved fatal to a set-aside application.


[1]: [2017] FCA 12.

[2]: Ibid [62].

[3]: Ibid [63].

[4]: [1998] FCA 824.

[5]: Gucce Holdings Pty Ltd v Bank of Queensland Limited [2017] FCA 12 [80].