Setting Aside Statutory Demands; An Exception To The General Rule

Setting aside a statutory demand – 'genuine dispute'

A company may apply to set aside a statutory demand where there is a 'genuine dispute' about the existence or amount of the debt. Numerous cases have considered the meaning of 'genuine dispute' and the issue is not always clear.

At the hearing of an application to set aside a statutory demand on the ground that there is a genuine dispute, a court will not typically embark upon an extended enquiry as to why the debt is disputed. Rather, the court will usually seek only to satisfy itself that there is a dispute and that it is genuine.

If the court concludes that there is a genuine dispute, it will usually set aside the statutory demand and order that the creditor pay the company's costs.

For this reason, issuing a statutory demand against a company in circumstances where the company is likely to challenge the demand on the basis of a 'genuine dispute' involves a risk of further expense and delay, even though the creditor may actually have a good underlying debt claim against the company.

An exception – Lodge Partners Pty Limited v Pegum

In a recent decision of the Federal Court, Lindgren J held (in dealing with an application to set aside a statutory demand) that it was appropriate for the court to determine the proper construction of the contract at the heart of the so-called 'genuine dispute'.

Ordinarily, questions of disputed fact will not be determined on an application to set aside a statutory demand. However, his Honour made an exception to this general rule in circumstances where:

1. the dispute related to a simple question of the construction of a document (or a 'short point of law') that can readily be decided
2. there was no factual issue that needed to be resolved
3. neither party proposed to rely on pre or post contract conduct to support their argument as to the proper construction of the contract.

Why is this helpful?

Deciding whether to issue a statutory demand may have become a little easier.

Debtors who raise a questionable 'genuine dispute' based on the construction of the documents, risk having the legal issue determined and, if it goes against them, their application dismissed.

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.