In the matter of B & B Legal Pty Ltd trading as Borthwick and Butler Solicitors

[2025] NSWSC 587

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of B & B Legal Pty Ltd trading as Borthwick and Butler Solicitors [2025] NSWSC 587

Hearing dates:

3 June 2025

Date of orders:

6 June 2025

Decision date:

06 June 2025

Jurisdiction:

Equity - Corporations List

Before:

Brereton J

Decision:

See [56]

Catchwords:

CORPORATIONS – application to set aside creditors’ statutory demand under Corporations Act 2001 (Cth) s 459H and 459J – whether application and supporting affidavit were served within the statutory period – whether genuine dispute has been established – whether some other reason for statutory demand to be set aside – statutory demand set aside

Legislation Cited:

Acts Interpretation Act 1901 (Cth)

Civil Procedure Act 2005 (NSW)

Conveyancing Act 1919 (NSW)

Corporations Act 2001 (NSW)

Interpretation Act 1987 (NSW)

Legal Profession Uniform Law (NSW)

Limitation Act 1969 (NSW)

Service and Execution of Process Act 1901 (Cth) (repealed)

Service and Execution of Process Act 1992 (Cth)

Supreme Court Rules 1970 (NSW)

Supreme Court (Corporations) Rules 1999 (NSW)

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Bell v Hartnett Lawyers [2021] NSWSC 202

David Grant & Co Pty Ltd v Westpac Banking Corp (1995) 184 CLR 265; [1995] HCA 43

Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd (2007) 61 ACSR 321; [2007] NSWSC 103

Hastingwood Property Ltd v Saunders Bearman Anselm [1991] Ch 114; [1990] 3 WLR 623

In the matter of Riverina Solar Pty Ltd [2024] NSWSC 480

Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262

Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330

Newsnet Pty Ltd v Patching (2011) 81 NSWLR 104; [2011] NSWSC 690

Re Wollongong Coal Ltd (2015) 110 ACSR 134; [2015] NSWSC 1680

Rockeagle Ltd v Alsop Wilkinson [1992] Ch 47

Tatlers.com.au Pty Ltd v Davis (2007) 213 FLR 109; [2007] NSWSC 835

The Site Foreman Pty Ltd v Brand (2011) 81 NSWLR 96; [2011] NSWSC 451

Polaroid Australia Pty Ltd v Minicomp Pty Ltd (1998) 16 ACLC 529

Texts Cited:

N.A.

Category:

Principal judgment

Parties:

B & B Legal Pty Ltd trading as Borthwick and Butler Solicitors (plaintiff)
Leonardus Geradus Smits (defendant)

Representation:

Counsel:
S A Lees (plaintiff)
L G Smits (solicitor) (defendant)

Solicitors:
C G Gillis & Co (plaintiff)
Murray Laws (defendant)

File Number(s):

2024/478846

Publication restriction:

N.A.

JUDGMENT

1. By an originating process filed on 24 December 2024, the plaintiff (B & B Legal Pty Ltd trading as Borthwick and Butler Solicitors) applies under s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand dated 11 December 2024. The statutory demand was issued by Mr Leonardus Smits, the defendant.

2. The statutory demand asserts that the plaintiff owes to the defendant the amount of $218,756.16, being a debt owed to the defendant as a legal assignee from Mr and Mrs Edmonds. That debt is asserted to arise from the payment of a deposit of $130,000 to the plaintiff’s trust account as a stakeholder pursuant to a contract for sale. The balance between the demand for $218,756.16 and the $130,000 is claimed to be interest payable under the contract for sale.

3. The affidavit of Mr Smits that accompanies the statutory demand reveals that the contract for sale is a contract made on 21 February 2018, with Mr and Mrs Edmonds as vendors. The purchaser was Bayfoyle Pty Ltd. The plaintiff was the purchaser’s solicitor. The affidavit also describes Mr Smits as a solicitor. The affidavit exhibits a deed made on 5 December 2024 that at least purports to assign of the rights of Mr and Mrs Edmonds to Mr Smits. That is, the alleged debt is an amount said to be owed to Mr Smits by reason of an assignment to him of a debt owed to the vendors of property in connection with a deposit (plus interest) once held by the purchaser’s solicitor as the stakeholder.

4. The plaintiff contends that the statutory demand should be set aside because:

1. there is a genuine dispute as to the existence of the debt to which the demand relates (s 459H); and

2. there is some other reason why the demand should be set aside, being that the defendant’s affidavit in support of the statutory demand did not depose that he believed there was no genuine dispute in relation to the alleged debt (s 459J(1)(b)).

5. The defendant disputes both of these contentions and also submits that the application to set aside the statutory demand must be dismissed because:

1. the originating application and supporting affidavit were not served within the statutory period (21 days) after service of the statutory demand (see s 459G(2)); and

2. the originating process is fatally flawed arising from the absence of an endorsement or statement required under UCPR r 10.3(3).

6. For the reasons that follow, I will make an order setting aside the statutory demand.

Service

7. Section 459G of the Corporations Act provides as follows:

(1)    A company may apply to the Court for an order setting aside a statutory demand served on the company.

(2)    An application may only be made within the statutory period after the demand is so served.

(3)    An application is made in accordance with this section only if, within that period:

(a)    an affidavit supporting the application is filed with the Court; and

(b)    a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.

8. The relevant statutory period is 21 days: see s 9 of the Corporations Act. The Court does not have power to extend time: David Grant & Co Pty Ltd v Westpac Banking Corp (1995) 184 CLR 265; [1995] HCA 43.

9. The argument proceeded on the basis that the statutory demand was served on 16 December 2024 and that the plaintiff had until 6 January 2025 to serve a copy of the originating process and the supporting affidavit on the defendant in order to satisfy s 459G(3)(b).

10. The originating process and the supporting affidavit were sent by Mr Pedlow (the plaintiff’s solicitor) to the defendant by email on 24 December 2024 to the email address included in the statutory demand. The exhibit to the affidavit was not an attachment to the email. The email provided a LawConnect link to the exhibit. Mr Pedlow’s evidence is that LawConnect is a service that allows users to send large electronic files, which may be too large to email, to recipients by way of a secure link which allows the recipient to download the electronic file. Mr Pedlow obtained a LawConnect record indicating that the document was viewed by the recipient on 24 December 2024. The email of 24 December 2024 did not include a form 1 notice prescribed by the Service and Execution of Process Act 1992 (Cth) (SEPA). The plaintiff accepted that this rendered the service ineffective, by reason of s 16 of the SEPA.

11. The plaintiff contends that it effected service of the originating process, supporting affidavit and a SEPA form 1 notice in two ways on 6 January 2025, as follows:

1. Ms Hastie, a commercial agent, placed the documents in the letterbox at the physical address that was set out in the statutory demand; and

2. Mr Pedlow emailed the documents to the email address provided in the statutory demand.

12. The defendant contends that service was not validly effected on 6 January 2025. Various arguments were advanced.

Physical service

13. The defendant contends that the originating process and supporting affidavit had to be served on him personally and that did not occur, or has not been proven.

14. Section 459G(3)(b) requires that the application and supporting affidavit “are served on the person who served the demand on the company”. This requirement is satisfied if service was made at the place specified in the statutory demand as the address for service, and is effective whether or not the document is received by a person: Newsnet Pty Ltd v Patching (2011) 81 NSWLR 104; [2011] NSWSC 690 at [26], [41]. Service is effective (notwithstanding that UCPR r 10.20(2)(a) requires that any originating process must be served personally) by leaving it at the address given by a natural person as the address for service provided in the statutory demand: see s 28A of the Acts Interpretation Act 1901 (Cth); The Site Foreman Pty Ltd v Brand (2011) 81 NSWLR 96; [2011] NSWSC 451 at [20]-[25]; Newsnet v Patching at [29].

15. Ms Hastie’s evidence is that she served the originating process, supporting affidavit and the SEPA form 1 notice by placing them in the defendant’s mailbox at the postal address included in the statutory demand. She placed the documents in the letterbox after trying, unsuccessfully, to use the intercom and calling the defendant’s mobile phone number. The defendant gave (hearsay) evidence that he was told by the (unidentified) owner of the property that Ms Hastie threw an envelope over a high-gated fence at the property and that the owner placed the envelope into the garbage bin. I am not prepared to place any weight on hearsay evidence from an unidentified person. Nor am I prepared to take into account evidence from the bar table about the size of the defendant’s letterbox. Ms Hastie was not required for cross-examination. I accept that her evidence establishes that the originating process, supporting affidavit and the SEPA form 1 notice were delivered to the address provided in the statutory demand as required by s 459G(3)(b), and thus were served on him.

16. The defendant was served in accordance with the requirements of s 459G because the application and the supporting affidavit (together with the SEPA form 1 notice) were all served physically within the statutory period.

Electronic service

17. The plaintiff submits that service of the originating process, supporting affidavit and the SEPA form 1 notice was also achieved in accordance with s 459G(3)(b) by electronic service.

18. The statutory demand included an email address as an address for service. That being so, the plaintiff was entitled to serve the originating process and supporting affidavit at that email address: see Newsnet v Patching at [38]. The SEPA form 1 notice could be served the same way: see SEPA s 15 – addressed further below. Mr Pedlow’s evidence was that on 6 January 2025, he sent the originating process, the body of the supporting affidavit and the SEPA form 1 notice to the defendant at the email address contained in the statutory demand. His evidence was that the exhibit to the affidavit was provided via a LawConnect link.

19. Mr Smits’ evidence was that he received the email from Mr Pedlow on 6 January 2025, attaching the originating process, supporting affidavit and the SEPA form 1 notice. Mr Smits appears to take issue with the fact that the email was sent to his legal practice email address. However, he cannot complain about that because that was the email address he included in the statutory demand.

20. Mr Smits also seems to take issue with the manner in which the exhibit was provided, although his evidence on this is incomplete and unclear. As I have noted, there is evidence from Mr Pedlow that LawConnect provides a mechanism by which an email can be sent with a link that gives access to a volume of documents that cannot readily be provided as an attachment to an email. It is not much different to sending documents as an attachment to an email. Mr Smits does not give evidence that he was unable to get access to the exhibit via the LawConnect link. Given the evidence from Mr Pedlow about the operation of LawConnect and the evidence from Mr Smits that he received the email from Mr Pedlow on 6 January 2025, absent some positive evidence from Mr Smits that the LawConnect link failed to give him access to the exhibit, I would infer that the email successfully provided a link that gave Mr Smits an electronic copy of the exhibit. That is sufficient to amount to and establish electronic service by email.

21. The defendant placed reliance on the decision in In the matter ofRiverina Solar Pty Ltd [2024] NSWSC 480. An important feature of that case is that it concerned service on a company of an application to set aside a statutory demand. Given that it was a case of service on a company, s 15(3) of the SEPA required that service must be effected in accordance with s 9 of the SEPA. Section 9 is concerned with service on companies and registered bodies. Section 459G(3) requires the application and affidavit to be served “on the person who served the demand on the company”. In this case, that person was Mr Smits. It follows that in this case, it is s 15(2) of the SEPA, not s 15(3), that is engaged. Section 15(2) requires service on an individual to be effected “in the same way as service of such an initiating process in the place of issue”. It follows that in this case, the SEPA required service to be effected in the same way as an originating process to set aside a statutory demand is effected when served in New South Wales. The decision in Riverina Solar is not relevant.

22. In any event, even if the exhibit to the supporting affidavit was not served, it would not mean that the plaintiff failed to satisfy s 459G(3)(b). That is because an application is not invalid by reason of the fact that exhibits to the accompanying affidavit are not served within the statutory period: Tatlers.com.au Pty Ltd v Davis (2007) 213 FLR 109; [2007] NSWSC 835 at [23].

23. I am satisfied that the plaintiff also satisfied the service requirements of s 459G because the application and the supporting affidavit (together with the SEPA form 1 notice) were all served electronically within the statutory period.

UCPR r 10.3(3)

24. The defendant contended that the originating process did not contain an endorsement or statement as required by UCPR r 10.3(3). That subrule provides:

An originating process for service in Australia, but outside New South Wales, must bear a statement either that the plaintiff intends to proceed under the Service and Execution of Process Act 1992 of the Commonwealth or that the plaintiff intends to proceed under the Uniform Civil Procedure Rules 2005.

The originating process was served in Queensland. It did not bear a statement in accordance with UCPR r 10.3(3).

25. The defendant also submits that the plaintiff was only entitled to proceed otherwise than in accordance with a stated intention with leave of the Court pursuant to UCPR r 10.3(4), which provides:

The plaintiff may proceed otherwise than in accordance with the intention stated under subrule (3), but only with leave of the court.

He submits that such leave was neither sought nor granted within the statutory period of 21 days and submits that this is fatal.

26. A failure to comply with the requirements of UCPR r 10.3(3) does not, by itself, mean that the application was not made, or that the originating process was not served, within the statutory period. It is not fatal. It is a failure concerning a matter to be included in the originating process, but does not invalidate the originating process or service. It is a requirement that the Court may dispense with under section 14 of the Civil Procedure Act 2005 (NSW), which can be done after non-compliance.

27. There was a failure to include a UCPR r 10.3(3) statement in Bell v Hartnett Lawyers [2021] NSWSC 202. In that case, Slattery J rejected an argument that the omission was fatal. His Honour held (at [16]):

First, Mr Hartnett says this defect is fatal. But, in the Court’s view, it is minor in the present circumstances. The endorsement of the intention to proceed under the SEPA could be readily assumed from the fact that the SEPA notice was served with the originating process. The defendant is an experienced solicitor. The Court can infer, from the nature of the correspondence issued on behalf of his firm, he is a person of some commercial and legal sophistication. He would have little difficulty in concluding that the provision of a notice under the SEPA with the originating process readily implies that the plaintiff would seek to rely upon the SEPA.

Similar observations can be made about Mr Smits.

28. It is also relevant to note that the statutory demand did not comply with s 459E(2)(e). That is because it was not in the prescribed form. Form 509H relevantly required the following:

The address of the creditor for service of copies of any application and affidavit is (insert the address for service of the documents in the State or Territory in which the demand is served on the company, being, if solicitors are acting for the creditor, the address of the solicitors).

The statutory demand was served in New South Wales. It included a Queensland address for service and so did not include an address for service in the State in which the demand was served on the plaintiff. The plaintiff did not contend that this failure invalidated the statutory demand. However, if the demand had complied, there would have been no occasion for UCPR r 10.3(3) to apply. It would be a surprising outcome if the defendant could rely on the plaintiff’s failure to comply with r 10.3(3) when that rule was only engaged because of his failure to include an address within New South Wales in the statutory demand.

29. Another relevant matter is that r 10.3 does not appear to serve any useful function in a case such as this. There was a time the Supreme Court Rules 1970 (NSW) included requirements for prior leave, or subsequent confirmation by the Court, of service within Australia but outside New South Wales. In Flaherty v Girgis (1987) 162 CLR 574, the Court held that the Service and Execution of Process Act 1901 (Cth) (SEPA 1901) was not intended to cover the field, with the consequence that a plaintiff could rely on either the Supreme Court Rules 1970 or the SEPA 1901 to effect service outside New South Wales. In the reasons of Mason ACJ, Wilson and Dawson JJ, the following comment was made (at 595):

It may be desirable that a plaintiff should be required to specify the provisions upon which he relies in effecting service out of the jurisdiction. Neither the Service and Execution of Process Act nor the Supreme Court Rules impose such a requirement …

Most likely in response to this, in 1988 r 2B of the Supreme Court Rules 1970 was introduced, which provided:

(1)   Subject to this Part, an originating process may be served outside the    State in Australia.

(2) An originating process for service outside the State in Australia shall bear a statement either that the plaintiff intends to proceed under the Service and Execution of Process Act 1901 or that the plaintiff intends to proceed under the Supreme Court Rules 1970.

(3)    The plaintiff may not proceed otherwise than in accordance with the intention stated under subrule (2) except with the leave of the Court.

There were important relevant changes in 1993 introduced by the SEPA, which replaced the SEPA 1901. Section 8(4) of the SEPA excludes the concurrent operation of State laws with respect to service within Australia of process to which the Act applies. When UCPR r 10.3 came into effect in 2005, it largely replicated r 2B of the Supreme Court Rules 1970. That was notwithstanding that the desirability of such a provision had largely fallen away by reason of the changes introduced by the SEPA in 1993. Moreover, a statement under UCPR r 10.3(3) might be read by a defendant as suggesting that the plaintiff can elect to proceed under the SEPA rather than the UCPR, with the consequence that the UCPR does not regulate the proceedings at all, which is not the case.

30. At least in this case, the plaintiff’s only choice was to proceed under the SEPA. The requirement to include a statement pursuant to r 10.3(3) did not appear to serve any purpose, and there was no occasion for r 10.3(4) to apply. It had to be obvious to Mr Smits, a solicitor, that the originating process was served under the SEPA because it was served with the SEPA form 1 notice.

31. I reject the contention that non-compliance with UCPR r 10.3 means that the plaintiff failed to make an application in accordance with s 459G.

Should the statutory demand be set aside?

32. The jurisdiction of the Court to determine whether the statutory demand should be set aside has been invoked. I move to consider whether it should be set aside. It is convenient to begin with the application under s 459J.

Is there “some other reason” to set the statutory demand aside?

33. The Court may set aside a statutory demand if it is satisfied that “there is some other reason why the demand should be set aside”: s 459J(1)(b).

34. Rule 5.2 of the Supreme Court (Corporations) Rules 1999 (NSW) requires that for the purposes of s 459E(3) of the Corporations Act, the affidavit accompanying a statutory demand relating to a debt must be in accordance with Form 7 and state the matters in that form. Form 7 provides that the affidavit must state: “I believe that there is no genuine dispute about the existence or amount of the *debt/*any of the debts”.

35. The affidavit accompanying the statutory demand is an affidavit sworn by Mr Smits, apparently on 11 December 2024. The affidavit does not depose that Mr Smits believes there is no genuine dispute about the existence or amount of the debt. It follows that the affidavit does not comply with r 5.2.

36. In Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262, Barrett JA (with whom Beazley P and Gleeson JA agreed) held as follows:

[33] A creditor seeking the benefit of a statutory presumption of insolvency through service of a statutory demand has a responsibility to ensure that, so far as it is aware, the debt relied on is owing, due, payable and undisputed - or, more accurately, a responsibility not to rely on the debt unless it genuinely believes it to be of that kind. And the company served with the demand has a right, secured to it by s 459E(3)(b) and the provision of the rules requiring adherence to Form 7, to be assured that the demanding creditor recognises that responsibility and has conscientiously formed a belief that the responsibility has been discharged.

[34] The statement by the deponent of the s 459E(3) affidavit of belief of absence of genuine dispute therefore provides a significant measure of assurance that the objectives of Part 5.4 are being observed by the creditor. Absence of the statement means that that measure of assurance is lacking and puts the recipient company into a position of uncertainty from which the legislation intends that it should be protected.

His Honour did not consider that the absence of the relevant statement was compensated for by particular factual matters, because those factual matters had nothing to do with preserving the salutary measure for which the legislation makes provision. The Court set aside the statutory demand.

37. Mr Smits submitted that the proposition that the statutory demand should be set aside on this basis reflected a lack of commonsense. He submitted that it is inherent in his statement in the affidavit that the debt is due and payable that there is no genuine dispute. This does not follow. A belief that a debt is due and payable can co-exist with a belief that there is a genuine dispute about that fact. In this case, Mr Smits could have believed that the debt was due and payable but at the same time recognised that the plaintiff genuinely took a different view.

38. The statutory demand in this case concerns an alleged debt said to arise from a deposit held by the plaintiff as a stakeholder in respect of a contract for sale that completed in February 2019. It appears that it was not until 19 November 2024 that there was an allegation made by Mr and Mrs Edmonds that the deposit was misappropriated. That suggestion was strongly refuted by the plaintiff on 25 November 2024. Mr Smits could not depose that he believed that the debt was not genuinely disputed unless he had conscientiously satisfied himself either that the plaintiff accepted that the debt was due and payable or that the matters advanced by the plaintiff to dispute the debt were not genuine. There is no evidence that he took any steps to engage with the plaintiff in order to be in a position to determine, responsibly and conscientiously, whether the plaintiff disputed the debt on a genuine basis.

39. As Barrett JA observed, an affidavit stating a belief that there is no genuine dispute about the existence of the debt provides an important salutary measure, which was not achieved by Mr Smits’ statement in the affidavit that the debt is due and payable. It is a matter of substance.

40. Mr Smits also relied on s 80 of the Interpretation Act 1987 (NSW), which provides that if a form is prescribed under a statutory rule, strict compliance with the form is not necessary; substantial compliance is sufficient. In this case there was not substantial compliance with Form 7.

41. I would set aside the statutory demand by reason of the failure to comply with Supreme Court (Corporations) Rules r 5.2.

Is there a genuine dispute regarding the debt?

42. The plaintiff contends that there is a genuine dispute about the existence of the debt, with the consequence that the Court must set aside the statutory demand in accordance with s 459H. I do not need to consider this contention because I am satisfied that the statutory demand should be set aside pursuant to s 459J. Nevertheless, I will briefly indicate my position on the s 459H contentions.

43. The relevant principles concerning the task of the Court in determining whether there is a genuine dispute were summarised by Barrett AJA (with whom McColl and Meagher JJA agreed) in Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 at [8] (endorsing the decision of Black J in Re Wollongong Coal Ltd (2015) 110 ACSR 134; [2015] NSWSC 1680 at [9]-[22]) (footnotes omitted):

(1)    A dispute is “genuine” if it is not “plainly vexatious or frivolous” or “may have some substance” or “involves a plausible contention requiring investigation”. A genuine dispute requires that it be bona fide and, to that effect, be premised on sufficiently particularised grounds that are “real and not spurious, hypothetical, illusory or misconceived” and which demonstrate the dispute’s “objective existence” and “prima facie plausibility”.

(2)    The test is governed by principles analogous to those which underpin an application for an interlocutory injunction or summary judgment. The court must, however, guard against setting the threshold too low for that is liable to defeat the legislative purpose of the section.

(3)    The task faced by a company challenging a statutory demand on the genuine dispute ground is by no means at all a difficult or demanding one. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow and the demand will be set aside. A finding to the contrary could only be arrived at if the contentions advanced are so devoid of substance that no further investigation is warranted.

(4)   The function of the court is merely to determine the existence of a genuine dispute. While this neither requires nor invites it to weigh or assess the merits of the dispute, the court will not exceed its legitimate function by having regard to evidence which bears upon whether the asserted dispute is genuine.

44. The plaintiff disputes the debt on several grounds.

45. First, it contends that the deposit was paid out of its trust account with authority conferred by the vendor’s solicitor. There is evidence of consent, being an email from the vendor’s solicitor of 5 February 2019. The settlement involved some complications and it appears that there is a dispute about who the deposit was paid to and how it was accounted for. Nevertheless, I am satisfied that the plaintiff genuinely disputes any liability for the deposit on the grounds that the deposit was duly paid out on settlement in accordance with an express consent and was not misappropriated. This would have been sufficient to set aside the statutory demand.

46. Second, the plaintiff contends that the claim for the money is barred by a deed of settlement and release made in October 2018. That deed concerns “Disputed Claims”, being claims in two sets of proceedings in this Court, including proceedings no. 2018/127741. In those proceedings, Bayfoyle sued Mr and Mrs Edmonds seeking to enforce the contract for sale which was the contract in respect of which the deposit was paid. The amended statement of claim refers to the deposit. The plaintiff contends the deed effectively made provision for how the deposit would be applied on settlement, and that it was clear that upon settlement there would be no amounts to be paid to the vendor having regard to their indebtedness. The plaintiff contends that the deposit was applied consistently with the deed, with the consequence that Mr and Mrs Edmonds, and their assignee, Mr Smits, cannot now contend that the deposit was misapplied. It also relies on releases included in the deed, which are said to extend to the plaintiff as a legal advisor because the deed operated in its favour as a deed poll. There is no doubt room for debate about the effect of the deed. But I accept that it provides the basis for a genuine dispute and would have been a sufficient basis to set aside the statutory demand.

47. Third, the plaintiff contends that the contract for sale completed on 8 February 2019 and any contractual claim for the deposit is barred by s 14(1)(a) of the Limitation Act 1969 (NSW). On this basis, the 6 year limitation period elapsed in February this year. I cannot see how this would provide a basis for disputing a debt that was the subject of a demand in December 2024. I would not have set aside the statutory demand on this basis.

48. Fourth, the plaintiff contends that there is no debt – at most there is an unliquidated claim. Although this was advanced as an argument that there is a genuine dispute about the existence of the debt, it seems to me to be more appropriately considered as an argument that the defendant did not have the right to serve a statutory demand pursuant to s 459E because there was no “debt” within the meaning of that section.

49. The debt identified in the statutory demand is stated to arise from a deposit paid to the plaintiff by a purchaser to be held in its trust account as stakeholder. The cause of action against a stakeholder who is alleged to have wrongly paid out a deposit will depend on the circumstances. It may be that there is a contract by which the stakeholder agrees with the persons who have an interest in the stake to pay the money out only with the consent of those persons. There are English cases that support the proposition that the duties of the stakeholder may be quasi-contractual (Rockeagle Ltd v Alsop Wilkinson [1992] Ch 47 at 52) and that the more usual way to recover the deposit is by an action for money had and received (Hastingwood Property Ltd v Saunders Bearman Anselm [1990] 3 WLR 623 at 630). In modern parlance, this suggests that the relevant cause of action may be some kind of restitutionary claim, although it is not easy to discern the precise claim. Claims to a deposit may also be the subject of statutory provisions: see, for example, s 66ZT of the Conveyancing Act 1919 (NSW); s 138-139 of the Legal Profession Uniform Law (NSW).

50. Where a person makes a promise to pay a specific or readily calculable sum which does not depend upon assessment, the contractual liability is properly characterised as giving rise to a debt, even though the sum is payable as liquidated damages for breach of contract: Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd (2007) 61 ACSR 321 at [55]. In that case, White J also held (at [58]) that claims on common money counts for the payment of a reasonable price for goods or labour where no price or rate has been fixed are nonetheless liquidated demands. His Honour noted that a liability on a quantum meruit claim is a debt for the purposes of the insolvent trading provisions of the Corporations Act.

51. Where a vendor asserts that a stakeholder has wrongly paid out a deposit of a particular sum of money and also that the deposit should have been paid to the vendor, I consider that the liability can properly be described as a debt for the purposes of s 459E. That is true whether the claim is framed in contract or as some restitutionary claim. The legal character of the “debt” is not clearly articulated in the defendant’s submissions. At its heart, however, it is clear that the defendant asserts that the plaintiff was obliged as a stakeholder to pay the deposit to Mr and Mrs Edmonds and failed to do so. I am not prepared to conclude that such a claim, however it would ultimately be framed, is not a debt withing the meaning of s 459E. I would not have set aside the statutory demand on this basis.

52. Fifth, the plaintiff contends that it has no contractual liability to the defendant because there is no contract between the plaintiff and the defendant (or his assignee). This raises some of the same issues I have just addressed. By one means or another, there must be some mechanism by which a stakeholder can be sued by the persons who have an interest in the stake. This point does not advance the plaintiff’s position.

Costs

53. The plaintiff seeks its costs on the indemnity basis.

54. It relies on the observation, often reiterated, that a statutory demand is not to be used as a debt collection tool to force payment of disputed debts: Polaroid Australia Pty Ltd v Minicomp Pty Ltd (1998) 16 ACLC 529 at 536.

55. The plaintiff also noted that there was some (presumably without prejudice) correspondence it wished to rely on to support the application for indemnity. It should have that opportunity. I will give the parties seven days to provide any further submissions on costs (limited to two pages), together with any correspondence that they wish to rely upon to support their position as to costs. Unless there is good reason to do otherwise, a decision about costs will be made on the papers.

Orders

56. I make the following orders:

1. The statutory demand dated 11 December 2024 served by the defendant on the plaintiff is set aside.

2. The parties are to file and serve any written submissions (limited to two pages), together with any correspondence they wish to rely on to support those submissions, by 13 June 2025.

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Decision last updated: 06 June 2025