In the matter of Bonheur Holdings Pty Limited

[2019] NSWSC 1434

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Bonheur Holdings Pty Limited [2019] NSWSC 1434
Hearing dates:	4 October 2019
Decision date:	22 October 2019
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	The Originating Process be dismissed with costs.
Catchwords:	CORPORATIONS – application to set aside creditor’s statutory demand – where contract for sale of property entered into – where deed of rescission later entered into – where defendant claims deed not validly executed by company – where a signature on deed not witnessed – where second director did not sign deed – where plaintiff paid amounts to company pursuant to deed – where company accepted and retained payment – whether there is a genuine dispute.   CORPORATIONS – application to set aside creditor’s statutory demand – identification of proper debtor – whether there is a defect giving rise to substantial injustice.
Legislation Cited:	- Conveyancing Act 1919 (NSW) s 38 - Corporations Act 2001 (Cth) Pt 5.4; ss 9, 127, 127(1), 127(4), 128(1), 129(5), 459G, 459G(3), 459H, 459H(1)(a), 459J, 459J(1)(a), 459J(1)(b) - Duties Act 1997 (NSW) s 50(1) - Evidence Act 1995 (NSW) s 136
Cases Cited:	- Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation (2005) 157 ACTR 22 - Black & Decker Inc v GMCA Pty Ltd (No 2) [2008] FCA 504 - Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601 - Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd (2017) 120 ACSR 451 - Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; (2017) 125 ACSR 212 - Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; (2002) 26 WAR 306 - Gorji Property Investment Pty Ltd [2018] NSWSC 1671 - Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60 - Graywinter Properties Pty Ltd v Gas and Fuel Corp Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452 - Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; (2011) 87 ACSR 1 - Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27 - Junker v Hepburn [2010] NSWSC 88 - Lloyd v Grace, Smith & Co [1912] AC 716 - Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330 - McDonald v Tinbilly Travellers Pty Ltd [2008] QCA 17 - Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229 - Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; (1990) 170 CLR 146 - Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 - Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd [1996] NSWSC 199; (1996) 20 ACSR 746 - Re Australian Tailings Group Pty Limited [2019] NSWSC 1218 - Re Matlic Pty Ltd (in liq) [2014] NSWSC 1342 - Re Modern Wholesale Jewellery Pty Ltd [2017] NSWSC 236 - Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393 - Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 - Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 - TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67
Category:	Principal judgment
Parties:	Bonheur Holdings Pty Limited (Plaintiff) Yihua Shou (Defendant)
Representation:	Counsel: L Gor (Plaintiff) D P O’Connor (Defendant)   Solicitors: HWL Ebsworth (Plaintiff) Accuro Legal (Defendant)
File Number(s):	2019/244848

Judgment

1. By Originating Process filed on 7 August 2019 the Plaintiff, Bonheur Holdings Pty Limited as trustee for the Bonheur Holdings Trust (“Company”) applies under s 459G of the Corporations Act 2001 (Cth) to set aside a creditor’s statutory demand (“Demand”) dated 19 July 2019 and served on 22 July 2019 on the Company. The Demand claims a debt of $730,000, said to be payable pursuant to cl 3.2 of a Deed of Rescission dated 24 December 2018. The document on which the Demand relies was incorrectly titled “Deed of Recession” but I will refer to it as a “Deed of Rescission” in this judgment, where that was plainly its operative effect. I will outline the terms of the Deed of Rescission and the circumstances in which it was entered below.

Chronology of events

2. I will first refer to the chronology of events and then to the affidavit evidence on which the parties relied. Ms Zhao, who was initially employed by a firm of estate agents but subsequently engaged directly by the Company, introduced Ms Shou, thorough Ms Shou’s husband Mr Wu, to the opportunity to buy an apartment at Bellevue Hill off the plan. By a contract for the sale and purchase of land dated 27 June 2017 (“Contract”), Ms Shou contracted to purchase that apartment, off the plan, for a purchase price of $2,300,000, with a deposit of $230,000. Mills Oakley acted for the Company and a firm known as “Capital Wise” acted for Ms Shou in the purchase of that apartment. Additional Provision 37.3 of the Contract allowed Ms Shou to caveat her interest in the apartment and Ms Shou ultimately lodged a caveat over the apartment, some months after execution of the Deed of Rescission.

3. Mr Wu’s evidence is that, on 22 December 2018, he had a conversation with Ms Zhao who by then claimed to be the Company’s general manager, and stated that he wished to rescind the Contract because the development had a lower quality and standard than he had expected and he had been unable to onsell the apartment purchased by Ms Shou (Wu 26.8.19 [14]). Mr Wu’s evidence is that Ms Zhao advised that the Company would be willing to rescind the Contract if he and Ms Shou would lend the Company money to deal with some “financial issues” and, in exchange for that loan, the Company would rescind the Contract, refund Ms Shou’s deposit and also refund monies previously advanced by Mr Wu to Infratech Industries Pty Ltd, another company associated with Dr Nellore, a director of the Company (Wu 26.8.19 [14]–[16]). Mr Wu refers to further discussions concerning the amount of money to be lent to the Company, before the Deed of Rescission was executed, and to the entry into the Deed of Rescission on 24 December 2018.

4. It is common ground that the Company was in fact having difficulties with finance in December 2018 (Nellore 7.9.19 [6]), although Dr Nellore denied instructing Ms Zhao to solicit a loan from Mr Wu or Ms Shou on the terms referred to in Mr Wu’s affidavit, and gave evidence that he would not have agreed to a loan on those terms (Nellore 7.9.19 [10]). That evidence misapprehended the commercial effect of the suggested arrangement, namely that the Company would cancel Ms Shou’s purchase of the apartment and would then be free to resell that apartment to another purchaser, and would also receive a substantial loan from Mr Wu or Ms Shou in the interim. Mr Gor, who appeared for the Company, submits that Mr Wu’s evidence as to the conversation of 22 December 2018 is not credible for several reasons. It is not necessary to determine that question, since any debt arises from the Deed of Rescission and not the antecedent conversation.

5. Dr Nellore’s evidence (Nellore 6.8.19 [12]–[13]), parts of which were admitted subject to limiting orders, is also that he had a conversation with Ms Zhao on or about 24 December 2018, who told him that Mr Wu had told Ms Zhao that Ms Shou could not “settle the purchase on time”; Dr Nellore then instructed Ms Zhao to say that the Company would extend the settlement date by a few months if Ms Shou paid $500,000 now; Mr Wu told Ms Zhao that he was “ok with paying the $500,000” to extend the settlement date; and Dr Nellore instructed Ms Zhao to “sort it out”.

6. A first draft of the Deed of Rescission (incorrectly titled, as I noted above, “Deed of Recession”) was sent by Ms Zhao to Mr Wu at 12:18pm on 24 December 2018. That first draft contained an additional provision for its execution by a third party which appears to have no involvement in the transaction. Although Mr Gor places weight on that matter as cause for suspicion by Mr Wu and Ms Shou, it would be consistent with the use of a precedent document which had not yet been fully edited. Not surprisingly, the reference to that third party was removed in the second draft of the Deed of Rescission.

7. A second draft of the Deed of Rescission, containing minor amendments and introducing an error in a description of the date of the Contract, was sent from an email address of a company associated with Dr Nellore, likely by Ms Zhao, to Mr Wu at 1:06pm on 24 December 2018. Mr Wu then sought advice from a conveyancer as to an ambiguity in one clause, which was amended in the final version of the Deed of Rescission.

8. Dr Nellore’s evidence (Nellore 6.8.19 [15]) refers to an email from Ms Zhao to him attaching a draft Deed of Rescission, which had been sent by Ms Zhao to Mr Wu on 24 December 2017, and he refers to that draft deed and states that:

“I had seen an earlier draft of the document but I did not see the document in the form in which it was sent until Ms Zhao forwarded the email to me. The document did not reflect the agreement which Ms Zhao and I had discussed, as deposed to above.”

9. Dr Nellore sought to retreat from his affidavit evidence in cross-examination, but it indicated, first, that Dr Nellore acted on the basis that he had authority to renegotiate the terms of the Contract with Ms Shou although he claims to have authorised Ms Zhao to extend the settlement date rather than rescind that Contract; second, he had instructed Ms Zhao to “sort it out”; third, he had seen an earlier draft of the Deed of Rescission; fourth, that he also saw the draft deed in the form it was sent by Ms Zhao to Mr Wu when it was forwarded to him; and fifth, he considered, whether then or now, that the draft deed did not reflect the agreement which he and Ms Zhao had discussed.

10. The final version of the Deed of Rescission recorded, in Recital A, that the Company and Ms Shou entered into the Contract on 27 June 2017. The Contract was said to be, but was not, attached. Clause 3, under the heading “Mutual Promises”, provided that the Contract would come to an end and would no longer be valid on the earlier of a resale of the apartment or 60 days from the date of the Deed of Rescission; both parties are released and discharged from performing the Contract; neither party will have any further claim or action against the other arising out of the Contract; and Ms Shou must pay $500,000 to the Company and provide proof of transfer of the monies on 24 December 2018. Clause 3.2 in turn provided that:

“[The Company] must pay $730,000 to [Ms Shou] no later than 10 Business Days after the date on which the sale of apartment 2.03 owned by [Ms Shou] in the Development is completed or the end of 60 days from the date of execution of this agreement [ie the Deed of Rescission], whichever comes earlier.”

The amount of $730,000 was, obviously enough, the amount of the deposit paid by Ms Shou under the Contract and the additional amount of $500,000 payable under the Deed of Rescission. By cl 5, each party agreed, at its own cost, to do all things and sign all documents necessary or desirable to give full effect to the terms of the Deed of Rescission.

11. The execution page recorded that the Deed of Rescission was executed by the Company as a deed in accordance with s 127(1) of the Corporations Act, but attached an electronic signature of Dr Nellore and an electronic signature of Ms Shou. A second director of the Company did not sign the deed and Ms Shou’s signature was not witnessed. That document was electronically signed by a facility provided by a third party provider, “SignRequest” on 24 December 2018. A signing log recorded a signature request sent by SignRequest to Dr Nellore’s and Mr Wu’s email addresses, each then added their signature, which was time stamped and recorded the respective IP address for the emails. Dr Nellore acknowledges that the Deed of Rescission had been sent from his email address, but his evidence is that he does not recall (I interpolate, rather than denies) sending that deed to Mr Wu for signature (Nellore 7.9.19 [11]).

12. Ms Whiting’s evidence (Whiting 7.9.19 [36], [40]–[44]) is that Mr Wu later visited the property, and made inquiries as to how long it would take to finish the apartment, and did not then indicate that Ms Shou had rescinded her contract to purchase that apartment. Mr Wu acknowledged visiting the property in late March 2019 (Wu 3.10.19 [17]), but claims to have done so in order to seek the repayment of Ms Shou’s money. I recognise that it is not appropriate to seek to determine contested factual issues of that kind in an application to set aside a creditor’s statutory demand.

13. The Company then took steps towards settlement of the sale of the apartment to Ms Shou in 2019 (Whiting 7.9.19 [45]–[46]), which was subsequently deferred. Ms Whiting’s evidence is that a settlement notice was issued to Ms Shou, but she instructed the solicitors to withdraw that notice following a conversation in which Dr Nellore stated that Mr Wu and Ms Shou would pay a further amount of deposit. Ms Whiting’s evidence, in respect of steps taken towards a settlement of the property, did not include any correspondence by Ms Shou acknowledging any obligation to settle the purchase of the apartment.

14. By letter dated 27 June 2019, solicitors acting for Ms Shou wrote to the Company’s directors referring to Ms Shou’s entry into the Contract, her payment of the deposit, the Deed of Rescission and cl 3 of that deed, the transfer of the amount of $500,000 pursuant to cl 3.1(d) of the deed, and the passage of 60 days from the date of execution of the deed, and demanded repayment of $730,000 to Ms Shou in accordance with the deed.

15. By letter dated 3 July 2019, the Company’s solicitors responded and, notably, did not suggest the Deed of Rescission did not reflect the operative arrangement between the parties. They instead raised the possibility that the Deed of Rescission contravened s 50(1) of the Duties Act 1997 (NSW), which was not put at this hearing. Ms Shou’s solicitors responded by letter dated 18 July 2019 addressing that suggestion and requiring payment of the amount of $730,000 by 22 July 2019. That amount was not paid.

16. The Demand was then issued on 19 July 2019 and served on 22 July 2019. The Demand claimed the amount of $730,000 owing to Ms Shou as described in a schedule, and was verified by Ms Shou’s affidavit dated 19 July 2019. The schedule described the debt as:

“The amount to be paid by [the Company] to [Ms Shou] pursuant to Clause 3.2 of the Deed of Rescission dated 24 December 2018.”

Ms Shou’s affidavit verified that the amount of debt was due and payable by the Company and that she believed there was no genuine dispute about the existence or amount of the debt.

17. By letter dated 29 July 2019, the Company’s solicitors identified further issues said to arise from the Demand, which again did not include any suggestion that the Deed of Rescission had not been executed by the parties or did not record the terms of the agreement between them. Although recognising that the document described as a “Deed of Recession” was directed to rescission of the Contract, the Company’s solicitors then contended that Ms Shou had ignored the termination agreement until April 2019 and her husband, Mr Wu, was attempting to onsell the apartment and the Company had withheld the apartment from the market. That proposition was not advanced in Dr Nellore’s evidence in this application. That letter requested the withdrawal of the Demand, on the basis that the balance of the sale proceeds due to the Company exceeded Ms Shou’s claim and that was a “triable issue”.

18. A question as to the execution of the Deed of Rescission was first raised by a letter dated 1 August 2019 from the Company’s solicitors, in a somewhat tentative way, which stated that:

“Our client’s directors do not recall executing the Deed of Rescission on 24 December 2018 or at any time in which Yihua Shou was the counterparty.”

That letter requested a copy of the deed showing that the Company had executed it. By a further email dated 5 August 2019, the Company’s solicitors noted that they had had no response to that request, and identified an issue that the Deed of Rescission was never executed.

Affidavit evidence

19. Turning now to the affidavit evidence, the application to set aside the Demand was supported by one affidavit of Dr Nellore, a director of the Company, filed and served within the 21 day period specified in s 459G of the Act. That affidavit identified and confined the matters which the Company could raise to establish a genuine dispute in respect of the Demand. In Graywinter Properties Pty Ltd v Gas and Fuel Corp Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452 at 459, Sundberg J noted that the requirement in s 459G(3) of the Corporations Act that there be an affidavit supporting an application to set aside a creditor’s statutory demand required that affidavit to disclose material facts showing that there was a genuine dispute between the parties, and that principle has in turn been applied to prevent reliance on matters that are not disclosed, within the 21 day period, as constituting part of the material facts relied on to establish a genuine dispute.

20. The balance of authority indicates that the application of s 459G(3) of the Act, as reflected in Graywinter Properties Pty Ltd v Gas and Fuel Corp Superannuation Fund above, raises a fact-specific inquiry whether an affidavit in support of an application to set aside a creditor’s statutory demand in fact supports that application, and it will do so sufficiently to raise a relevant ground of dispute if that dispute is raised by necessary or reasonably available inference: Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; (2011) 87 ACSR 1; see also Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; (2002) 26 WAR 306 at 316; Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27 at [29].

21. The Court of Appeal has recently considered the Graywinter principle in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60. Bell P there referred (at [38]) to the:

“so-called Graywinter principle which built upon the terms of Order 71, r 36B of the, now repealed, Federal Court Rules 1979 (Cth) and which provided that the affidavit accompanying an application under s 459G must both “stat[e] any material facts relied upon by the applicant in support of the application” and “identif[y] the grounds on which it is said that the Court should make the order under section 459H or 459J” of the legislation: see Graywinter at 456.”

The President also observed (at [40]) that:

“… the continued use of the shorthand label “the Graywinter principle” is perhaps unfortunate or at least should be employed with some caution for at least three reasons. First, it has a tendency to distract attention from the language of the statute. Secondly, as this Court pointed out in Infratel Networks Pty Ltd Pty Ltd v Gundry’s Telco & Rigging Pty Ltd [2012] NSWCA 365; 297 ALR 372 at [28], subsequent decisions, including of intermediate appellate courts (Graywinter being a decision of Sundberg J of the Federal Court sitting at first instance), have modified it: see, for example, Financial Solutions Australasia Pty Ltd v Predella Pty Ltd (2002) 26 WAR 306; [2002] WASCA 51 . Thirdly the Federal Court rule by reference to which Sundberg J framed his judgment in Graywinter has since been repealed and, as Robertson J observed in Independent Portable Buildings Pty Ltd v Modular Building Systems Pty Ltd [2011] FCA 511 at [48], there appears to be no equivalent provision in either the Corporations Act or the Federal Court (Corporations) Rules 2000 (Cth).”

22. It seems to me that, as the President’s reference to the language of the statute implies, the so-called Graywinter principle has its foundation in s 459G of the Corporations Act which requires that an application be made within the 21 day period after a creditor’s statutory demand is served, and that the affidavit be such as to support that application.  That is a matter which goes to the Court’s jurisdiction and not a matter involving any element of discretion on the Court’s part. That is of some significance in this case because of the range of matters raised in Mr Gor’s submissions which were not raised, even by implication, in Dr Nellore’s affidavit filed and served within the 21 day period specified within the Act.

22. Dr Nellore’s evidence, in that affidavit, was that no Deed of Rescission was entered into by the Company and Ms Shou (Nellore 6.8.19 [10]). No document by that title exists, but, as I noted above, the document titled “Deed of Recession” was purportedly entered into by the Company and Ms Shou on 24 December 2018 and its operative terms provide for rescission of the earlier contract for sale of the property. Dr Nellore’s evidence in that affidavit was also that, based on his knowledge and having reviewed the records kept on file by the Company, a copy of the Contract was not attached to the Deed of Rescission, as it was stated to be in Recital A of that deed; and, in evidence admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW), the deed was never executed or exchanged, in that the Company never signed it and never provided a signed copy to Ms Shou and she never provided a signed copy of the deed to the Company (Nellore 6.8.19 [16(b)]). As the chronology I have set out above indicates, the deed was electronically signed using the “SignRequest” facility, although the Company disputes the validity of its execution.

23. In that affidavit, Dr Nellore also summarised the basis of the genuine dispute for which the Company contended, in a paragraph that went somewhat further than his evidence (Nellore 6.8.19 [18]), namely that no Deed of Rescission was ever entered into in respect of the Contract; the Contract remains on foot; the $230,000 paid as a deposit under the Contract is held subject to the terms of the Contract; and any additional amounts paid by Ms Shou to the Company were paid as contributions towards the purchase price under the Contract, including the amount of $500,000 paid to the Company on the date of the Deed of Rescission.

24. The Company relied on a further affidavit of Dr Nellore dated 7 September 2019, significant parts of which were not admissible and were not read. I have referred to aspects of Dr Nellore’s evidence in setting out the chronology of events above. The Company also relied on a further affidavit of Dr Nellore dated 29 September 2019, where he acknowledged the deposit of $500,000 (I interpolate, by or on behalf of Ms Shou and in accordance with the Deed of Rescission) into the Company’s bank account, but claimed that amount was a further payment of the purchase price on behalf of Ms Shou (Nellore 29.9.19 [4]). Dr Nellore also there referred to a further payment of $100,000 by Ms Shou and to signature records in respect of the execution of the Deed of Rescission. By Dr Nellore’s further affidavit dated 30 September 2018, he gave evidence that he was at the Bellevue Hill development site on 24 December 2019 when the Deed of Rescission was electronically signed, or purportedly signed.

25. The Company also relied on an affidavit dated 7 September 2019 of its second director, Ms Whiting, significant parts of which were not in admissible form and were not read. I have referred to aspects of her evidence in the chronology set out above. In her further affidavit dated 29 September 2019, Ms Whiting referred to the issue of a notice to complete to Ms Shou, shortly before the hearing in this matter, and to a caveat lodged by Ms Shou over the apartment. By her affidavit dated 30 September 2019, Ms Whiting’s evidence was that she was on site at Bellevue Hill on 24 December 2017 when the Deed of Rescission was executed and had not used or authorised anyone to use Dr Nellore’s electronic signature on the Deed of Rescission.

26. Ms Shou relied on the affidavit dated 26 August 2019 of her husband, Mr Wu, which referred to the circumstances of her purchase of the apartment; to his having become aware on 18 December 2018 that registration for the strata plan and settlement of the apartment would take place soon and to subsequent dealings with Ms Zhao which I have addressed in the chronology above. I am, of course, conscious that it is not appropriate to seek to determine contested issues of fact as between Dr Nellore’s and Mr Wu’s evidence of these matters in an application to seek to set aside a creditor’s statutory demand.

27. Ms Shou also relied on her affidavit dated 26 August 2019 which also addressed her purchase of the property and the entry into the Deed of Rescission. In her further affidavit dated 3 October 2019, Ms Shou responded to Ms Whiting’s evidence as to her lodgement of a caveat on the property, referring to the number of legal disputes in which the Company was involved; to her concern as to the Company’s solvency and to the instruction to her solicitor to lodge a caveat to seek to protect the amount she had paid as a deposit to purchase the apartment. In his further affidavit dated 3 October 2019, Mr Wu also referred to a further amount of $100,000 paid to the Company which he claims was a loan made to it at Ms Zhao’s request. That explanation is not implausible, given that there appear to have been other dealings between Mr Wu and companies associated with Dr Nellore.

Whether there is a genuine dispute as to the debt claimed in the Demand

29. In lengthy written submissions, Mr Gor identified many alternative bases to set aside the Demand, some of which received less emphasis in oral submissions, as others emerged. I have had regard to the entirety of Mr Gor’s written and oral submissions, although, consistent with the summary character of an application to set aside a creditor’s statutory demand, I will here focus on those issues which appear to have continuing significance. I also bear in mind that the mere multiplication of disputes will not necessarily establish a genuine dispute, if each of those disputes was not capable of doing so. Mr O’Connor, who appeared for Ms Shou, rightly observed that his client’s submissions in respect of the application to set aside the Demand had a somewhat simpler character than those put by Mr Gor for the Company.

30. I should first identify the applicable legal principles. The Court has power to set aside a creditor’s statutory demand under s 459H(1)(a) of the Corporations Act where there is a genuine dispute between a company and the issuer of the creditor’s statutory demand about the existence or amount of the debt to which the demand relates. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 at 464, the Full Court of the Federal Court observed that a genuine dispute must be bona fide and truly exist in fact, and the grounds for the dispute must be real and not spurious, hypothetical, illusory or misconceived. In Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18], Barrett J formulated that proposition as follows, which has been frequently applied in subsequent cases:

“Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger.”

31. In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67 at [71], Dodds-Streeton JA observed that a company which seeks to establish a genuine dispute or offsetting claim:

“… is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile … [I]t is not necessary for the company to advance, at this stage, a fully evidenced claim. Something ‘between mere assertion and the proof that would be necessary in a court of law’ may suffice.”

32. In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601, the Court of Appeal, in summarising the case law applicable to the threshold to demonstrate an offsetting claim, conducted a comprehensive review of the cases referable to establishing whether a genuine dispute was established. Their Honours there emphasised (at [36]) that the Court must be satisfied that there is a serious question to be tried or an issue deserving of a hearing or a plausible contention requiring investigation but also emphasised that the evidence necessary for that purpose “need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable”. Their Honours also observed (at [46]) that:

“In determining whether there is evidence of a genuine dispute as to the debt, or that there is an offsetting claim, except in extreme cases, the court is not concerned to engage in an enquiry as to the credit of the deponent of the affidavit filed in support of the application.”

33. The Court also summarised the position (at [47]) as being that the Court’s role is:

“to determine whether there was plausible evidence to establish the existence of a genuine dispute, not whether the evidence was disputed or even likely to be accepted on a final hearing of any such claim.”

34. In Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330 at [47]–[50], cited with approval in Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; (2017) 125 ACSR 212 at [17], the Court of Appeal of the Supreme Court of Victoria noted that:

“The terms of s 459H of the Corporations Act and the authorities make clear that, on an application to set aside a statutory demand, the applicant is required only to establish a genuine dispute or offsetting claim. The applicant is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task. It is not necessary for the applicant to advance a fully evidenced claim. Therefore, the task faced by an applicant is by no means at all a difficult or demanding one.

In determining such an application, it is not necessary or appropriate for a court to engage in an in-depth examination or determination of the merits of the alleged dispute. This is because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction and requires the applicant to establish that there is a ‘plausible contention requiring investigation’ of the existence of either a dispute as to the debt or an offsetting claim. It is therefore not helpful to perceive that one party is more likely than the other to succeed or that the eventual state of the account between the parties is more likely to be one result than another. Further, the determination of the ‘ultimate question’ of the existence of the debt at a substantive hearing should not be compromised.

The court is required to determine whether the dispute or offsetting claim is ‘genuine’. It has been said that the criterion of a ‘genuine’ dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of a dispute be real and not spurious, hypothetical, illusory or misconceived. It has also been observed that the dispute or offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion. It must also have sufficient factual particularity to exclude the merely fanciful or futile. A rigorous curial approach is essential to the effective operation of the statutory scheme.

The court is not required to accept uncritically every statement in an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be, as it may not have sufficient prima facie plausibility to merit further investigation as to its truth. The court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence, although this should not be read as suggesting that the applicant must formally or comprehensively evidence the basis of its dispute or off-setting claim. Except in such extreme cases, the court should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on by the applicant to set aside a statutory demand.” [footnotes omitted]

35. In Creata (Aust) Pty Ltd v Faull above at [47], Barrett AJA (with whom Gleeson and White JJA agreed), pointed to another significant aspect of a genuine dispute, namely that:

“Another aspect, no less important, requires that the serious question or plausible contention not be something merely created or constructed in response to the pressure represented by the service of the statutory demand. If the dispute is of that quality and is accordingly not advanced in good faith, it is not “genuine”.”

36. The threshold for a genuine dispute was also considered by the Court of Appeal in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd above, and in my judgment in Re Australian Tailings Group Pty Limited [2019] NSWSC 1218 from which I have partly drawn the summary set out above.

37. There is a degree of uncertainty in the Company’s position as to whether Dr Nellore had authorised the execution of the Deed of Rescission by electronic means, where his evidence was at least initially only that he did not recall doing so. Mr O’Connor points out that Dr Nellore (Nellore 6.8.19 [11], [14]-[15]) appears to accept that, as I noted above, the electronic executed Deed of Rescission, or at least the request for its electronic execution, was sent from his email account; that he was aware of a draft of the Deed of Rescission; and that he was also aware of the final version when it was sent by Ms Zhao. Mr O’Connor also points to the absence of any contemporaneous suggestion by Dr Nellore that he did not agree with the contents of the Deed of Rescission or that he had not executed it or authorised its execution. Mr O’Connor submits that:

“Nellore’s suggestion that he did not execute and send the agreement is fanciful. If he were to be believed then, in the alternative, the court would have to accept that a mysterious [rogue] hacked into his email account and sent an agreement to [Ms Shou], signed by Nellore, that resulted in $500,000 being paid to a company that Nellore was in control of.”

38. It should be recognised, of course, that a suggestion that Ms Zhao had applied Dr Nellore’s electronic signature to the Deed of Rescission would not necessarily be implausible, particularly where his evidence is that he had authorised her to complete the agreement, which he characterised as an extension of time in consideration for that payment.

39. Mr O’Connor also submits that Dr Nellore’s alternative explanation of the circumstances of the transaction, that the amount of $500,000 was paid to the Company to extend the time for settlement, is a mere assertion and is either factually wrong or so inherently improbable that it could never amount to a genuine dispute to be a basis for setting aside the Demand. Mr O’Connor also submits that Dr Nellore’s suggestion that the payment of $500,000 received from Ms Shao was in consideration of an extension of the settlement date “makes no sense”, as no date for settlement had been set at the time the Deed of Rescission was executed, and there was nothing to extend. While that proposition is strictly correct, the evidence does indicate that settlement was likely to be imminent and discussion of extending it would also not be implausible. There are plainly difficulties with Dr Nellore’s account of that transaction, including that the amount involved was very substantial, was paid before a date for settlement had been set, and there is no contemporaneous document recording an agreement to extend the settlement date, or subsequent correspondence referring to such an agreement. However, it is not appropriate to determine the merit of that explanation in an application to set aside a creditor’s statutory demand, and it is not necessary to do so where the asserted genuine dispute is not established for other reasons.

40. Mr Gor submitted that, even if the Deed of Rescission was signed by Dr Nellore, being one director of the Company, the Company may plausibly contend that it was not bound by it where a second director or company secretary had not signed the document. Mr Gor submitted that each draft of the Deed of Rescission and the executed Deed of Rescission provided, in a standard form execution provision, for signature under s 127 of the Corporations Act by two directors or a director and secretary. He points out that it is common ground that only one electronic signature of a director of the Company, Dr Nellore, was attached. Mr Gor also submits it was obvious to each of Mr Wu and Ms Shou that two signatures were required and submits, referring to Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd (2017) 120 ACSR 451 at [117], that Mr Wu and Ms Shou either knew or suspected that the Company had not duly executed the instrument because the space for the second signatory remained blank.

41. The paragraph of Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd above to which Mr Gor refers does not advance the Company’s case; indeed, it does no more than to identify the grounds of a notice of appeal brought in that case. That case was decided on the basis of a finding that a company representative did not in fact have actual or ostensible authority to sign certain documents, having regard to the principles summarised in Junker v Hepburn [2010] NSWSC 88 at [39]–[48] (at [148]) at first instance, and there was no appeal as to that matter; see also Re Matlic Pty Ltd (in liq) [2014] NSWSC 1342 at [40].

42. Mr Gor appeared, in these submissions, to raise two issues, one relating to the manner of execution of the Deed of Rescission and the other relating to Dr Nellore’s authority to authorise the transaction or enter into that deed, without Ms Whiting’s concurrence. As to the first of those matters, Mr O’Connor submits that s 127 does not limit the ways in which a company may execute a document, by reason of s 127(4) of the Act: McDonald v Tinbilly Travellers Pty Ltd [2008] QCA 17; Black & Decker Inc v GMCA Pty Ltd (No 2) [2008] FCA 504; see also Gorji Property Investments Pty Ltd [2018] NSWSC 1671 at [17] (not accepting a submission that a genuine dispute was established as to the execution of a mortgage which did not comply with s 127(1) of the Act, where that mortgage was to take effect as an agreement, if the signatory had the company’s authority to enter that agreement). The manner of execution provided by s 127 of the Act is facilitative, and an agreement can be executed by an officer of a company acting on its behalf in a manner which does not comply with that section. The submission that the Deed of Rescission was not executed in accordance with that section does not raise a genuine dispute where, as Mr Gor recognised, the Deed of Rescission can take effect as a contract.

43. As to the second submission, as to Dr Nellore’s authority to bind the Company to the Deed of Rescission, no suggestion was raised in the correspondence between the parties’ legal representatives as to the Deed of Rescission that Dr Nellore did not have authority to act on the Company’s behalf in a transaction of this kind. No dispute was raised as to that matter in Dr Nellore’s first affidavit filed within the 21 day period specified in s 459G of the Act, which indicated his acting for the Company in the transaction by providing instructions to Ms Zhao as to the terms of the proposed transaction, while he there contended that Ms Zhao had not implemented those instructions in the Deed of Rescission. To the extent that a claim for lack of authority was sought to be raised in Dr Nellore’s and Ms Whiting’s later affidavits, it seems to me to be a late invention, consequential upon the claim made against the Company, not capable of giving rise to a genuine dispute.

38. In any event, as Mr O’Connor points out, it would be a complete answer to the proposition that Ms Zhao or Dr Nellore lacked the Company’s authority to commit to the Deed of Rescission that the Company in fact received, and did not return, the amount payable by that deed. Mr O’Connor refers to the observation of Lord Macnaghten in Lloyd v Grace, Smith & Co [1912] AC 716 at 738 that, where a principal receives the benefit of a fraud committed by his agent, he or she is liable, inter alia, “on the ground that by taking the benefit he [or she] has adopted the act of his [or her] agent; he [or she] cannot approbate and reprobate”. That observation was cited by the High Court, with apparent approval, in Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; (1990) 170 CLR 146 at 187. Here, no settlement date had been appointed for the sale of the property as at 24 December 2018 and Ms Shou was under no obligation to pay the amount of $500,000 to the Company, other than by reason of the Deed of Rescission; the Company received that amount and retained it; and it would not be open to it, by reason of the principle noted by Lord Macnaghten in Lloyd v Grace, Smith & Co above, to contend that either Ms Zhao or Dr Nellore did not have the authority to take the steps which each of them took in entry into the Deed of Rescission. The Company’s act in accepting and retaining the payment by Ms Shou on the basis of the Deed of Rescission amounted to ratification of Ms Zhao’s or Dr Nellore’s acts, as its agents, in entering into that deed. It seems to me that no arguable proposition is available to the contrary.

39. Mr Gor also submits that it is arguable that the term “signed” in s 127 of the Act requires a physical, as opposed to electronic, signature, and that matter ought not to be decided in an application to set aside a statutory demand. Assuming without deciding that that proposition is arguable, it is not necessary for Ms Shou to rely on s 127 of the Act in order to rely on execution of the Deed of Rescission on the Company’s behalf or on its taking effect as a contract. Mr Gor also submits, and I accept, that the statutory assumption in s 129(5), as applied by s 128(1), is not available to Ms Shou where execution of the Deed of Rescission was not made under s 127(1) of the Act: see also Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd above at [149]. However, that does not advance the Company’s position, where it is also not necessary for Ms Shou to rely on such an assumption.

40. Mr Gor submits that the Deed of Rescission was not executed as required by s 38 of the Conveyancing Act 1919 (NSW) and was at most a simple contract, and that there is a plausible contention that no consideration moved from Ms Shou to the Company, and at most past consideration is established in respect of the payment of $500,000 by Ms Shou prior to execution of the document. It is not necessary to decide whether, as Mr O’Connor submitted, that payment could constitute consideration, although made by Mr Wu, where it was made in contemplation of execution of the Deed of Rescission. The Deed of Rescission itself included mutual promises, including in respect of further assurances, which are capable of constituting consideration for it. This argument also does not raise a genuine dispute.

41. Mr Gor submits that it must have been apparent to Mr Wu and Ms Shou that the Deed of Rescission was not executed in the manner contemplated by the execution clause or that there was something wrong with Mills Oakley not acting for the Company or the trust in the negotiations with Ms Shou leading up to the execution of the Deed of Rescission on 24 December 2018. Mr Gor also emphasises that there was at one point a reference to Mills Oakley providing the documents in a conversation between Ms Zhou and Mr Wu. Mr O’Connor rightly responds that Mr Gor’s submission that Mr Wu or Ms Shou must have suspected that the Deed of Rescission had not been properly executed by the Company sits oddly with the fact that they paid $500,000 as contemplated by it. It does not seem to me that this submission rises to the level of a genuine dispute, where it is a matter of common experience that documents may be signed by one company officer and that companies may be represented by solicitors in some aspects of their activities and not in others, or may take advice from solicitors who are not identified on the face of relevant correspondence or documents implementing transactions. Even with the error in the title of the documents, its form suggested that there was either legal involvement in its preparation, or it was at least copied from a precedent document.

42. Mr Gor submits that there is a real question whether Ms Shou affixed the electronic signature as Mr Wu and Ms Shou contend, and that her signature was not witnessed. That matter was not raised within the 21 day period required by s 459G of the Act, where Dr Nellore’s affidavit challenged the Company’s and not Ms Shou’s execution of the Deed of Rescission, and is not available as a basis to set aside the Demand. Mr Gor also relies on electronic records which record locations as to the electronic signing of the Deed of Rescission by Ms Shou in Narrabeen (whereas Mr Wu and Ms Shou live in Roseville) and by Dr Nellore at Concord (whereas the development is at Bellevue Hills and the Company’s offices are in Balmain East or Ultimo). This is, at best, a curiosity, absent evidence as to the significance of the location records which may refer to no more than for example, the location of relevant servers, and was also not raised within the 21 day period required by s 459G of the Act and is not available as a basis to set aside the Demand. For completeness, I note that I did not understand Mr Gor, in closing submissions, to place any weight on the proposition, originally raised in Dr Nellore’s affidavit to set aside the Demand, that a copy of the Contract was not attached to the Deed of Rescission. I can see no basis on which that would give rise to any genuine dispute.

43. Mr Gor also relies on the absence of communication from Mr Wu, Ms Shou or their solicitors after notice of registration of the plan of subdivision and occupation certificate for the development was given in January 2019, suggesting that such communication would have been expected had the parties entered into a Deed of Rescission. Mr Gor also contends that there is conduct after December 2018 which is inconsistent with a bargain between the Company and Ms Shou on the terms of the Deed of Rescission including communications in which the Company called on Ms Shou to perform the Contract. I admitted evidence of such communications, so far as they were relevant to the contention in Dr Nellore’s first affidavit that no Deed of Rescission was entered into in respect of the Contract and the Contract remained on foot. However, the position taken by the Company (as distinct from Ms Shou) does not give rise to an arguable case for waiver or estoppel binding upon Ms Shou. Ms Shou’s lodgement of a caveat was not raised within Dr Nellore’s affidavit filed within 21 days of the Demand so as to be available in this application, although it may be relevant, particularly if combined with evidence of the Company’s solvency, in any application to wind up the Company brought on the basis of non-compliance with the Demand.

44. Notwithstanding the number and range of grounds on which Mr Gor contended that the Company was arguably not bound by the Deed of Rescission, it seems to me that these grounds do not separately or together have the “prima facie” plausibility that would distinguish them from a merely spurious claim, bluster or assertion, or sufficient factual particularity or legal basis to exclude the “merely fanciful or futile”, adopting the language of TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd above at [71]. It also seems to me that the disputes raised by the Company are, within the language of Creata (Aust) Pty Ltd v Faull above, created and (elaborately) constructed in response to the pressure represented by the service of the Demand, not having been raised at the time of the Deed of Rescission, on receipt of the $500,000 paid under it or for a considerable period after repayment was demanded by Ms Shou, and for that reason also are not “genuine” within the meaning of s 459H of the Act. For these reasons, a genuine dispute as to the liability arising under the Deed of Rescission is not established.

Whether the Demand should be set aside by reason of a defect giving rise to substantial injustice

51. Mr Gor also submitted that the Demand ought to be set aside under s 459J of the Act because there was a defect in it, giving rise to substantial injustice to the Company, or for some other reason. Section 459J(1)(a) of the Act provides that the Court may by order set aside a creditor’s statutory demand if it is satisfied that, because of a “defect” in the demand, substantial injustice will be caused unless the demand is set aside. The term “defect” is defined in s 9 of the Act as including an irregularity; a misstatement of an amount or total; a misdescription of a debt or other matter; and a misdescription of a person or entity. Section 459J(1)(b) of the Act confers a discretion to set aside a creditor’s statutory demand, and is available at least where the issue of that demand would be unconscionable or amounts to an abuse of process or where the issue of the demand would subvert the statutory scheme: Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation (2005) 157 ACTR 22 at [27]; Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393 at [33]. The Court’s power to set aside a creditor’s statutory demand under that section exists to maintain the integrity of the process provided under Pt 5.4 of the Corporations Act and is not exercised by reference to subjective notions of fairness: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd [1996] NSWSC 199; (1996) 20 ACSR 746; Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229; Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 at [16]; Re Modern Wholesale Jewellery Pty Ltd [2017] NSWSC 236 at [24].

52. Mr Gor submitted that the Demand should be set aside under s 459J of the Act because the Deed of Rescission was between Ms Shou and the Company “in its beneficial capacity and not as trustee of the Bonheur Holdings Trust”, and the Demand was issued against the Company as trustee of the trust. Alternatively, Mr Gor put that argument on the basis that, by her affidavit in support of the Demand, Ms Shou asserted that the Company as trustee of the trust was indebted to her, when the counterparty to the Deed of Rescission was the Company. Mr Gor submitted that the Deed of Rescission was executed with the Company, “not [the Company] as trustee” and Ms Shou either needs rectification of that deed or the Demand misdescribes the debtor. It does not seem to me that that submission raises either a defect in the Demand or some other reason to set it aside. The Company was party to the Deed of Rescission, as was appropriate where it was party to the Contract, albeit in its capacity as trustee, and the trust is not a legal entity; the Demand was addressed to the Company, albeit in its capacity as trustee; and any debt is owed by the Company, irrespective of whether it has a right of indemnity against the trust in that respect. I do not accept Mr Gor’s submission that the difference in description of the Company raises any question of substance, still less that it raises any other reason to set aside the Demand for the purposes of s 459J of the Act.

53. In oral submissions, Mr Gor advanced a further argument, that the Demand should be set aside under s 459J of the Act, because Ms Shou’s affidavit verifying the Demand did not refer to it having been translated into Mandarin, whereas her affidavits in the Court proceedings did refer to them being translated for her. That submission turned on a speculation, unsupported by evidence, that Ms Shou’s affidavit in support of the Demand was not in fact translated to Mandarin prior to its execution. No basis for that speculation is established, because the prescribed form of an affidavit in support of a creditor’s statutory demand does not require a statement as to that matter, and the absence of that statement does not create any inference that the affidavit was not in fact translated for Ms Shou. No defect in the Demand or other reason to set aside the Demand is established by that matter.

Orders and costs

54. For these reasons, the Originating Process should be dismissed with costs. It is therefore not necessary to address Mr O’Connor’s further oral submission that conditions should be imposed upon any order that might be made setting aside the Demand.

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Decision last updated: 25 October 2019