In the matter of Citilawyers Pty Ltd

[2022] NSWSC 475

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Citilawyers Pty Ltd [2022] NSWSC 475

Hearing dates:

28 January 2022

Date of orders:

28 January 2022

Decision date:

28 January 2022

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Creditor’s statutory demand set aside, Defendant pay the Plaintiff's costs of the proceedings, as agreed or as assessed.

Catchwords:

CORPORATIONS — Winding up — Statutory demand — Application to set aside — Whether there is a genuine dispute about the existence of the debt — Whether there is an offsetting claim.

Legislation Cited:

Corporations Act 2001 (Cth) s 459H

Cases Cited:

- Britten Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344

- Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; (2019) 136 ACSR 563; [2019] NSWCA 60

- Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452; 21 ACSR 581

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

- Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896

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

- Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452; (1997) 24 ACSR 353; [1997] FCA 681

- TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; [2008] VSCA 70

Category:

Principal judgment

Parties:

Citilawyers Pty Ltd (Plaintiff)
GE2 Recoveries Pty Ltd (Defendant)

Representation:

Counsel:
A Wilson (Plaintiff)
R Sud (Defendant)

Solicitors:
Citilawyers (Plaintiff)
David Legal (Defendant)

File Number(s):

2021/302023

Judgment – ex tempore

Nature of the application and evidence

1. By Originating Process filed on 22 October 2021 the Plaintiff, Citilawyers Pty Ltd ("Citilawyers") seeks to set aside a creditor's statutory demand dated 29 September 2021 (“Demand”) served by GE2 Recoveries Pty Ltd ("GE2") concerning a claimed debt in the amount of $14,362.75, and seeks orders as to costs. The Demand (Ex P1, 31) was supported by an affidavit dated 29 September 2021 of Mr Hector Ekes, who indicated that he was employed by GE2, and referred to a tax invoice issued by GE2 to Citilawyers in the amount of $14,362.75, and confirmed that that amount had not been paid. That affidavit in turn annexed a copy of the tax invoice and an email dated 8 July 2021. That tax invoice was also dated 8 July 2021 and referred to a number of attendances between 31 March 2021 and 17 May 2021, described under the heading "Litigation Support" which was said to comprise 43.5 hours of work at $250 per hour, totalling $10,875, and also included a claim for a previous unpaid invoice, as to which there appears to be no other evidence, in the amount of $2,400. An amount of GST was also included in the invoice, giving rise to the total claim of $14,362.75.

2. The application to set aside the Demand is in turn supported by an affidavit dated 21 October 2021 of Mr Janoyan, who indicates that he is a director of Citilawyers. He refers to an email from Mr Ekes purporting to serve the Demand, and raises a question as to physical service of the Demand, which on which neither party relied in the course of the hearing today. He indicates that GE2 is a debt recovery firm and Citilawyers has undertaken work for GE2 and directly for clients of GE2. He identifies the basis of the dispute claimed in respect of the Demand referring to an engagement of Citilawyers to act for Tan & Tan Pty Ltd (“Tan & Tan”) in a matter. That company is referred to in the invoice to which reference is made in the Demand.

3. Mr Janoyan in turn indicates, by way of paragraphs which identify the broad basis of the claimed dispute that:

"There was never any agreement between for [sic] the defendant to provide services to the plaintiff in relation [to] work that the plaintiff undertook for Tan & Tan, or any other client.

At no stage did I, as the principal of the plaintiff, authorise the defendant to undertake any works on behalf of Tan & Tan. I have spoken to every employee of the plaintiff and each employee has confirmed that they have not instructed the defendant to perform work for Tan & Tan."

4. Mr Janoyan also raises a matter as to the capacity of Mr Ekes to perform the relevant work, so far as it is suggested that he did not hold a practising certificate to practice law in New South Wales in the relevant period. It is not necessary to address that matter further for the purposes of this application.

5. Mr Janoyan, in turn, indicates the basis of an offsetting claim, which was ultimately pursued in a narrower respect, in respect of a claim under a costs agreement relating to a matter for two directors of Mawson Flinders Cook Pty Ltd (in liq). Mr Janoyan refers to the costs agreement in respect of that matter and to an outstanding invoice for $22,000 issued by Citilawyers in relation to that matter.

6. Mr Ekes swore an affidavit dated 26 November 2021, but that affidavit was ultimately not permitted to be read, since I would have granted leave to Citilawyers to cross examine Mr Ekes; Mr Ekes declined to make himself available for cross examination; and I did not grant leave under r 35.2 of the Uniform Civil Procedure Rules 2005 (NSW) for GE2 to read that affidavit without his doing so. GE2 tendered part of the exhibit to that affidavit, which became Exhibit D1 on the proceedings.

7. Although Mr Ekes' evidence was not read, Citilawyers had read Mr Janoyan’s affidavit dated 14 January 2022 in reply before the position as to Mr Ekes' affidavit emerged. By that affidavit, Mr Janoyan referred to various dealings with GE2, and also addressed a conversation with a solicitor within Citilawyers, on which GE2 now relies, where Mr Janoyan and that solicitor discussed the fact that Mr Ekes had attended a few meetings with that solicitor and Mr Tan and counsel, and helped with aspects of the Tan & Tan matter and that Tan & Tan or at least Mr Tan was happy to pay for Mr Ekes’ time; and Mr Janoyan had then advised the solicitor that "If the client pays, then we will pay Hector [Ekes]." That conversation is now relied on by GE2 to establish an agreement to pay GE2 in respect of the amounts claimed in the invoice and subsequently in the Demand. Mr Janoyan otherwise addresses matters which were raised in Mr Ekes' affidavit, which it is not necessary to address where that affidavit was not read.

Whether a genuine dispute is established

8. The first basis on which Citilawyers’ application to set aside the Demand is founded is that there is a genuine dispute in respect of the amounts claimed in the Demand, now put by Mr Wilson, who appears for Citilawyers, on three grounds.

9. It is uncontroversial that the Court has power to set aside a creditor's statutory demand under s 459H(1)(a) of the Corporations Act 2001 (Cth) where there is a genuine dispute between the company and the issuer of the demand about the existence or amount of the debt to which the demand relates. The principles are well established, and have been considered in cases including Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464; (1997) 24 ACSR 353; [1997] FCA 681, where 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. The case law establishes that the threshold for a genuine dispute is not high, and that a finding of genuine dispute must follow once the company shows that even one issue has a sufficient degree of cogency to be arguable: Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18]. The principles were again addressed by the Victorian Court of Appeal in TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; [2008] VSCA 70, and by the Court of Appeal of this Court in Britten Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344. I summarised the applicable principles in Re Wollongong Coal Ltd (2015) 110 ACSR 134; [2015] NSWSC 1680 at [9] [22], and that summary was approved by Barrett AJA in Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 at [8]. I have also had regard to the summary of the applicable principles by the Court of Appeal in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; (2019) 136 ACSR 563; [2019] NSWCA 60.

10. Mr Wilson refers to the nature of the relationship between Citilawyers and Tan & Tan, and I was taken to two judgments of the Court in respect of the proceedings in which Citilawyers acts for Tan & Tan, although it is not necessary to address the detail of the proceedings in order to determine this matter. Mr Wilson points to Citilawyers' contention that there was no contract in existence with GE2 for the performance of work by GE2 on behalf of Tan & Tan. Mr Wilson also addresses a contention raised in Mr Ekes' unread affidavit, that there was an oral agreement dealing with that matter, but that contention is not available to GE2 where that affidavit was not read because Mr Ekes would not make himself available for cross examination. It seems to me that the proposition that there was no agreement for the performance of the relevant work is squarely raised by paragraph 27 of Mr Janoyan's affidavit, and a genuine dispute plainly arises in that respect where there is now no evidence of any conversation from which that agreement arose.

11. Mr Sud, who appears for GE2, responds by reference to the conversation between Mr Janoyan and the solicitor, set out in paragraph 8 of Mr Janoyan's evidence in reply. However, it seems to me that that conversation cannot exclude a genuine dispute as to the existence of the agreement, arising from Mr Janoyan’s denial of that agreement and the absence of evidence to support that agreement. In particular, it is an internal conversation within Citilawyers and not a conversation with a representative of GE2 which is capable of giving rise to an agreement with GE2; it does not address the rate at which amounts will be charged by GE2 to Citilawyers or paid to GE2; and, at its highest, it appears to express an intention to pay "Hector", a reference to Mr Ekes, if the client pays Citilawyers. In those circumstances, it is plainly open to Citilawyers to contend that, whatever its intent to pay GE2 if it was paid by its client may have been, there was no binding agreement for that payment between it and GE2, and no agreement as to the rates to be applied.

12. Second, Mr Wilson raises a contention that Citilawyers did not instruct GE2 to undertake work for Tan & Tan, or, as a subset of that proposition, to undertake the particular work for Tan & Tan which was claimed by GE2 in the invoice on which the Demand relied. Mr Sud largely relies, in response to that proposition, on the principle which is sometimes described as the Graywinter principle, reflecting the decision in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452; 21 ACSR 581. That principle has been addressed in subsequent authorities, to which Counsel drew my attention, which had given it a possibly narrower application, while recognising that there is an underlying statutory requirement that the grounds of the application to set aside the statutory demand be raised in that application. It is not necessary to address any subtle question as to the scope of Graywinter in this application, because it is plain that Mr Janoyan's first affidavit raised a dispute as to the authorisation of GE2 to undertake works on behalf of Tan & Tan, and any challenge to the authorisation to perform those works, as a whole, is sufficient to raise a challenge to an authorisation to perform particular parts of them. There is here, as Mr Wilson points out, no evidence of authorisation for GE2 to perform the particular works which are claimed by the invoice, and that is sufficient, where Mr Janoyan has raised that dispute, to have the result that that dispute should be treated as a genuine one.

13. It is not necessary, given the conclusions I have reached as to those matters, to address the third basis on which Mr Wilson relied in respect of a genuine dispute, that the work claimed in the invoice was arguably undertaken for Mr Tan personally, rather than for Tan & Tan, that Mr Tan and Tan & Tan were separately represented, at least in later stages of the proceedings in this Court. There is, perhaps, a more substantial Graywinter point in respect of that matter, where Mr Wilson fairly concedes that it was not raised by Mr Janoyan’s first affidavit, either expressly or by necessary implication, and that may well have the consequence that it is not open to be raised as a basis to set aside the Demand.

Whether an offsetting claim is established

14. The next basis on which Citilawyers seek to set aside the Demand is that there is an offsetting claim in respect of it. Again, the principles are well established. An offsetting claim, for the purposes of s 459H(1)(b) of the Corporations Act, is the amount of a claim or claims that a company has against the person who served a creditor statutory demand by way of counterclaim, set off or cross demand, whether or not the amount arises out of the same transaction or transactions as the debt to which the demand relates.

15. In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd above at [71], Dodds-Streeton JA summarised what was necessary to establish an offsetting claim, namely that the party that seeks to establish that claim:

“is required to evidence the assertions relevant to the…off setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence 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…[it] 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.”

16. In Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd above, the Court of Appeal in turn observed at [20] that:

“It is settled law that s 1459H requires the Court to be satisfied that there is a ‘serious question to be tried’…or ‘an issue deserving of a hearing’ as to whether the company has such a claim against the creditor … the claim must be made in good faith.”

17. The relevant principles have since been addressed in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd above at [62]-[66] in the judgment of Bell P, with whom Sackville AJA agreed.

18. Citilawyers’ refers to several documents to establish a relatively narrow offsetting claim. First, it refers to an engagement letter and costs agreement provided to GE2 on 21 September 2020 (Ex P2, 10ff). That document is directed to Mr Ekes and to GE2 and refers to the enclosed costs disclosure and costs agreement, and a costs disclosure and costs agreement pursuant to the Legal Profession Uniform Law is attached. Second, Citilawyers refers to an email dated 1 October 2020, which attaches several costs agreements for approval, one of which refers to Mawson Flinders Cook (Ex P3, 59). Third, it refers to an email between GE2 and Citilawyers on 22 January 2021 (Ex P3, 85) which refers to an agreement between Mr Ekes and the director of Mawson Flinders Cook for Citilawyers to be paid $20,000 plus GST, and also to other aspects of the matter which it is not necessary to address. Fourth, Citilawyers refers to a matter list exchanged between Citilawyers and GE2 on 8 February 2021 (Ex P1, 129), which refers to the matter involving Mawson Flinders Cook with the notation “$25,000 due soon”. Finally, Citilawyers refers to its invoice rendered to GE2 for $22,000, being the amount of $20,000 plus GST on 30 September 2021 (Ex P2, 71).

19. Mr Wilson’s submission in this respect is a simple one, namely that it is apparent that Citilawyers had emailed an engagement letter and costs agreement to GE2, or at least there is a seriously arguable case that it had done so; that the email dated 22 January 2021 between GE2 and Citilawyers and the matter list exchanged between the parties appears to contemplate that the payment would be made in respect of the matter; as does and the invoice the GE2 reflects that agreement. Mr Sud’s response was a relatively narrow one, perhaps reflecting the fact that Mr Ekes’ affidavit was not read and anything that Mr Ekes might have said as to claim was not available. Mr Sud submitted that there is no evidence that GE2 had accepted the relevant engagement letter and costs agreement.

20. I bear in mind that I am not required in an application of this kind to determine whether the offsetting claim is established, but only whether it is genuinely arguable. I am satisfied that, where the documents on which Citilawyers relies establish a costs agreement, and the contemplation of payment, that is sufficient to create a seriously arguable claim by way of an offsetting claim in the absence of evidence led by Mr Ekes top contest that claim.

Determination

21. For these reasons, I am satisfied that both a genuine dispute and an offsetting claim, exceeding the amount claimed in the Demand, are here established. I order that:

1. The creditor’s statutory demand issued by GE2 Recoveries Pty Ltd dated 29 September 2021 be set aside.

2. The Defendant pay the Plaintiff's costs of the proceedings, as agreed or as assessed.

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Decision last updated: 06 May 2022