In the matter of Omaya Investments Pty Ltd

[2021] NSWSC 632

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Omaya Investments Pty Ltd [2021] NSWSC 632

Hearing dates:

19 April 2021

Date of orders:

19 April 2021

Decision date:

19 April 2021

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Originating process dismissed with costs.

Catchwords:

CORPORATIONS — Winding up — Statutory demand — Application to set aside — Where relevant debt secured — Whether issuing statutory demand constitutes abuse of process.

Legislation Cited:

- Corporations Act 2001 (Cth), s 459J

Cases Cited:

- Accordent Pty Ltd v RMBL Investments Ltd (2009) 105 SASR 62; [2009] SASC 248

- Commonwealth Bank of Australia v Trellis Holdings (1996) 19 ACSR 319;

- MNWA Pty Ltd v Deputy Commissioner of Taxation (No 2) (2015) 109 ACSR 265; [2015] FCA 1128

Category:

Principal judgment

Parties:

Omaya Investments Pty Ltd (Plaintiff)
Project Lawyers Pty Ltd (Defendant)

Representation:

Counsel:
M Fernandez (Plaintiff)
A Gandar (Defendant)

Solicitors:
Fortis Law Group (Plaintiff)
Walker & George (Defendant)

File Number(s):

2021/33680

Judgment – ex tempore (Revised 21 April 2021)

1. By Originating Process filed on 5 February 2021 the Plaintiff, Omaya Investments Pty Ltd ("Omaya") applies, originally under s 459H and 459J of the Corporations Act 2001 (Cth) to set aside a creditor’s statutory demand (“Demand") issued by Project Lawyers Pty Ltd dated 15 January 2021 and served on 19 January 2021. In the event, only part of that application has been pressed, by reference to s 459J of the Act, to which I will return.

2. The Demand identifies the debt that is claimed as arising from a judgment and orders made in this Court on 2 October 2020 in the amount of $182,466.04, interest owed in respect of that debt, and a further amount by way of judgment and orders made in the Local Court of New South Wales in the amount of $1,422.10, comprising a total of $187,089.58. It is common ground that at least the substantial part of the debt arises from an interim costs assessment, which is not disputed, in respect of a larger costs claim as to which a costs assessment process has proceeded, a certificate of costs has issued, and a review process is now under way.

The affidavit evidence

3. The parties have read voluminous affidavit evidence, and tendered a substantial bulk of documents as to the context of the relevant arrangement, although it appears to me that this matter can ultimately be determined on relatively simple propositions of law and of fact.

4. The Plaintiff relies on the affidavit of Mr Bechara sworn 5 February 2021, which refers to the circumstances in which Omaya had engaged Project Lawyers to act in certain proceedings in the Land and Environment Court; subsequently terminated the retainer of Project Lawyers in those proceedings; reached an arrangement for the provision of third party security, by an associated company, 11 MR Developments (“11 MR”) for the amount owed to Project Lawyers, while reserving its right to proceed to assessment of those costs as it has now done; and a dispute as to the terms of that third party security was determined in an application heard by Slattery J in late 2020. The judgment delivered by his Honour in that respect was drawn to my attention. Mr Bechara, in his first affidavit, contended that there existed a genuine dispute as to the Demand but, as I noted above, that proposition is rightly not now pressed. Mr Bechara also identifies, as is the case, that the debt claimed in the Demand forms part of the money secured by 11 MR under the mortgage to Project Lawyers, and Mr Bechara contends that the first registered mortgage over that property has more than sufficient equity to secure the debt. Mr Bechara then contends that the issue of the Demand was an abuse of process, so far as Project Lawyers is said to be aware that Omaya is solvent; the debt is secured; they are said to claim a non-payment of the debt is an event of default under the mortgage; and a cross-claim foreshadowed in earlier proceedings before Slattery J has not been brought. The submissions put in this matter were put on a somewhat narrower basis.

5. By a second affidavit dated 16 March 2021, Mr Bechara refers to further correspondence and documents, and responds to some of the evidence on which Project Lawyers relies, and to the circumstances of a change of trustee in respect of a trust for which, it appears, Omaya may at one point have been the trustee. It is not necessary to address those matters in order to determine this application.

6. Project Lawyers in turn relies on the affidavit of Ms Parreno dated 15 February 2021, which also refers to the circumstances in which the firm was retained and its retainer ceased, refers to the application for a costs assessment, and to the subsequent steps in that assessment, and to matters which are said to involve a disposition of Omaya's assets, which it is not necessary to address for the purposes of this application. By further affidavit dated 25 March 2021, Ms Parreno responds to aspects of Mr Bechara's evidence, and updates the position in respect of the costs assessment.

Submissions and determination

7. Omaya now seeks to rely on s 459J(1)(b) of the Act in order to set aside the Demand. Mr Fernandez, who appears for Omaya, provides an outline of the circumstances in which the relevant mortgage was granted by 11 MR and has taken me to aspects of that mortgage. The mortgage includes, for example, a definition of event of default, which includes a provision as to the value of the relevant property. It contains a definition of "outstanding invoices" which plainly relates to invoices issued by Project Lawyers to Omaya. Clause 3.1 specifies the repayment date of the secured money as 28 days after specified events including, relevantly, any costs review determination of the outstanding invoices, which it appears has not yet occurred in respect of all of the invoices. It is important to recognise, however, that that definition applies for the purposes of defining the parties’ obligations under the mortgage, and the mortgage in turn applies as between 11 MR and Project Lawyers, and Omaya is not a party to it. Clause 5.1 in turn provides events of default. The mortgage annexes a schedule of outstanding costs, which Mr Fernandez submits, and I accept, appear to relate to invoices issued by Project Lawyers to Omaya, having regard to its title "Omaya schedule of outstanding costs".

8. The judgment of Slattery J, delivered on 15 October 2019 ([2019] NSWSC 1394), is in turn annexed to the mortgage, and Mr Fernandez draws attention to the reference in that judgment to the fact that a mortgage was to be given by 11 MR, which was said to be controlled by the principals of Omaya, and to his Honour's description of that mortgage as "a third party mortgage, securing the client's liability to the solicitors through the provision of this security by this third party corporate entity". His Honour also noted that that security was there accepted by the solicitors to be an adequate substitute for the solicitors' lien, but that there were a number of disputes as to the terms of the mortgage, which his Honour resolved.

9. Mr Fernandez submits that the review process is not complete, and the earliest repayment date under the mortgage has not arrived, but notes that the costs assessor has issued a pre-completion certificate for costs that are not in dispute, which in turn appears, as reflected in a judgment, and has become the basis of the Demand. Mr Fernandez accepts that there are in fact unpaid judgment debts in the amount of the debt claimed in the Demand, and he fairly accepted in oral submissions that the existence of those debts means that there is no genuine dispute as to the debt claimed in the Demand. He submits, however, that the payment of the judgment debts would reduce the amount owing under the mortgage and that, under the mortgage, the single debt of which the judgment debt forms part, would not be due and payable until the end of the review, and that time has not yet arrived. I pause to note that that way of putting matters highlights what was the underlying assumption of Omaya's case, that, because a right to enforce the mortgage against 11 MR has not arisen, because the enforcement of the mortgage was directed to the costs as a whole, then there was something unreasonable, extending to an abuse of process, in Project Lawyers seeking to rely on its debt arising from the costs assessment, and the consequential judgment, in order to establish a presumption of insolvency by the issue of a Demand, and ultimately proceed to a winding up if the Demand was not satisfied. I will return to that submission below.

10. Mr Fernandez in turn refers to the scope for a party to compound for a debt under s 459E of the Act or to secure it to the creditor's reasonable satisfaction. Mr Fernandez fairly recognises that that is a step which would take place after the issue of a Demand, and it is not necessary to address here whether a creditor would or should be reasonably satisfied, by the offer of a third party security in respect of a debt. Mr Fernandez also points to the fact that the Court may set aside a creditor’s statutory demand under s 459J(1)(b) of the Act, and notes that it may do so where a demand is an abuse of process or subverts the statutory scheme, referring to MNWA Pty Ltd v Deputy Commissioner of Taxation (No 2) (2015) 109 ACSR 265; [2015] FCA 1128.

11. Mr Fernandez also draws attention to the treatment of the question whether a demand issued by a secured creditor may be set aside in Accordent Pty Ltd v RMBL Investments Ltd (2009) 105 SASR 62; [2009] SASC 248. In particular, he draws attention in oral submissions to paragraphs 60-62 of that judgment, where Doyle CJ, with whom Bleby and Kelly JJ agreed, observed that there is no reason why, in general, a secured creditor should not be entitled to avail itself of the statutory demand procedure; his Honour also noted that a secured creditor could, as Mr Fernandez here conceded in oral submissions, bring in a claim for debt on any covenant to pay in a security; and his Honour observed that the notion that a secured creditor could enforce its debt without relying on the security is not at odds with the statutory scheme or with the concept of fair dealing, and that there were a number of reasons why a secured creditor may wish to make use of the statutory demand procedure and, indeed, his Honour observed that he could “think of no reason why it should be permitted to do so only if and to the extent that its security is not sufficient to ensure payment of the debt in question”. These observations plainly do not assist Omaya, and it seems to me that they cannot be read down, as Mr Fernandez seeks to read them down, to the position where the security may be insufficient. Indeed, a reading down of the ability to issue a creditor’s statutory demand by a secured creditor to that situation appears to be specifically rejected by Doyle CJ in the observations to which I have referred above. There is, however, a further distinction here, to which I will return, namely here the security exists, not as between Omaya and Project Lawyers, but as between the third party, 11 MR and Project Lawyers.

12. Mr Fernandez in turn submits that the Court should here find that the security already provided and held by Project Lawyers exceeds the amount of the debt, and that in those circumstances the security is of such value that it is unfair to allow the Demand to stand and the Defendant is misusing the creditor’s statutory demand procedure. I cannot accept that submission, for several reasons. First, it seems to me that Accordent Pty Ltd v RMBL Investments Ltd above, which is appellate authority which I should follow, is authority that a secured creditor may issue a creditor’s statutory demand, relying on the debt that is owed to it, and that it is not an abuse of process for it to do so, in the ordinary course, even if its security is sufficient to secure the debt. That case has been read in a well-known text, Mr Assaf's Statutory Demands and Winding Up in Insolvency, 2nd ed, [2011] as authority for the proposition that a secured creditor has standing to serve a statutory demand provided that the debt is due and payable, and that that is so even where the value of the security is sufficient to ensure payment of the secured creditor's debt. That text notes that, where a secured creditor issues a demand for a debt that is due and payable, it is no answer to that demand that the secured creditor already holds security in respect of the debt. That text refers, in addition to Accordent Pty Ltd v RMBL Investments Ltd above to the decision in Commonwealth Bank of Australia v Trellis Holdings (1996) 19 ACSR 319, where a secured creditor was permitted to rely on its debt to support a creditor’s statutory demand, although it would there have been prevented from enforcing its security because of the operation of the Farm Debt Mediation Act 1994 (NSW).

13. The first difficulty, then, with Omaya's submission is that it turns on a proposition that for Project Lawyers, as a person with the benefit of security in respect of the debt, albeit provided by 11 MR, acts inconsistently with the regime, or acts in abuse of process, when it seeks to rely on that debt to found a creditor’s statutory demand. I do not accept that submission. It seems to me that for a secured creditor such as Project Lawyers to seek to rely on a debt that is a judgment debt and that is due and payable, to found a presumption of insolvency by the issue of a demand, is precisely what the regime permits. There is also a second difficulty in Omaya’s case, which did not exist in Accordent. As I have noted above, Omaya points to the terms of the mortgage between Project Lawyers and 11 MR, but Omaya is not party to that mortgage. It may be accepted that Omaya requested 11 MR give the mortgage; and that the circumstances in which that mortgage is enforceable are restricted, in the manner that I have noted above, and it would not be enforceable in circumstances that a part of the debt had become due, rather than the whole of the debt. However, there seems to me to be no basis for the underlying premise of Omaya's submission that the giving of a mortgage by 11 MR, which could only be enforced in certain circumstances, restricted Project Lawyers' ability to proceed against Omaya, including by the issue of a creditor’s statutory demand, in other circumstances. It would no doubt have been possible for Omaya to contract for such a restriction, but it did not do so, where there is no such restriction in any agreement to which I have been taken as between Omaya and Project Lawyers. Nor, it seems to me, can such a restriction be inferred from the fact that the mortgage conferred more limited rights on Project Lawyers as against 11 MR.

14. There is no inconsistency between the fact that, on the one hand, Project Lawyers retained whatever rights it had, in respect of debts owing by Omaya and, on the other hand, it had certain limited rights in respect of the enforcement of its security against 11 MR, which were documented by the mortgage between 11 MR and Project Lawyers. As I noted above, none of the evidence to which I have been taken refers to an agreement between Omaya and Project Lawyers that Project Lawyers would restrict its rights, and rely only on the mortgage given by 11 MR, and not upon the existence of a debt arising from an assessment of the costs payable to it.

15. For all of these reasons, it seems to me that there is no abuse of process, and nothing that is inconsistent with the creditor’s statutory demand regime, in the exercise of the Demand, and no other reason to set aside the demand arises. Accordingly, the Originating Process filed by Omaya on 5 February 2021 is dismissed with costs.

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Decision last updated: 04 June 2021