Re Kornucopia Pty Ltd (No 4)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST

S ECI 2019 02781

S ECI 2019 03101
S ECI 2019 03102

IN THE MATTER of KORNUCOPIA PTY LTD (ACN 615 630 316)
IN THE MATTER of EFEKTIV PTY LTD (ACN 625 719 566)
IN THE MATTER of AVANT-GARDE VENTURES PTY LTD (ACN 620 447 789)

BETWEEN:

JEFFREY CHEN	Plaintiff
v
KORNUCOPIA PTY LTD (ACN 615 630 316)	Defendant
AND BETWEEN:
MADGWICKS (A FIRM) (ABN 82 199 611 971)	Plaintiff
v
EFEKTIV PTY LTD (ACN 625 719 566)	Defendant
AND BETWEEN:
MADGWICKS (A FIRM) (ABN 82 199 611 971)	Plaintiff
v
AVANT-GARDE VENTURES PTY LTD (ACN 620 447 789)	Defendant

---

JUDGE:	Sifris J
WHERE HELD:	Melbourne
DATE OF HEARING:	16, 17, 18, 19, 20 December 2019
DATE OF JUDGMENT:	24 January 2020
CASE MAY BE CITED AS:	In the Matter of Kornucopia Pty Ltd (No 4)
MEDIUM NEUTRAL CITATION:	[2020] VSC 7

---

CORPORATIONS – Winding up – Failure to comply with statutory demands – Presumptions of insolvency enlivened – Abuse of process – Applications made under Corporations Act 2001 (Cth) s 459S – Genuine disputes and offsetting claims – Offsetting claim against landlord of property in relation to tenant being deprived of quiet enjoyment – Genuine dispute in relation to professional fees charged by law firm to client – Whether creditor has improper purpose in commencing winding up application – Whether VCAT, Magistrates’ Court or Costs Court preferable forums for determination of disputes – No prospects of success in defendant’s grounds – No evidence of solvency – Leave not granted – Grounds cannot be raised but fail in any event – Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (2011) 244 CLR 1, applied – Fortuna Holdings Pty Ltd v Deputy Federal Commissioner of Taxation [1978] VR 83, not followed – Perpetual Nominees Ltd v Masri Apartments Pty Ltd (2004) 49 ACSR 714, not followed.

PRACTICE AND PROCEDURE – Apprehended bias – Statements made by Judge in directions hearing precluding defendants from making further application to file evidence – Subsequent statement clarified that further application would need to rely on fresh evidence and new grounds – Subsequent statement qualified earlier statement and negated reasonable apprehension of bias which might have otherwise arisen – Johnson v Johnson (2000) 174 ALR 655, applied.

PRACTICE AND PROCEDURE – Application by defendants for leave to file evidence of solvency at trial after close of evidence and plaintiffs’ closing submissions – Application by defendants to adjourn trial to new year – Numerous breaches of court orders by defendants preceding the trial – Numerous indulgences and extensions given to the defendants – No sufficient explanation of delay – Extensive breaches of overarching obligations – Dishonest, underhanded, tactical and strategic conduct – Civil Procedure Act 2010 (Vic) ss 17, 18, 19, 20, 21, 22, 23, 24, 25, 28, 29 – Aon Risk Services Australia Ltd v Australian National University (2009) 258 ALR 14, applied – Sali v SPC Ltd (1993) 116 ALR 625, applied.

---

APPEARANCES:	Counsel	Solicitors
For Jeffrey Chen and Supporting Creditors	P Miller	Keypoint Law
For Madgwicks Lawyers	PG Lovell	Madgwicks Lawyers
For Kornucopia Pty Ltd, Efektiv Pty Ltd and Avant-Garde Ventures Pty Ltd	DJ Williams QC (16 December 2019), I Percy (16 December 2019), N Raghavan (Solicitor) (17 to 20 December 2019)	RM Legal Consultants
For the Supporting Creditors	N McKenzie-McHarg (Solicitor)	Gadens

TABLE OF CONTENTS

A.. Introduction................................................................................................................................... 1

B.. Summary........................................................................................................................................ 4

B1........ Kornucopia....................................................................................................................... 4
B2........ Efektiv and AGV.............................................................................................................. 6

C.. Kornucopia.................................................................................................................................... 9

C1........ Background...................................................................................................................... 9
Genuine Dispute/Offsetting Claim......................................................................... 11
Tender.......................................................................................................................... 16
C2........ Tender............................................................................................................................. 17
The Law........................................................................................................................ 17
Analysis........................................................................................................................ 21
C3........ Abuse of process............................................................................................................ 23
The Law........................................................................................................................ 25
Analysis........................................................................................................................ 38
Genuine Dispute..................................................................................................... 39
Jurisdiction of the VCAT........................................................................................ 48
Improper Purpose................................................................................................... 49
Stay and Dismissal of the VCAT Proceeding...................................................... 54
Tender....................................................................................................................... 57

Conclusion................................................................................................................... 57
C4........ The Masri Principle....................................................................................................... 57
C5........ Solvency.......................................................................................................................... 64

D.. Efektiv and AGV........................................................................................................................ 66

D1........ Background.................................................................................................................... 66
Tax Invoices and Costs Disclosure Agreements.................................................... 68
Costs Court Proceeding............................................................................................. 69
D2........ The 459S grounds – general......................................................................................... 70
The Law........................................................................................................................ 70
Serious question to be tried................................................................................... 72
Grounds the Companies could have relied upon.............................................. 73
Material to solvency................................................................................................ 75

Analysis........................................................................................................................ 77
D3........ Costs Disclosure Documents....................................................................................... 82
Submissions................................................................................................................. 82
Analysis........................................................................................................................ 82
D4........ Taxation of Costs......................................................................................................... 101
Submissions............................................................................................................... 101
Analysis...................................................................................................................... 101
D5........ Contracting Party......................................................................................................... 103
D6........ Miscellaneous Oral Arrangements........................................................................... 106
D7........ Abuse of Process.......................................................................................................... 107
D8........ Solvency........................................................................................................................ 109

E... Procedural and Other Matters................................................................................................ 110

E1........ Updated Chronology – The Course of the Trial..................................................... 110
Events Prior to the Trial........................................................................................... 111
Monday, 16 December 2019 – First Day of Trial.................................................. 112
Tuesday, 17 December 2019 – Second Day of Trial............................................. 114
Wednesday, 18 December 2019 – Third Day of Trial.......................................... 116
Thursday, 19 December 2019 – Fourth Day of Trial............................................ 120
Friday, 20 December 2019 – Fifth Day of Trial..................................................... 124
Events Following the Trial...................................................................................... 126
E2........ Second Recusal Application...................................................................................... 131
E3........ Adjournment Application.......................................................................................... 136
E4........ Further Leave Application - Evidence of Solvency................................................ 146
E5........ Evidentiary Ruling – Covert Recording.................................................................. 152
E6........ Conduct Issues and the Civil Procedure Act 2010 (Vic)........................................... 154

F... Reporting................................................................................................................................... 155

F1........ Raghavan...................................................................................................................... 155
Hager – Allegation of Dishonesty.......................................................................... 157
McNamara - Threat................................................................................................... 158
F2........ Kuksal........................................................................................................................... 160

G.. Conclusion and disposition................................................................................................... 161

HIS HONOUR:

A Introduction

There are three applications before the Court seeking orders to wind up each of Kornucopia Pty Ltd (Kornucopia), Efektiv Pty Ltd (Efektiv) and Avant-Garde Ventures Pty Ltd (AGV) (collectively, the Companies). The plaintiff in the Kornucopia proceeding is Jeffrey Chen (Chen),[1] and in both of the Efektiv and AGV proceedings the plaintiff is Madgwicks Lawyers (Madgwicks).[2]
[1]Chen is the landlord and Kornucopia is the tenant of a property in Docklands, Victoria.
[2]Madgwicks are the former solicitors for the Companies.

This is the fourth judgment in these relatively straightforward winding up applications. They have been bedevilled by exhaustive and extensive procedural and interlocutory roadblocks. These include, but are not limited to, interlocutory skirmishes, numerous indulgences, breaches of court orders and adjournments, as well as generally obstructive and discourteous behaviour on the part of the Companies. The conduct of the Companies in this litigation has been appalling.

On 12 and 13 November 2019, I heard a number of preliminary questions relating to whether three creditor’s statutory demands (one on each of the Companies) had been served effectively and whether certain technical defects with respect to the Originating Process in the Kornucopia proceeding resulted in its invalidity.

On 19 November 2019, I published reasons for my decision (First Judgment), where I found:[3]
[3]In the Matter of Kornucopia Pty Ltd (No 1) [2019] VSC 756 (First Judgment).

(a) the Companies failed to rebut the presumption of delivery arising pursuant to s 29(1) of the Acts Interpretation Act 1901 (Cth) (AIA Act) and that service by post of the three statutory demands had been effective on each of the Companies;

(b) in the case of Efektiv and AGV, there had also been informal service by email of the statutory demands to a director or officer of the relevant company; and

(c) in the case of Kornucopia, I was obliged not to dismiss the Originating Process, notwithstanding the defects present in connection with it, by virtue of the operation of s 467A of the Corporations Act 2001 (Cth) (the Act).

On 15 November 2019, and prior to the publication of the First Judgment, the hearing of the winding up applications was fixed for hearing, to commence on 11 December 2019, on an estimate of five days.

On 2 December 2019, the Companies filed an application in each proceeding seeking my recusal for apprehended bias. Given that the trial was due to commence on 11 December 2019, the bias applications were heard as a matter of urgency on 3 December 2019.

On 5 December 2019, I dismissed the bias applications. Reasons were delivered on 9 December 2019 (Second Judgment).[4]
[4]In the Matter of Kornucopia Pty Ltd (No 2) [2019] VSC 802 (Second Judgment).

On 5 December 2019, the Companies were ordered (after a number of previous extensions) to file evidence relating to solvency by close of business on 10 December 2019, failing which they would need leave of the Court to do so. This was yet a further indulgence and opportunity granted to the Companies to file such evidence. The orders were not complied with. No persuasive reason was given.

Given the non-compliance, the proceedings came on for a further directions hearing on 12 December 2019, a day after the trial was due to commence. The Companies suggested that I re-fix the hearing of the applications for the new year (instead of the following Monday, 16 December 2019) and in effect permit them to file evidence of solvency. The Companies advised that preparation of the evidence had not yet been completed and did not specify a time when said evidence would be completed. I rejected the Companies’ submissions and re-fixed the trial to commence on 16 December 2019 (Third Judgment).[5]
[5]In the Matter of Kornucopia Pty Ltd (No 3) [2019] VSC 821. (Third Judgment). I did not vacate the trial dates and the trial eventually commenced on Monday, 16 December 2019, a day that was included in the dates originally scheduled. I will assume familiarity with the First, Second and Third Judgments.

On the first day of trial being Monday, 16 December 2019, a second recusal application was brought. It had been foreshadowed over the weekend. It was dismissed on the same date. There was no application on that day for leave to file material as to solvency. In somewhat dramatic circumstances, Mr Williams QC, who had until that time been acting for the Companies, indicated that he was unable to act any further. This occurred at 11:30am on 16 December 2019. I stood the matter down to 2:15pm. At 2:15pm, Mr I Percy of Counsel appeared for the Companies and made a fresh application to adjourn the application until next year. It was refused on the same date. Nonetheless, I granted the Companies a short adjournment and indicated that the hearing of the winding up applications would resume at 10:00am on Tuesday, 17 December 2019. They did proceed then, but not without further drama.

In the end, as the Companies’ various applications were refused, they were required to proceed to the hearing of the winding up applications with no evidence of solvency before the Court, no Counsel, and at times, no legal representative present (due to a contended medical condition). While undesirable, each matter was either at the Companies’ request,[6] or entirely their own fault.[7] The Court cannot be held to ransom by the demands of a party, in circumstances where that party’s own conduct has led them to the very position of which they complain.[8]
[6]There were various days of the trial when the in-house solicitor of the Companies, Naveen Raghavan (Raghavan), was suffering from his contended medical condition and was unable to attend Court. His medical condition is addressed at paragraphs [456] to [470]. For example, on 18 December 2019, he wrote to the Court requesting an adjournment due to his medical condition. This was refused. Alternatively, he asked whether Kuksal and Xu could be cross-examined in his absence. This was allowed. The Companies later complained about the fact that I had allowed their witnesses to be cross-examined when they did not have legal representation present. Of course, they had requested this. This is addressed at paragraphs [384] to [399].
[7]The Companies ought to have ensured that they had adequate legal representation.
[8]The Companies did not file a written outline of opening or closing submissions (or contrary to my direction) a list of affidavits upon which they relied. This has made the Court’s task of assessing the evidence, deciphering the Companies’ arguments, or determining the matter as a whole much more difficult. I have done the best that I can in these circumstances.

The affidavit and oral evidence given by the Companies was rife with lies, inconsistencies and was otherwise vague and evasive in nature. Much of it has been rejected.

A detailed chronology of the events preceding the trial and leading up to the directions hearing of 12 December 2019 is recorded in my Third Judgment. The reasons for dismissing the second recusal application and adjournment application made on 16 December 2019 are set out in detail below, as is a chronology of the course of the trial.

The inclusion of a chronology, while unusual, is necessary in this case. The Companies have continuously and without any merit whatsoever raised issues of procedural fairness and bias. It is, therefore, important to accurately record the conduct of the Companies and their legal representatives during the course of the hearing. Their conduct has been unfair, abusive, threatening, discourteous and appalling to both the plaintiffs and the Court. The conduct of the trial must be assessed in light of their conduct.

The trial, fragmented and interrupted as it was, proceeded on all remaining issues and final submissions concluded on Friday, 20 December 2019. The substantive issues in the proceedings were, by contrast, relatively simple and straightforward.[9]

B Summary

B1 Kornucopia

[9]It will be observed that the Companies have failed on most, if not all, substantive issues they had raised. Even if the Companies’ evidence had been accepted, it was too vague to make the findings they sought.

I propose to make a winding up order.

The relevant facts are set out in more detail below. Chen is the owner and landlord of a property located in Docklands, Victoria. Kornucopia is the tenant of that property. Chen made a statutory demand for $12,281.66 for arrears of rental sworn to be due and payable pursuant to a residential tenancy agreement.

The statutory demand was properly served and no application was made to set it aside within the prescribed 21 day period.[10] Kornucopia was and is therefore presumed to be insolvent.[11] Chen commenced the winding up application, relying on presumed insolvency by virtue of the unsatisfied statutory demand.
[10]Corporations Act 2001 (Cth) s 459G.
[11]Corporations Act 2001 (Cth) ss 459C(2)(a), 459F(1).

The Originating Process as amended is in proper form thereby enabling the application to proceed, and the Court’s discretion to wind up the company enlivened.[12]
[12]Corporations Act 2001 (Cth) s 459A; First Judgment [101]-[145].

Kornucopia has not made an application under s 459S of the Act. It raised three matters directed to the discretion and abuse of process. The main complaint of Kornucopia is that it was denied the right of a tenant to quiet enjoyment, which, it was submitted has given rise to a potential offsetting claim. It is not suggested that Chen denied them such a right, but rather that the Owners Corporation managing the apartment building had.[13] The grounds are referred to below, but in summary are:
[13]At no time has Kornucopia referred to the Owners Corporation by its legal name. I do not know what the precise legal entity is. I refer to it as the ‘Owners Corporation’ as this was the term used by Kornucopia.

(a) The effect of a tender of payment offered by Kornucopia, and rejected by Chen.

(b) Whether the proceeding constitutes an abuse of process given the contended disputed nature of the debt. Kornucopia contends that Chen has improperly subjected Kornucopia to the pressure of a winding up application in order to force the company to satisfy a disputed debt.

(c) Whether Kornucopia is solvent.

The tender made by Kornucopia to pay the amount of the statutory demand was rejected. In so rejecting the tender, Chen acted entirely reasonably. The tender was for a pitiful amount given subsequent events, and Kornucopia does not evince a continued willingness to pay the debt.

Kornucopia cannot raise the other grounds because it has not made an application under s 495S of the Act and has not adduced evidence of solvency. There is no abuse of process, in the circumstances, of engaging the permitted statutory demand procedure. Each of the grounds relied upon, and in particular the contended genuine dispute, is without merit or substance.

There is no evidence rebutting the presumption of insolvency. There are no cogent reasons which justify exercising the discretion in favour of not making a winding up order. The discretionary considerations favour a winding up order. Again, there is no evidence of solvency.

B2 Efektiv and AGV

I propose to make a winding up order in relation to each company.

The relevant facts are set out in more detail below. In Efektiv and AGV, the statutory demands were made by Madgwicks, a firm of solicitors who formerly acted for the Companies, for $69,731.57 and $203,104.88 respectively, for professional services rendered and sworn to be due and payable.

The statutory demand, with respect to each company, was properly served and no application was made to set either of them aside within the prescribed 21 day period. Each company was and is therefore presumed to be insolvent. Madgwicks commenced the winding up applications, relying on presumed insolvency by virtue of the unsatisfied statutory demands.

The Originating Process, with respect to each company, is in proper form thereby enabling the applications to proceed, and the Court’s discretion to wind up each company is enlivened.

Each company has, however, made an application under s 459S of the Act for leave to rely on matters that they could have, but did not, rely upon in an application to set aside the demands within the required 21 day period. They are referred to in detail below, but in summary they are:

(a) Whether Madgwicks should be precluded from using the winding regime to collect their fees, because, it was contended, Madgwicks did not provide adequate costs disclosure to the Companies prior to their entry into a retainer agreement. It was contended that Efektiv and AGV did not receive any costs disclosure statements or costs agreements. It was not contended that had they been received, disclosure would still have been inadequate.

(b) Whether these applications should be adjourned, stayed or dismissed, because the Companies have filed a summons for taxation with the Costs Court (after these winding up applications were filed by Madgwicks), by which the Companies seek a taxation and assessment of Madgwicks’ bills of costs.[14]

(c) Whether Madgwicks does not have standing as a creditor, because, it was contended, there was only one retainer, to which Kornucopia and Madgwicks were parties. There is, it was submitted, no contractual relationship (or debtor to creditor relationship) between Efektiv or AGV and Madgwicks.

[14]Efektiv and AGV submitted that they do not require leave under s 459S of the Act to raise this ground as the Costs Court proceeding did not exist at the time Efektiv or AGV could have applied to set aside the statutory demands. This is rejected at paragraphs [241] to [245].

Those grounds (which may also be relevant to the discretion to wind up and abuse of process) are without merit. To rely on the section Efektiv and AGV are required to provide a reason why the grounds were not raised in the 21 day period, that the grounds are arguable and that they are material to the solvency of the company. None of these matters have been established. There is no explanation as to why the grounds were not raised within the 21 day period, save for that it was said that the statutory demands were not received by the companies. Further, because there is no evidence of solvency, I am unable to determine whether those debts would be material to each company’s solvency. Regardless, the grounds are not arguable. Leave will not be granted under s 459S of the Act, however, as there is likely to be an appeal, each ground is dealt with below.

Madgwicks provided adequate costs disclosure. The relevant documents which provided such disclosure were received by email, sent to Efektiv and AGV. In any event, if there was inadequate disclosure, it is no impediment to the applications proceeding.

Likewise, the assessment of costs before the Costs Court is no impediment to the applications proceeding. It does not by operation of the law (and should not in the exercise of my discretion) result in a stay of winding up applications which commenced prior to the filing of the summons for taxation.

In relation to the contracting party ground, I find that both Efektiv and AGV engaged Madgwicks to provide legal services and that Madgwicks is a creditor of each company. The ‘beneficial owner’ of the Companies, Shivesh Kuksal (Kuksal) had authority or was held out by Efektiv and AGV to be engaging Madgwicks on behalf of those companies.[15]
[15]Until 29 January 2019, Kuksal was the sole director of each of the Companies. On that date, he resigned from that office and now calls himself the ‘beneficial owner’ of the Companies. The precise corporate structure has not been explained, but it seems that Kuksal owns the shares of the holding company which in turn holds the shares in the Companies. It is clear that the current directors of the Companies are accustomed to act in accordance with Kuksal’s instructions. He has control over the conduct of the Companies. He gave all of the instructions in relation to this proceeding and his fingerprints are on every aspect of the case. He is the ‘puppet master’ so to speak. See paragraph [326].

In relation to the discretion to wind up the Companies, two matters were raised. They are referred to in detail below, but in summary they are:

(a) Whether the proceeding constitutes an abuse of process.

(b) Whether Efektiv or AGV are solvent.

There is no abuse of process, in the circumstances, of engaging the permitted statutory demand procedure. The grounds relied upon are the same as those raised by the application under s 459S of the Act and fail for the same reasons.

There is no evidence rebutting the presumption of insolvency. There are no cogent reasons which justify exercising the discretion in favour of not making a winding up order in relation to each company. The discretion ought to be exercised in favour of winding up order, given there is no evidence of solvency in relation to each company.

C Kornucopia

C1 Background

On 11 September 2018, Chen as landlord and owner of an apartment located at 1204N/889 Collins Street, Docklands, VIC 3008 (Property) entered into a residential tenancy agreement (Lease Agreement) with Kornucopia as tenant. Pursuant to the Lease Agreement, the Property was leased for a term of one year, for monthly rental of $2,086.00 and a bond of $2,086.00. Kornucopia has not paid rental since 10 November 2018.[16]
[16]According to Chen the lease has expired and Kornucopia is over-holding the Property and according to Kornucopia there is a periodic tenancy. It is unnecessary to determine this issue.

On 7 January 2019, Chen served a 14 day notice to vacate on Kornucopia, requiring payment of the rental arrears which were outstanding at that point in time. On 31 January 2019, Chen commenced VCAT proceeding R2019/4231/00 (VCAT Proceeding) seeking payment of rental arrears in the amount of $7,612.38 (including the bond) and an order for possession of the Property.[17]
[17]While not entirely clear, references in the evidence tend to suggest that there were other proceedings in VCAT commenced prior to this proceeding. It is unnecessary to determine whether that is so.

On 28 February 2019, Member Knights made orders, inter alia, for the payment of the rental arrears and possession of the Property (VCAT Orders). A warrant for execution was issued by the Principal Registrar on 8 March 2019.

On 12 March 2019, Registrar Jacobs stayed the order of Member Knights (and enforcement of the same) and adjourned an application by which Kornucopia contended that it had not been served with the notice of the previous hearing before Member Knights on 28 February 2019. The order states:

1.On the application of the tenants for a review of the order made on 28 February 2019, and pending further hearing of that application or further order of the Tribunal, the order is stayed and the time in which the warrant for possession issued by the principal registrar on 8 March 2019 may be executed is extended for the maximum time permitted by law.
2.Pending the further hearing of this matter or other order. I order that the parties and their servants or agents be prohibited from enforcing any of the orders made on 28 February 2019, and executing the warrant of possession and direct that any member of Victoria Police as sufficient evidence of the prohibition against enforcement and execution.

On 15 May 2019, while there was a stay of the VCAT Orders, a creditor’s statutory demand was signed Vaughan William Hager (Hager), a consulting principal of Keypoint Law (Keypoint), Chen’s solicitors (Kornucopia Demand). The Kornucopia Demand does not rely on the VCAT Orders, but rather, rental arrears, which were said to be due and payable, in the amount of $12,281.66 (Rental Arrears). The Kornucopia Demand was sent by prepaid ordinary post on the same date and effectively served on 21 May 2019.[18]
[18]First Judgment [53], [72].

On 4 June 2019, Member Sharkie found that Kornucopia had a reasonable excuse for not attending the hearing on 28 February 2019, a reasonable case to argue for the purpose of a new hearing, and made orders accordingly:

1.The application for review is granted and the order dated 28 February 2019 is suspended pending further hearing of the proceeding to 6 June 2019 at 3:00 pm before Member J Sharkie.

…
3.The warrant of possession issued by the principal registrar on 8 March 2019 is extended for the maximum time allowed by law and suspended until then.

On 6 June 2019, Member Sharkie dismissed Chen’s application on the basis that Chen had not complied with the requirements of s 506(3) Residential Tenancies Act 1997 (Vic) (RTA) in giving notice to vacate. In other words, the proceeding was dismissed because service of that notice had not been effective on Kornucopia.

On 21 June 2019, after the VCAT Proceeding had been dismissed, Chen applied to the Court pursuant to s 459P of the Act for an order winding up Kornucopia on the ground of presumed insolvency by virtue of the unsatisfied statutory demand. Kornucopia accepted that the Originating Process was delivered by post and that it had received it.

Kornucopia has not paid rental since 10 November 2018. Accordingly:

(a) rental arrears, said to be due and owing, for the period of 10 November 2018 to 11 January 2019 were in the amount of $7,612.38 (inclusive of the bond). This was the amount the subject of the VCAT Proceeding.

(b) rental arrears, said to be due and owing , for the period of 10 November 2018 to 7 May 2019 were in the sum $12,281.66. This was the amount the subject of the Kornucopia Demand, being the Rental Arrears.

(c) rental arrears, said to be due and owing , for the period of 10 November 2018 to 12 November 2019, is in the amount of $23,180.[19]

[19]On my calculation, rental owing for the period ending 12 January 2020 is $27,352.

As noted, the Kornucopia Demand was issued at a time when the VCAT Orders had been stayed and the Originating Process seeking a winding up order was filed after the VCAT Proceeding had been dismissed. However, as noted and most importantly, the Kornucopia Demand did not rely upon the VCAT Orders, but rather, the Rental Arrears. The Kornucopia Demand states as follows:

Kornucopia Pty Ltd (ACN 615 630 316) (Company) owes Jeffrey Chen (Creditor) the amount of $12,281.66 being the amount of rent owing by the Company for the period from 11 November 2019 to 7 May 2019 for [the Property], pursuant to [the Lease Agreement].

Genuine Dispute/Offsetting Claim

Kornucopia contends that Chen was aware of a genuine dispute relating to the Rental Arrears, and while aware of that dispute, issued the Kornucopia Demand and filed the Originating Process. It was initially submitted that this claim, if established in Kornucopia’s favour, would have resulted in Chen owing damages to Kornucopia, which Kornucopia would raise, as an offsetting claim under s 459S of the Act. That application was later abandoned. It is nonetheless raised, but now put in terms of an abuse of process in two ways. First, the existence of a genuine dispute means that Chen’s standing as a creditor is in doubt. The effect of this, it was submitted, is that it should result in a stay or dismissal of the winding up application, until this claim has been separately determined in VCAT or conventional litigation in the Magistrates’ Court. At no time has Kornucopia sought to commence a proceeding for the determination of this claim. Secondly, Chen was aware of the dispute. Kornucopia contended that Chen has an improper purpose in this proceeding, insofar as it was submitted, Chen has attempted to force Kornucopia to pay a debt which he knew to be disputed, by subjecting Kornucopia to the pressure of a winding up application.

Kornucopia contends that Chen, as landlord, denied it the right of a tenant to quiet enjoyment (Offsetting Claim). It is not contended that Chen has engaged in any positive act which had a direct effect of depriving Kornucopia of this right. Rather, Kornucopia, in possession of the Property, was engaged in a longstanding dispute with the Owners Corporation which managed the apartment. The Owners Corporation had, it was contended, engaged in racial abuse and physical attacks on Kornucopia’s officers, and further precluded Kornucopia’s officers or customers from utilising common areas and property of the building. It was further alleged that the Owners Corporation had interfered with the key fobs that Kornucopia was in possession of, restricting or denying their access to the building. The claim against Chen, in relation to the actions of these third parties, was said to arise from his failure to assist Kornucopia in its efforts to ‘rein in’ the Owners Corporation. Kuksal deposed to the following in relation to the Offsetting Claim:

[8]Regarding the specific Premises, I had advised the Plaintiff, through Ms Dangov, that the unit would be utilised by the company for its own use, including the accommodation of staff and clients of the business. It was also made very clear to the Plaintiff, through Ms Dangov, that Komucopia [sic] was a serviced apartment business and possessed several apartments in the building for that purpose.
[9]Soon after, on or around November 2018, Kornucopia’s relationship with the management team of the building's Owners Corporation [Owners Corporation] began to deteriorate. Members of my staff were harassed, stalked, racially abused and physically attacked. This caused a major disruption to the business’s operations.
[10]The Owners Corporation’s abhorrent, improper and intimidating behaviour steadily continued without abating. Specifically, the agents of the Owners Corporation made it impossible to have quiet enjoyment of the Premises.
[11]The Owners Corporation and agents acting on their behalf continually sought to disrupt our business, as they were ideologically opposed to the serviced apartment industry and had a conflict of commercial interest.
[12]Per above, they disrupted our business by racially abusing and harassing Kornucopia’s staff, [I personally was regularly subjected to this repugnant impropriety], damaging our assets, including commercial vehicles, defaming us to clients and members of staff, as well as interfering with key fob access.
[13]The Landlord was repeatedly made aware of this. In fact, we had sent him videos of myself being called a transvestite and being subjected to other deplorable slurs by the Assistant Building Manager, Clint Montessano. This was in addition to his associate attacking me and further articulating that “being Chinese was worse than being Black”.
[14]As a direct consequence of the above, Komucopia [sic] reached out to the Plaintiff, advising that we wanted him to address the Owners Corporations’ behaviour, as we had no direct contractual relationship with them and that only the Plaintiff had the ability to constrain their behaviour. (emphasis added)

Prior to the commencement of the VCAT Proceeding (and the making of the Kornucopia Demand), three letters were sent by Kornucopia to Chen in November and December 2018, advising him of the Offsetting Claim and what Kornucopia perceived Chen’s obligations to be in the circumstances.

On 27 November 2018, Madgwicks (at a time when the firm was still acting for Kornucopia) sent a letter to Chen. The letter sought to ‘bring some matters to [Chen’s] urgent attention’ which were ‘currently impeding the enjoyment of peaceful residence’ of the Property by Kornucopia. It referred, in general terms, to ‘intimidation, physical and racial abuse’, ‘unlawful prevention’ of Kornucopia ‘from utilising common property over which it shares proprietary rights’. The letter referred to video clips recorded by Kornucopia’s officers, which were said to evidence an instance of ‘intimidating conduct’, a ‘physical assault’ and an ‘intense concerted effort to deny’ Kornucopia access to common property on the part of Owners Corporation staff. The letter went on to say:

In accordance with the Residential Tenancies Act, our Clients have the right to peacefully enjoy their residence and access all common property in the building; it’s the landlord’s responsibility to ensure the enforcement of these rights.
In order to assist the landlord in effectively discharging their responsibilities, our Clients have engaged us to take appropriate legal measures against OC Management.

Our Clients understand that as you are not a local resident, it may not be feasible for you to be actively involved in the matter of escalating complaints against OC Management.
Hence, to assist in this regard, our Clients request that you authorise them to raise these complains on your behalf as the proxy holder for the Unit.

The letter went on to offer Chen a renewal or variation of the Lease Agreement, and set out a proposed new term that would be included in any renewed lease that would authorise Kornucopia to be Chen’s proxy holder.

Chen did not respond to that letter. Three days later, on 30 November 2018 a second letter in somewhat more aggressive terms was sent by Madgwicks, on behalf of Kornucopia, to Chen. It states as follows:

It is your responsibility to ensure the quiet enjoyment for our clients as required in your lease. In not taking action, after our clients have raised their concerns that the OC Management is not allowing them to have quiet enjoyment of their property, our clients feel that he has no option but to hold you liable as landlord. Our clients estimate that their total loss and damages are in the range of $100,000.
If our clients do not receive a response from you detailing the satisfactory steps you wish to take to immediately remedy the situation by close of business on Monday, 3 December 2018, we have been instructed to issue proceedings.

Chen did not respond to that letter. On 3 December 2018 a third letter was sent by Kuksal to Chen. The letter states:

It has come to our attention that your agency, Nelson Alexander, may not have been very forthcoming with you about all the issues that we have raised with them as the tenants of your property.
As the landlord, it is your responsibility to ensure the peaceful enjoyment of residence for your tenants and to ensure their proprietary rights, including access to all common property, are always preserved.
Any infringement of the above may lead you to incur personal liability.
Despite frequent communication with Nelson Alexander about these matters via phone conversations and email exchanges spanning several months, we have reason to believe that they may not have fairly communicated the gravity of the situation to you owing to their personal relationships with the culprits.
We are sending you some of the most recent correspondence sent to Nelson Alexander by our legal team. …

Chen did not reply to that letter either. Kathy Dangov (Dangov), a real estate agent employed at the relevant time by Nelson Alexander, managed the Property for Chen. Chen generally communicated with Kornucopia through Dangov. Chen gave evidence that Dangov had informed him of the nature of the dispute, as detailed below and he accepted that he had received the two letters which had been sent to him by Madgwicks. Chen and Dangov resolved that Chen would not formulate an individual response to the letters. Rather, Dangov would send a letter on behalf of a number of landlords of properties located in the same building, against whom Kornucopia maintained the same or similar allegations.[20]
[20]Kornucopia has or had control of approximately 70 apartments located in the building. That is 40 per cent of the apartments located in the building. See T40 (17 December 2019).

On 3 December 2019, Dangov sent a letter to Madgwicks, which states as follows:

We are in receipt of your two letters dated 27^th November and 30^th November 2018.
As you are well aware Section 152 allows an occupier of a lot to submit an official complaint form on the Owners Corporation regarding the alleged breaches of the lot owner or management. This is also covered in the Module Rule 6 (Dispute Resolution) that this type of complaint must be dealt with via Section 153 prior to the matter proceeding to VCAT.
In regards to your direct complaint against 1204N/889 Collins St, Docklands [this is the Property, and the letter then goes on to state the addresses of other apartments in the building] for failure to provide quite enjoyment [sic]. This allegation has not be [sic] proven, nor have we been notified under Section 208 of the alleged breach of the Residential Tenancies Act 1997.
We also, refer to Section 5.2 of the standard Module Rules if the main complaint of your client relates to the common area only, we again advise this would be covered by another general complaint form under Section 152 and then this would then be dealt with Section 153 [sic] and Module 6.

Kornucopia did not make an application under s 459G of the Act to raise the Offsetting Claim and set aside the Kornucopia Demand on that basis. Although the Offsetting Claim was initially foreshadowed as a ground relied upon for an application under s 459S of the Act, Kornucopia later abandoned it. Its sole relevance therefore is to the abuse of process argument. I consider, however, that Kornucopia is barred from raising the Offsetting Claim by s 459S. It requires leave, which has not been sought.

Tender

On 11 October 2019, Kornucopia paid Nelson Alexander the sum of $12,281.66 being the amount claimed by Chen in the Kornucopia demand. On 14 October 2019, Kornucopia’s in-house solicitor, Naveen Raghavan (Raghavan) wrote to Chen’s solicitor, Hager, noting that ‘Kornucopia has now paid your client the amount claimed in their Statutory Demand (which Kornucopia maintains was ill-conceived and never actually served).’

On 18 October 2019, Hager wrote to Raghavan to advise him that Chen was considering whether to accept or reject the payment.

On 22 October 2019, Hager wrote to Raghavan to advise him Chen had rejected the Kornucopia’s tender and attached an email from Chen addressed to Nelson Alexander directing them to repay the full amount of the tender. Keypoint outlined three reasons for rejecting the tender as follows:

(i)The risk of a preferential payment is too great. Your client has not filed evidence of solvency and is presumed to be insolvent. Further, there are a number of supporting creditors who have VCAT orders supporting their debts;
(ii)The tender does not take into account any amount in respect of my client’s legal costs;
(iii)The tender does not take into account that my client is owed considerably more rent than that claimed in the statutory demand and there is no proposal to pay that rent. Further, despite my client’s efforts to have your client removed, it remains in possession of the property and has said that it will not pay rent in the future. This is unacceptable.

The tendered amount was repaid to Kornucopia by Nelson Alexander on 25 October 2019.

C2 Tender

Kornucopia submitted that, in light of the tender and Chen’s rejection of the same, the Court should exercise its discretion to refrain from making a winding up order.

Chen submitted that his rejection of the tender does not form a legitimate reason for the Court to refrain from making a winding up order. First, Chen’s rejection of the tender means that the debt claimed by the Kornucopia Demand was not extinguished, and accordingly, Chen retains standing to make this application as a creditor. Secondly, the rejection was entirely reasonable as there was a real risk that, if accepted, it would most likely become the subject of a preference claim brought by a liquidator in the future. Finally, Kornucopia’s indebtedness to Chen had increased since the time the Kornucopia Demand was made due to rental which had since accrued. The tender did not take into account the increased indebtedness and his legal costs.

Kornucopia submitted that it was unnecessary to pay Chen any more than the amount claimed by the Kornucopia Demand, and the fact that the tender did not cover the increased indebtedness is neither here nor there. The amount owing claimed by the Kornucopia Demand was tendered and it was unnecessary for Kornucopia to pay or tender any more.

The Law

In Australian Mid-Eastern Club v Yassim,[21] the debtor paid the amount demanded by cheque to the creditor’s solicitors on a ‘without admissions’ basis. The cheque was banked by the solicitors, but, after taking instructions from the creditor, was later returned to the debtor. Meagher JA set out what constitutes a ‘valid tender’:[22]

There is ample authority that the proffering of cash or its equivalent in the full amount demanded constitutes a valid tender, even if proffered “without admissions” or “under protest”, provided only it is unconditional: see Scott v Uxbridge and Rickmansworth Railway Co(1866) LR 1 CP 596; Sweny v Smith(1869) LR 7 Eq 324; Greenwood v Sutcliffe[1892] 1 Ch 1 and Burnham v Carroll Musgrove Theatres Ltd (1928) 41 CLR 540 at 558 per Isaacs J….

[21](1989) 1 ACSR 399 (Yassim).

[22]Ibid 403 (Meagher JA).

His Honour said that where acceptance of the tender is refused by the creditor, the relationship of debtor and creditor subsists. It does not ‘vitate’ the plaintiff’s standing as a creditor:^[23]

If a valid tender be made, a refusal of that tender (whether for good or bad reason, or for no reason at all) does not eliminate the debt in question. The relationship of creditor and debtor still subsists. The tender is no answer to a claim for the debt unless (as did not happen here) there is a continued readiness to pay, coupled with an actual payment into court: see Halsbury’s Laws of England, vol 8, 3rd ed, Butterworths, para 289, p 169.

[23]Ibid.

Despite payment of the amount claimed by the statutory demand not being made into Court following refusal of the tender, the debtor sought the Court to infer that there had been a continued readiness to pay on the part of the debtor. Meagher JA did not accept this:^[24]

The appellant’s counsel asked us to infer a continued readiness to pay from the circumstances of the case. But I would make the opposite inference in view of its persistence in the assertion that no relationship of debtor and creditor existed. In any event (not that it matters) there is no evidence that the respondent’s solicitors were authorised to accept the payment, much less that they were compelled to do so. Further, their action in returning an equivalent sum (on their client’s instructions) must be construed as a refusal by their client to accept the money, not as an acceptance of it.

[24]Ibid.

His Honour dismissed the appeal from the winding up order made at first instance. His Honour considered that the reasons expressed by the creditor for rejecting a tender would be relevant to the Court’s discretion. In this case, the refusal of the tender was entirely reasonable:[25]

Moreover, both the solicitors and their client had every reason to refuse the money: a winding up summons was on foot, and there were other creditors. The client would probably have had to return the payment in the event of a winding up order being made: see Tellsa Furniture Pty Ltd (in liq) v Glendave Nominees Pty Ltd (1987) 9 NSWLR 254; 13 ACLR 64.

[25]Ibid.

In Occidental Life Insurance Company of Australia Limited v Life Style Planners Pty Limited,[26] the tender was rejected on the basis that the creditor considered that the payment would more than likely be a preferential payment and therefore potentially recoverable by the liquidator. Before winding up the company, Lockhart J said: [27]

The deponent states that the company tendered the sum of $5,863 to the applicant's solicitors and that the tender was refused on the ground that any payment by the company to the applicant would more likely than not have been a preferential payment and therefore recoverable by the liquidator.
It is well established that if a valid tender be made, a refusal of that tender does not eliminate the debt. The relationship of creditor and debtor still subsists: see Australian Mid-Eastern Club Ltd v Yassim (1989) 1 ACSR 399 per Meagher JA at 403 and the cases there cited by his Honour.
In my opinion the refusal of the tender did not constitute a discharge or elimination of the debt due by the company to the applicant. Also, the applicant had every reason to refuse the tender in view of the probability of the payment being a preference in the winding up of the company.

[26]Occidental Life Insurance Company of Australia Limited v Life Style Planners Pty Limited (1992) 38 FCR 444 (Occidental Life Insurance).

[27](1992) 38 FCR 444, 445 (Lockhart J).

In Alcatel Australia Ltd v PRB Holdings Pty Ltd, Santow J said:[28]
[28](1998) 27 ACSR 708, 714 (Santow J).

The defendants correctly respond that the amount proffered by Crown Ltd…was not a valid tender – nor such as to eliminate the relevant debt – for the following reasons (quoted below from his written submissions of 17 March 1998):
…
(c) Even if tender was valid (and it was not), refusal of the tender for any or no reason, did not eliminate the debt, and the relationship of debtor and credit still subsists.
1.4 The tender was refused by the defendants (for good reasons) (Annexure C to the Quinn affidavit No 4) (as they were entitled to do) and the plaintiff has not provided evidence and does not assert a continued readiness to pay the ‘tendered amount’ and has not paid the amount into Court. Instead it asserts that it is not obliged to make any payment at all.
1.5 The plaintiff has not made a valid tender and the tender is no answer to the statutory demand.

In Deputy Commissioner of Taxation v Guy Holdings Pty Ltd,[29] there had been an unconditional payment of the amount referred to in the statutory demand which had been accepted by the creditor. The debtor submitted that this ought to result in a dismissal of the winding up application. Zeeman J accepted that submission. His Honour considered, however, that the existence of indebtedness other than the amount claimed by the statutory demand, and accepted via the tender, might form a basis to make a winding up order, notwithstanding the creditor’s acceptance of the tendered amount:[30]

I would not wish to be taken as necessarily agreeing that a creditor, who has served a statutory demand under the Law and who has been paid the debt the subject of that demand, ordinarily ought not to be granted an order for the winding up of the company even though it establishes that the company is indebted to it in some other amount. Particularly if such other debt arose after the service of the statutory demand, its existence, in the absence of other relevant considerations, might well be sufficient reason to make the order.

[29](1994) 116 FLR 314.

[30]Ibid 319-20 (Zeeman J).

In Deputy Commissioner of Taxation v Visidet, Gyles J said:[31]

I agree with the analysis by Zeeman J of the Supreme Court of Tasmania in Deputy Commissioner of Taxation v Guy Holdings Pty Ltd(1994) 116 FLR 314; (1994) 14 ACSR 580, which gives support to the view that the failure to comply with a statutory demand giving rise to the presumption of insolvency, and the status of the plaintiff as a creditor at the time of the institution of the proceedings would give jurisdiction to make a winding up order, even if payment of the debt had occurred in the meantime.

[31][2005] FCA 830 [6] (Gyles J).

In Commonwealth Bank v Parform Pty Ltd,[32] the creditor rejected a tender. Sundberg J found that the company had not displaced the presumption of insolvency and that notwithstanding the attempted tender, it was appropriate to wind up the company:[33]

Parform is not solvent, and adopting the presumption in the latter case, there is in the present case a positive reason for making a winding up order: the company does owe money to other creditors, though their identifies are not known. In Guy Holdings there was no evidence as to the company’s financial position, and in that vacuum Zeeman J refused an order to wind up. There is no vacuum here.
Granted that Parform is insolvent, the Bank had every reason to reject the tender. There are other creditors, and the Bank may well have had to return the payment in the event of a winding up order being made. Cf Australian Mid-Eastern Club Ltd v Yassim, supra.

[32](1995) 13 ACLC 1309.

[33]Ibid 1313 (Sundberg J).

Kornucopia submitted that I should follow Nationwide Produce Holdings Pty Ltd (in liq) v Franklins, where Barrett J (as his Honour then was) said:[34]

The plaintiff says that it was proper for it to decline to accept payment because of a fear that it would be receiving what turns out to be a preference. That is for the plaintiff to decide. It would be in no worse position if it accepted and was later forced to disgorge. There is nothing compelling a creditor somehow to remain pure by shunning a payment in respect of which there exists some theoretical future possibility of its proving to be preferential. A normally motivated creditor would be inclined to accept such a payment conscious of any risk of disgorgement, and with fingers crossed to the extent indicated by the circumstances.

[34][2001] NSWSC 1120 [6] (Barrett J) (Nationwide Produce).

In In the Matter of Vitamin Co Pty Ltd (Vitamin Co), Hetyey JR agreed with Barrett J and did ‘not regard the plaintiff’s stated concern about the defendant’s solvency to constitute a sufficient basis for refusing tender.’[35]
[35][2019] VSC 540 [64] (Hetyey JR).

In my opinion, it is reasonable for a creditor to refuse to accept a tender on the basis that it might become the subject of a preference claim at some later point in time. By accepting the payment, the creditor exposes themselves to the uncertain prospect of litigation at a future time, inclusive of the stress, time and expense this might bring. Further, if the creditor sought to resist any preference claim commenced and the creditor is ultimately unsuccessful, in the ordinary course, they would be liable for the liquidator’s costs, as well as their own. With respect, I cannot accept that the creditor ‘would be in no worse position if it accepted and was later forced to disgorge’.[36] Of course, fear of a future preference claim will not be a legitimate reason in all cases. There must be a reasonable basis to suspect that the company may still be wound up, quite aside from the statutory demand and winding up application the subject of the tender, and that the accepted payment would fall within any relevant relation-back period.
[36]Nationwide Produce [2001] NSWSC 1120 [6] (Barrett J).

Analysis

Kornucopia paid Chen the amount stated in the Kornucopia Demand, that is, $12,281.66. Since Chen’s refusal and repayment, there is nothing to suggest that Kornucopia remains continually ready or willing to pay that amount. That amount also has not been paid into Court. I refuse to draw an inference that Kornucopia has remained continuously ready to pay the amount claimed by the Kornucopia Demand. The opposite is true. Kornucopia contends that Chen is no longer a creditor. The corollary of this is that from Kornucopia’s perspective, it no longer needs to pay Chen and nor does it intend to. As the authorities show, in the event of a refusal, the debt owing by Kornucopia to Chen still exists and as does the relationship of debtor to creditor between them.

Chen’s refusal of the payment was entirely reasonable. First, Chen was concerned that the ‘the risk of a preferential payment is too great,’ which is a legitimate basis to refuse a tender in this case. Kornucopia is presumed to be insolvent, has filed no evidence of solvency, and there numerous supporting creditors on the record who allege that Kornucopia owes them various amounts. They remain willing to be substituted in Chen’s place in the event that Chen no longer wishes to prosecute the winding up application. There are also winding up proceedings against related companies (Efektiv and AGV) on foot. There is always the risk that if those companies are wound up and there are inter-company loans or debts owed to them by Kornucopia, a liquidator may call upon them in future. The liquidation of one company has the potential to result in the liquidation of the group. While there is no evidence inter-company finance, given that no accounts of the Companies have been adduced, the risk cannot be excluded. Further, Efektiv and AGV each allege that Madgwicks are creditors of Kornucopia and not of those companies, for an amount exceeding $250,000. On the Companies’ own position, Chen has all the more reason to suspect that Kornucopia may be factually insolvent (aside from the application of any statutory presumption). From Chen’s perspective, the risk that Kornucopia might later enter liquidation is high.

Second, the tender did not take into account the increased amount of accrued rental which was owed at the time of the tender. As at 11 October 2019, rental arrears were approximately $21,100. The tendered amount was $12,281.66. The differential, not covered by the tender, is approximately $8,800. That amount is not insignificant compared to the debt claimed by the Kornucopia Demand. Further, the tender did not cover Chen’s costs in prosecuting this winding up application, which given the history, I suspect would substantially exceed the amount. Chen is just as entitled to the increased quantum of accrued rental, and his costs, as he is to the amount claimed by the Kornucopia Demand.

The tender does not form a sufficient or legitimate reason to refrain from making a winding up order against Kornucopia. The tender was unreasonable and audacious in the circumstances. Quite aside from any acceptance or rejection, Kornucopia remains indebted to Chen in amounts other than the tendered amount. Kornucopia does not remain willing to pay either the tendered amount and was never willing to pay the increased indebtedness. Further, there is no evidence of solvency. By not making a winding up order, the Court may be releasing an insolvent company into the public domain, which is entirely undesirable. In those circumstances, the Court ought not to exercise its discretion to dismiss the winding up application.

C3 Abuse of process

The abuse of process submission is put in a number of ways, and will be dealt with in the following sequence:

(a) First, Kornucopia maintains the Offsetting Claim against Chen in relation to the conduct of the Owners Corporation. With reference to authority,[37] it was contended that the Court has a discretion to stay or dismiss a winding up proceeding as an abuse of process, where there is a bona fide dispute on a substantial ground as to the company’s contended liability to the plaintiff. Given the contended set-off, there was said to be serious doubt surrounding Chen’s standing as a creditor. This is referred to as the ‘disputed debt principle’. Further Chen knew of the Offsetting Claim when he issued the Kornucopia Demand and filed the Originating Process. It was submitted that an improper purpose will be found where a creditor issues a statutory demand in order to compel or pressure a company into satisfying a disputed debt.
[37]Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527; John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250; CVC Investments Pty Ltd v P & T Aviation Pty Ltd (1989) 18 NSWLR 295; Re Huizhong Investment Group Pty Ltd [2018] NSWSC 390 (Re Huizhong Investment Group); Bartex Fabrics v Phillips Fox [1994] 13 ACSR 667; Commonwealth Broadcasting Pty Ltd v Pacific Mobile Phones Pty Ltd [2008] QSC 210.

(b) Secondly, it was submitted that VCAT is the appropriate forum for the dispute, given that it has exclusive jurisdiction with respect to residential tenancy disputes.[38] By this proceeding, Chen is, it was submitted, ‘circumnavigating the appropriate jurisdiction for obtaining orders of full possession and rental arrears, being the VCAT.’[39]
[38]See A.B.C. Developmental Learning Centres Pty Ltd (Receivers and Managers Appointed) (Administrators Appointed) v B.M. Children’s Services Pty Ltd [2010] VSC 262 [5] (Pagone J).
[39]T242:27-30 (20 December 2019).

(c) Thirdly, Chen has, it was submitted, an improper purpose in issuing this proceeding (aside from the Offsetting Claim). By a winding up application, a plaintiff must seek a winding up order, however, it was contended, Chen seeks to bring this proceeding either for the purpose of debt collection, or to obtain possession of the Property.[40]

(d) Fourthly, the Kornucopia Demand was issued at a time when the VCAT Orders were stayed. The Originating Process was filed after the VCAT Proceeding had been dismissed. Kornucopia contended that the VCAT Orders extinguished the debt claimed by Chen. In the alternative, it was submitted that if the debt subsists, the stay of the VCAT Orders means that the debt was not due and payable when the Kornucopia Demand was issued.

(e) Finally, it was unreasonable for Chen to refuse to accept a tender of payment offered by Kornucopia (as referred to above). Having declined a reasonable tender, it was submitted, Chen ought to be precluded from prosecuting this application. This ground, as discussed above, is rejected.[41]

[40]T67:9 (17 December 2019).

[41]See paragraphs [55] to [77].

Each of the grounds relied upon by Kornucopia is fundamentally misconceived and rejected.

The Law

Prior to the commencement of Part 5.4 of the Act, the weight of the authority supported the existence of three bases upon which a debtor-company was permitted to assert that a winding up application constituted an abuse of process. These were:

(a) that the winding up application was bound to fail (where, for example, the plaintiff could not prove that it possessed standing as a creditor, or that the company was insolvent); [42]

(b) where the winding up application is made for an improper purpose, according to the principles set out by the High Court in Williams v Spautz;[43] and

(c) where there is a substantial contest as to the existence or enforceability of a debt relied upon by the plaintiff or the existence of a cross-claim or offsetting claim, which should properly be resolved in separate proceedings. This is the ‘disputed debt’ principle, as referred to above and below.[44]

[42]Fortuna Holdings Pty Ltd v Deputy Federal Commissioner of Taxation [1978] VR 83, 88, 93 (McGarvie J) (Fortuna Holdings); L & D Audio Acoustics Pty Ltd v Pioneer Electronics Aust Pty Ltd (1982) 1 ACLC 536, 538 (McLelland J) (L & D Audio).

[43]Williams v Spautz (1992) 174 CLR 509; L & D Audio (1982) 1 ACLC 536, 538 (McLelland J).

[44]Fortuna Holdings [1978] VR 83, 93, 95-96 (McGarvie J); L & D Audio (1982) 1 ACLC 536, 538 (McLelland J).

The third ground is supported by the following authorities. In Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq), White J said:[45]

The preponderance of authority is that a company may not be wound up on the application of a person claiming to be a creditor whose debt is disputed unless that dispute is resolved. Otherwise the applicant will not establish its standing to apply for the company’s winding up. Because the winding up jurisdiction should not be used to resolve disputed questions of debt, it may be an abuse of process for an alleged creditor, whose debt is disputed, to apply to wind up the company.

[45][2004] NSWSC 527 [72] (White J).

In CVC Investments Pty Ltd v P & T Aviation Pty Ltd, Cohen J said:[46]

The authorities seem almost unanimously to agree that where a claimed debt is bona fide disputed on substantial grounds and there is no basis for regarding the claimant as a contingent or prospective creditor then that claimant has no standing to bring proceedings to wind up the company, and if he does so the bringing of those proceedings is an abuse of process. The fact that there is a ground for winding up in existence does not give that claimant any greater standing. There are a number of grounds under s 364 upon which the court may make an order for the winding up of a company. The most common one relied upon is that the company is unable to pay its debts. Nevertheless the Code gives only a limited number of persons a right to have the company wound up on that or any other ground. It is an abuse of process if a person in bringing proceedings assumes a standing which it does not have and seeks orders to which it is not entitled.

[46](1989) 18 NSWLR 295, 302 (Cohen J).

In Fortuna Holdings Pty Ltd v Deputy Federal Commissioner of Taxation (Fortuna Holdings),[47] McGarvie J set out what his Honour described to be the ‘second branch’ of abuse of process. That is the third ground set out above. His Honour said:[48]

The second branch applies in cases where a petitioner proposing to present a petition has chosen to assert a disputed claim, by a procedure which might produce irreparable damage to the company, rather than by a suitable alternative procedure. It may apply in cases where the petition, if presented, has a chance of success. In some cases both the first and the second branches of the principle apply.
…
The second branch applies to cases where there is more suitable alternative means of resolving the dispute involved in a disputed claim against the company. They are not necessarily cases in which, as a matter of law or through absence of evidence, there is an inherent incapacity of success. They may be cases where the petitioner is entitled to present the petition, the ground is sufficient in law and there is evidence to support the ground. They are cases, though, where, due to the availability of the more suitable alternative remedy, the court hearing the petition would in the circumstances, in the exercise of its discretion, decline to make a winding up order, at least while the circumstances remain as they are at the time of the application for an injunction. Thus the second branch applies where, because of the availability of a suitable alternative procedure, the petition is unlikely to succeed in the circumstances existing at the time.

[47]Fortuna Holdings [1978] VR 83, 88, 93 (McGarvie J).

[48]Ibid 83, 93, 95-96 (McGarvie J).

In Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd,[49] Beazley JA (with whom Hodgson and Santow JJA agreed) discussed the principles engaged in Fortuna Holdings.[50] Her Honour said:[51]

I agree that those principles still apply. The court retains a discretion to make an order in the circumstances discussed by McGarvie J in Fortuna Holdings under the “second branch” …

[49](2007) 69 NSWLR 374.

[50][1978] VR 83.

[51]Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd (2007) 69 NSWLR 374 [57] (Beazley JA).

These decisions, however, and the principles relating to the ‘broader’ grounds or ‘second branch’ of abuse of process they stand for are no longer good law. In 1992, Part 5.4 of the Corporations Law was introduced.[52] Under Part 5.4, an application may be made under s 459G to set aside a statutory demand within 21 days after service. Section 459C provides for a presumption of insolvency upon expiry of a statutory demand. Section 459S(1) provides that in an application that relies upon a failure to comply with a statutory demand, the company may not, without leave of the Court, oppose the application on any ground it could have relied on to set aside the demand. Section 459S(2) provides that the Court is not to grant leave unless it is satisfied that the ground is material to proving the company is solvent. The Explanatory Memorandum to the Corporate Law Reform Bill 1992 states:[53]

The provisions in relation to the setting aside of a statutory demand are intended to be a complete code for the resolution of disputes involving statutory demands, and to do so on the basis of the commercial justice of the matter, rather than on the basis of technical deficiencies. (emphasis added)

[52]Corporate Law Reform Act 1992 (Cth).

[53]See the Explanatory Memorandum to the Corporate Law Reform Bill 1992 at [688]-[689] and the discussion in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265, 279 (Gummow J).

Notwithstanding that Part 5.4 is a ‘code’, the Court retains a discretion to stay or dismiss a proceeding as an abuse of process, as made plain by the words of s 459A or 467(1). However, the effect of the enactment of Part 5.4 is that disputes which fall within the first and third ‘categories’ of abuse of process must now be dealt with under the provisions of Part 5.4.[54] Where a winding up application relies upon the failure of a company to satisfy a statutory demand, a presumption of insolvency arises as an automatic consequence pursuant to ss 459C(2)(a) and 459E of the Act. That consequence is unlike that which occurred under the predecessor legislation, where the existence of a dispute ‘explained why the demand was not complied with “and so rebuts the presumption of insolvency which would otherwise arise”.’[55] If the presumption had not invoked, there was no evidence of insolvency, and the company was able to establish that the debt was bona fide disputed upon some substantial ground, it followed that there was no reason not to stay or dismiss the winding up application. The Court would not, however, stay or dismiss the application in the case of an insolvent company.
[54]In Pacific Communication Rentals Pty Ltd v Walker (1994) 12 ACLC 5, Brownie J said at 289: ‘The submissions accepted that the intention of the drafters of Pt 5.4 was to establish a code, and that disputes in the first and third of these categories were now to be dealt with under Pt 5.4. However, the argument is that disputes, or at least some disputes in the second category are not covered by Pt 5.4.’
[55]Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (Recs and Mgrs Apptd) (2011) 244 CLR 1, 10 [15] (Gummow, Heydon, Crennan, Kiefel and Bell JJ) (Lanepoint).

The starting point under the present regime is that the company is presumed to be insolvent. It follows that the old practice and principle cannot be applied and the company must first displace that presumption. Mere assertions that the plaintiff lacks locus standi as a creditor, or that the debt is disputed and that this was the reason why the company did not satisfy the statutory demand, will not suffice. A debtor may argue that a debt is bona fide disputed on substantial grounds, and while the Court retains discretion as to whether it should make orders under ss 459A or 461, it will not stay or dismiss the application in the absence of evidence of solvency. Where the presumption has not been displaced, the existence of a genuine dispute does not give rise to a predisposition of the Court in favour of a stay or dismissal of the application.

Accordingly, where the company asserts a substantial dispute, it must first displace the presumption. It may do so by adducing evidence that it is solvent and in the ordinary course that would lead to the application’s dismissal with the dispute then able to be determined in some other forum or proceeding. If the company seeks to argue that it would be solvent if the debt were not taken into account, or that it would affect the solvency position in a manner favourable to the company, then it must in most cases make an application under s 459S, which in turn requires the Court to be satisfied that the dispute is material to the question of solvency.[56] Axiomatically, that too requires evidence of solvency.
[56]In Lanepoint (2011) 244 CLR 1, the High Court arguably left open (at 15 [32]-[33]) the possibility that in some cases a winding up application should be stayed or dismissed due to some dispute relating to the debt that still exists at the time the application reaches the final hearing. The Court indisputably retains discretion under ss 459A and 467(1) of the Act to do exactly that. However, their Honours said (at 15 [33]) that ‘the current statutory scheme that disputes concerning a statutory demand should, where possible, be determined prior to the determination of the winding up application’. The Court made plain that before entertaining any such dispute there must be some evidence that would permit the Court to ascertain the solvency position of the debtor company. To this, I would add that the High Court’s comments should not be misconstrued. In the ordinary course, a genuine dispute relating to the debt is to be determined within the parameters of an application made under s 459S of the Act. A company cannot circumvent the provisions of Part 5.4 (and the preconditions for leave under s 459S) by instead raising the dispute within the sphere of abuse of process. In exceptional cases, it may be necessary to determine the dispute outside of the s 459S framework (see e.g. Re Huizhoug Investment Group [2018] NSWSC 390). There must be some cogent why the s 459S procedure was not followed. I would imagine that nothing short of impossibility of doing so should suffice. Any other conclusion would invite back the types of disputes which the High Court warned against entertaining at the final hearing of the winding up application. In this case, there is no reason why the s 459S procedure has not been followed.

While the second category alleging that an application is brought for an ‘improper purpose’ according to the principles of Williams v Spautz[57] is said to fall outside of the regime imposed by Part 5.4, and may still be raised, it is affected by the provisions of Part 5.4. A company may allege that the application has been ‘used for the improper purpose of compelling a solvent company to pay a disputed debt’,[58] but to establish that improper purpose, it remains necessary for the company to adduce evidence of solvency, given that the starting point is the presumption of insolvency.[59] The short point is that where the company is presumed to be insolvent, and there is no evidence of solvency, the existence of a genuine dispute is largely irrelevant to the Court’s discretion. The company ought to have raised the dispute prior to the final hearing of the winding up application, by an application made under either ss 459G or 459S, as contemplated by the regime imposed by Part 5.4. That is the case regardless of how the company frames the abuse of process it relies upon. The common law doctrine of abuse of process cannot be employed in a manner that would undermine the intention of Parliament that disputes as to the existence or enforceability of a debt be dealt with under the provisions of the Act.
[57](1992) 174 CLR 509.
[58]Lanepoint (2011) 244 CLR 1, 10 [16] (Gummow, Heydon, Crennan, Kiefel and Bell JJ).
[59]See e.g. Owen-Pearse v Lander Land Co Pty Ltd [2018] FCA 2077 (Owen-Pearse). It should further be noted that in the absence of commercial duress, undue pressure, extortion or some other improper conduct on the part of a creditor, an improper purpose is unlikely to be found. See Liverpool Cement Renderers (Aust) Pty Ltd v Landmarks Constructions (NSW) (1996) 19 ACSR 411, 416-7 (Tamberlin J) (Liverpool Cement).

Part 5.4 has been observed by this Court on countless occasions to have the potential of operating harshly, but that is the only way that the regime could effectively function. Were a genuine dispute surrounding a debt a legitimate basis to have a winding up application dismissed as an abuse of process, the s 459G procedure would be rendered ineffective. A company’s failure to comply with a statutory demand provides the creditor with various benefits. They include the presumption of insolvency and the barrier erected by s 459S of the Act. Those two matters preclude the company from distracting attention from the central question of solvency or asserting unsubstantiated disputes which they ought to have raised in an application to have the statutory demand set aside. That application is to be made by the company promptly. The overarching aim of Part 5.4 is to provide for a ‘speedy resolution of applications to wind up in insolvency’ and to minimise the risk that an insolvent company may be permitted to continue trading in the public arena, incurring debts which it might not be able to satisfy.[60] Matters of public policy defeat cases of individual hardship which may be faced by a company as a result of its own carelessness or negligence in not promptly addressing a statutory demand issued upon it. The preconditions for leave required by s 459S of the Act finely balance the maintenance of an efficient, timely and effective regime for the winding up of insolvent companies and the Court’s ability to do justice in appropriate cases. As the Explanatory Memorandum to the Corporate Law Reform Bill 1992 states, in relation to s 459S of the Act:[61]

E5 Evidentiary Ruling – Covert Recording

[388]T289:11-25 (20 December 2019).

The Companies attempted to enter into evidence certain transcripts of conversations which took place between (amongst others) Kuksal and Kennedy. Kuksal deposed on affidavit affirmed on 9 October 2019:

[4]I refer to the affidavit of Mr David Youl, affirmed on 18 September 2019, which deposed to transcription of eight separate audio recorded conversations of meetings involving representatives of Madgwicks and Efektiv Group. I was physically present for all meetings and recorded the conversations.
[5]I have carefully gone through the transcripts made by Mr Youl and believe them to be an accurate representation of the conversations.
[6]I know that Efektiv’s solicitor has also made the original audio recordings available to Madgwics [sic] and that Madgwicks have had access to both the transcripts and the audio recordings for almost two weeks; Madgwicks have not raised any concerns about the accuracy of the transcripts.
[7]The conversations recorded in the transcripts, although not unfriendly, were robust and forthright. Within those eight transcripts there are various statements by me expressing dissatisfaction with the amounts of Madgwicks’ legal bills, the failure of those bills to clearly identify the work performed, and the quality of the work performed. All of the criticisms which I made of Madgwicks in those transcripts were true. Indeed, in most cases Mr Kennedy of Madgwicks accepted the criticisms which I made.

Kuksal’s evidence, for obvious reasons, is rejected. David Youl was not called to give oral evidence. He deposed on affidavit affirmed on 18 September 2019, that he transcribed the recordings between Kuksal and Madgwicks. The conversations occurred between 7 September 2018 and 6 May 2019, and he had ‘taken every care to ensure that [his] transcriptions are accurate and representative of the conversations that took place.’

Madgwicks objected to the admission of the transcripts. Oral submissions were not made on the issue. Madgwicks did, however, note their objections in their written submissions on the footing that they are ‘covert transcribed recordings without knowledge or consent of the plaintiff’s participants which were not recorded or transcript by an independent authorised person’. I accept that submission, and rule that the transcripts are either inadmissible or should be excluded.

The Companies conceded that the transcripts were not produced by an authorised and independent transcript provider. They were produced by Youl, an employee or contractor of the Companies. I am not able to determine whether the transcripts accurately reflect what was said during the conversations which they apparently transcribe. The recordings have furthermore not been adduced in evidence. The transcripts, without any verification, are so unreliable that giving them any weight would be erroneous. They could not therefore rationally affect the assessment of any fact in issue in the proceeding, and as a result are inadmissible as irrelevant.[389] Even if they were admissible, I would for the same reasons, exclude the transcripts under s 135 of the Evidence Act 2008 (Vic) on the basis that any probative value those documents would have is overwhelmingly outweighed by the danger that they would be misleading and unfairly prejudicial to Madgwicks. The Companies ought to have, but did not, present authorised transcripts.
[389]Evidence Act 2008 (Vic) s 55.

I have reviewed the transcripts in any event. As noted, they were recorded without the knowledge or consent of Kennedy or other members of Madgwicks’ staff. The substantive content of the transcripts is, in any event, irrelevant. The transcripts only go to the Companies contentions that Madgwicks were negligent, which is not a relevant issue in these proceedings. There is nothing in the discussions which changes my view on any of the matters referred to in any of my Judgments. I am also alert to the possibility that the discussions, in some cases, may constitute without prejudice meetings to endeavour to resolve the dispute. Even though inadmissible, and excluded, no regard has been had to them.

E6 Conduct Issues and the Civil Procedure Act 2010 (Vic)

It is a gross understatement to say that I am dissatisfied with the manner in which the Companies and their solicitor have conducted this litigation. They have been rude and discourteous. They have continuously breached court orders. They have breached many of the overarching obligations contained within the Civil Procedure Act 2010 (Vic) (CPA).[390] They have been untruthful. They have consistently and most unfairly alleged procedural unfairness, bias, and a longstanding medical condition that has not been given proper consideration. This has caused enormous frustration to the Court and the plaintiffs. The fact is that on the critical substantive matter (evidence of solvency) and the critical procedural matter (medical condition) there is not an iota of credible evidence. On what should have been relatively straightforward winding up applications, there are now four Judgments of the Court, delivered in the course of four months, which exceed 800 paragraphs and almost 300 pages. The abuse of process is all one way.
[390]I am satisfied that there have been breaches of ss 17 (Acting honestly, at the very least in the case of Kuksal), 18 (Applications made without a proper basis), 19 (Steps taken strategically rather than to resolve dispute), 20 (Non-cooperation in proceeding), 21 (Misleading or deceptive conduct, at the very least in the case of Kuksal), 22 (Lack of reasonable endeavours to resolve dispute), 23 (Expand, rather than narrow, issues in dispute), 24 (Costs have become disproportionate, because of the Companies’ conduct), 25 (Extensive delay due to the Companies’ conduct).

Although calling for comment and criticism, it is not apparent what should be done. Section 29 of the CPA is a provision by which the Court can of its own motion or on application ‘sanction legal practitioners and parties who fail to meet their overarching obligations.’[391] The object of any orders, including orders as to costs, may be compensatory or punitive.

F Reporting

[391]Oswal [2012] VSCA 356 [17]-[27] (Redlich, Priest JJA and Macaulay AJA) citing Hudspeth and Scholastic Cleaning and Consultancy Services (No 4) [2013] VSC 14.

It goes without saying that there are a number of matters which have arisen in these proceedings which have caused me much concern. I intend to provide this Judgment to the relevant authorities in relation to the conduct detailed below.

F1 Raghavan

Raghavan is the in-house solicitor who acts for the Companies. His conduct has given rise to various concerns.

First, I have serious concerns about his professional independence. At times, he appeared to be nothing more than a mere mouthpiece to his clients, and in particular Kuksal. For instance and as noted, Raghavan made the Companies closing submissions on Friday, 20 December 2019. He noted in passing that Kuksal, who is not legally qualified, ‘assisted’ with the preparation of submissions. It was requested that Kuksal address the Court directly. This was refused. Raghavan noted that he was ‘reading [Kuksal’s] notes’ to the Court, ‘and they’re a little creative’.[392] I am concerned that he is accustomed to act in accordance with the wishes of his client, and does not provide independent Counsel in line with his ethical obligations. I am further concerned that Raghavan may have provided his name to documents presented to the Court, which may have in fact been produced by Kuksal.
[392]T295:10-1 (20 December 2019).

Secondly, Raghavan followed instructions and facilitated the Companies to make numerous applications which did not have a proper basis. There have been four recusal applications and two adjournment applications. Raghavan followed instructions to put any and all matters in issue, rather than give effect to his duty to narrow the issues in dispute.

Thirdly, I have expressed significant doubt with respect to his contended medical condition. I am satisfied, and have inferred, that he has allowed it to be used strategically for the benefit of the Companies. I have not made a finding as to its legitimacy, given that it was not necessary for this proceeding. That, however, requires investigation outside of this context. He has not been forthcoming with the Court with that matter, which has become highly relevant to the applications on various occasions.

Further, his medical condition was the basis for the adjournment of the trial sought on 12 December 2019. He affirmed an affidavit deposing to the condition which was filed in this proceeding on the morning of that hearing at 9:50am. He did not appear in Court, and one would naturally be led to believe that he was too ill to appear. However, on the same morning, he appeared to argue an application on behalf of the Companies in a related matter before Cavanough J of this Court. This was not disclosed to me.[393]
[393]See paragraph [462] and footnote 371.

Fourthly, and most seriously, Raghavan has continually acted in a discourteous manner towards the Court and to solicitors acting for Chen and Madgwicks in this proceeding. He has made baseless allegations of dishonesty. He has made threats. This is a serious matter. Detailed below are two instances of abhorrent conduct identified in the course of these proceedings.

Hager – Allegation of Dishonesty

As discussed above, Kornucopia tendered the amount the subject of the Kornucopia Demand by paying that amount to Nelson Alexander. Chen rejected that tender.[394]
[394]See paragraphs [55] to [77].

On 22 October 2019, Hager informed Raghavan that Chen’s solicitors, Keypoint, would arrange for Nelson Alexander to refund the money promptly.

Raghavan did not accept this because he had ‘no evidence’ that Hager had actually instructed Nelson Alexander to reimburse the funds. An email exchange soon followed. It is appropriate to set it out in full.

On 23 October 2019, Raghavan emailed Hager:

Vaughan,
It is quite clear to the Defendant that the Plaintiff has no intention of actually returning the tender and is merely making false assertions to conveniently use them before His Honour Justice Sifris, so, when the proceeding is actually dismissed for lack of an Originating Process, the Plaintiff May then simply keep the funds.
We note that no one from Nelson Alexander has sent us a proof of transfer or reached out to facilitate one.
We put you on notice that if there is no proof of transfer received by Kornucopia Pty Ltd before close of business today, we will use this correspondence in Court tomorrow as yet more evidence of the abuse of the Court’s processes. (emphasis added)

On the same date, Hager responded to Raghavan:

Dear Naveen,
The attempt to engineer a position is commendable, but it is rejected. I have given you my client’s direction to Nelson Alexander to pay the money back. We will follow them up. I have written to you rejecting the tender and the reasons for the rejection. I have asked for your client's bank account details, but you will not provide them. If you won't give them to me, I will arrange for a cheque to be drawn.
I look forward to hearing from you.
If you are going to put correspondence before the Court, please include this e-mail.

On 24 October 2019, Raghavan sent an email to Hager:

Vaughan,
We note that we have yet not received any confirmation of the alleged reimbursement of the payment made by our client to Mr Chen.
Please see the attached email from Mr David Anderson of Nelson Alexander confirming that they had received the bank details for our clients from Ms Lulu Xu yesterday.
Please note that we will produce the correspondence in the matter as proof of your client's continued misrepresentation to abuse the Court’s processes for collateral purposes. (emphasis added)

On 25 October 2019, Nelson Alexander sent an email to Raghavan notifying him that the funds had been reimbursed. I accept that on or around 22 October 2019, Hager instructed Nelson Alexander to do this.

Raghavan, as a solicitor and officer of the Court, does not need to be reminded of his ethical obligations.[395] Nonetheless, these statements are discourteous in the extreme. They are clear, continued and baseless allegations of dishonesty. While the allegation is expressed to be made against Chen (not that this makes that any better), it is clearly directed towards Hager, given that Hager said that he would arrange for the reimbursement of the tender to Kornucopia. Raghavan’s conduct is despicable.
[395]See Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (Vic) rr 4.1.2 and 32.1.

McNamara - Threat

As discussed above, Raghavan requested McNamara to provide the Costs Disclosure Documents to the Companies on 20 August 2019. McNamara arranged for the documents to be made available for the Companies to pick up hard-copies from Madgwicks’ office on 21 August 2019.[396] She did so under the pressure of a threat made by Raghavan.
[396]See paragraphs [259] to [264].

On 16 August 2019, Raghavan sent an email to McNamara attaching the summons for taxation. On 20 August 2019, he sent a further email, stating that it had come to his attention that various documents ‘were never sent to our clients’. He went on to say:

To ensure a fair and comprehensive taxation process at the Supreme Court of Victoria, our clients request that your firm provides to us all documents related to their financial accounts with your firm including, but not limited to, all costs disclosure agreements, all invoices, all payment receipts for monies received in trust from our clients, or on behalf of our clients, and a complete and up to date statement of account.

On 21 August 2019, McNamara responded, stating ‘In our view it is more appropriate for you to raise this matter at the callover [in the Costs Court Proceeding] on 3 September 2019’.

On the same date, Raghavan responded to McNamara:

Please note that this is a violation of our clients’ rights and a breach of the Legal Profession Uniform Law. If we do not receive the requested information by 5pm today, Wednesday 21 August 2019, our clients’ will be making a complaint to the Victorian Legal Services Board. (emphasis added)

Again on the same date, McNamara sent an email to Raghavan:

We will provide this information however it is voluminous. We hope to contact you tomorrow so that you may make arrangements to collect it. It is unrealistic to expect such a volume of material to be provided in such a short time frame.

McNamara gave evidence on 19 December 2019. At this time, she addressed me as follows, clearly shaken by the threat made by Raghavan. She said:[397]

I am very concerned of this allegation – there’s emails; there’s affidavits affirmed; Mr Kuksal said it in the witness box – how Mr Raghavan threatened to report me to the Legal Services Board should I not produce the costs agreement, statements of account and invoices. Now, Your Honour, that is a threat, and it’s no better than holding someone up in the street and saying, ‘If you don’t hand over your cash, I’m gonna shoot you’. And, Your Honour, I feel I’ve had a long, unblemished career, and I do not wish to spend the twilight years of my career in correspondence with the Legal Services Commissioner over this kind of thing. And, Your Honour, I’m just going to say this and I will let it lie where it falls, but I know Your Honour does have the authority or the power or whatever to refer a solicitor to the Legal Services Commissioner. And, as I say, I am not asking Your Honour to do so, but if Your Honour can just accept that this has caused me some distress and it was very hard. This threat made me shake, you know, when it came in that afternoon. I was very distressed about it. … Now, Mr Kuksal tried to say yesterday – when he was being cross-examined, he said, ‘Oh, you know, we were going to report the firm or Ms McNamara’, that sort of thing. Well, when I got that email, I took it to be me, and I think it was fair enough to think so. And I might add, Your Honour, I have received some of the worst emails from Mr Raghavan during the course of this proceeding. They did cease when Mr Williams commenced acting, but I think that there have been emails written that shouldn’t have been.

[397]T176:12, 177:23 (19 December 2019).

It should be put on the record that I have not have had regard to this statement in the determination of the issues which have arisen in these proceedings. However, it illustrates the seriousness of the threat made by Raghavan, in terms of the impact that it has had on McNamara.

Raghavan’s email was discourteous. It is a threat. Raghavan has held the opposing solicitor to ransom, under the threat of disciplinary action, in order to have an opposing solicitor produce documents which he and his clients have requested. Madgwicks did not act improperly by refusing the documents. They did not even refuse them. McNamara merely suggested that the issue would be more appropriately raised at the callover of the Costs Court Proceeding. Raghavan’s response was entirely unwarranted and abhorrent.

Raghavan will be referred to the Legal Services Commissioner. The Judgments in this proceeding will be provided to the Commissioner.

F2 Kuksal

The Court is permitted, where it is concerned of perjury having been committed, to make a referral to the Office of Public Prosecutions.

In Simpson v Hodges, Hall J said:[398]

It is important to observe that such a referral, if it is to be made, simply has the effect of directing the attention of the executive arm of government to a possible breach or breaches of the law so that it may, if it sees fit, investigate the matter and, as a consequence of that investigation, take such steps as it sees to be appropriate: see In the Marriage of P and P (1985) Fam LR 1100 per Lindenmayer J; Normandy Woodcutters Limited v Simpson [2002] NTSC 43 at [53].

[398][2007] NSWSC 1230 [266] (Hall J).

In Normandy Woodcutters Limited v Simpson, Mildren J said:[399]

A judicial officer who believes that offences have been committed is under a duty to refer the proceedings to the relevant authority. That duty arises by virtue of the ethical duty of persons occupying judicial office to uphold the law. It is not an exercise of judicial power: see In the marriage of P and P (1985) FLC 91-605. No investigative role by the judicial officer is involved. No recommendation is made. There are no findings made. There is no injury to anyone’s reputation by a mere referral. Nor is the judicial officer exercising executive power

[399][2002] NTSC 43 [53] (Mildren J).

As I have discussed above at length, I suspect that Kuksal may have perjured himself in the witness box.[400] He gave ‘unequivocal’ evidence that the Companies had not received the invoices produced by Madgwicks until they were supplied to them by McNamara on 21 August 2019, under pressure of the threat previously referred to, and that Kuksal had not received those documents at earlier times when they were sent by email to the Efektiv Email Address. As I have found, the Companies received those documents prior to receiving them from McNamara. They were received when they were sent to that email address or at least when Kennedy caused them to be uploaded to the Dropbox.
[400]See paragraphs [250] to [280].

I intend to refer Kuksal to the Office of Public Prosecutions. I will say nothing further.

G Conclusion and disposition

There will be a winding up order in each case. I propose to appoint Brent Leigh Morgan of Rodgers Reidy as liquidator of each of the Companies.

[2020] VSC 7

24 January 2020