Re Malosi Group Pty Ltd

[2021] NSWSC 633

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Malosi Group Pty Ltd [2021] NSWSC 633

Hearing dates:

1 June 2021

Date of orders:

4 June 2021

Decision date:

04 June 2021

Jurisdiction:

Equity - Commercial List

Before:

Black J

Decision:

Creditor’s statutory demand amount reduced by $12,920.40. Parties to bring in short minutes of order giving effect to the judgment, and as to costs, within 7 days.

Catchwords:

CORPORATIONS — Winding up — Statutory demand — Affidavit in support of application — Scope and application of Graywinter principle — Where reply affidavit went beyond scope of earlier affidavit.

CORPORATIONS — Winding up — Statutory demand — Genuine dispute about existence or amount of debt.

CORPORATIONS — Winding up — Statutory demand — Offsetting claim.

CORPORATIONS — Winding up — Statutory demand — Application to set aside — Whether demand amounts to an abuse of process — Whether defect in the demand — Where parallel proceedings brought against guarantors

Legislation Cited:

- Corporations Act 2001 (Cth), ss 459G, 459H, 459J

Cases Cited:

-Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation (2005) 157 ACTR 22; [2005] ACTCA 3

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

- BSP Mining Pty Ltd v Ranger Resources Pty Ltd [2018] VSC 263

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

- Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452; (1996) 21 ACSR 581; [1996] FCA 822

- Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd (2011) 286 ALR 768; (2011) 87 ACSR 1; [2011] NSWSC 1343

- Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd (2012) 297 ALR 372; (2012) 92 ACSR 27; [2012] NSWCA 365

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

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

-Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd [1996] NSWSC 199; (1996) 20 ACSR 746

- Re Australian Tailings Group Pty Ltd [2019] NSWSC 1218

- Re Bonheur Holdings Pty Ltd [2019] NSWSC 1434

- Re Essential Media and Entertainment Pty Ltd [2020] NSWSC 990

- Re Garawin Pty Ltd [2020] NSWSC 983

- Re Modern Wholesale Jewellery Pty Ltd [2017] NSWSC 236

- Re Tesrol Holdings Pty Ltd (2013) 97 ACSR 9; [2013] NSWSC 1534

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

-Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393; [2007] NSWSC 1143

-Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464; [1997] FCA 681

TFM Epping Land Pty ltd v Decon Australia Pty Ltd [2020] NSWCA 118

- Ziegler as trustee for the Doris Gayst Testamentary Trust v Cenric Group Pty Ltd [2020] NSWCA 85

Category:

Principal judgment

Parties:

Malosi Group Pty Ltd (Plaintiff)
Sherrin Rentals Pty Ltd (Defendant)

Representation:

Counsel:
A Rizk (Plaintiff)
N Ferrett QC (Defendant)

Solicitors:
Darby Jones Lawyers (Plaintiff)
Archibald & Brown Lawyers (Defendant)

File Number(s):

2021/80305

Judgment

Nature of the application and affidavit evidence

1. By Originating Process filed on 22 March 2021, the Plaintiff, Malosi Group Pty Ltd (“Malosi”) applies under ss 459G, 459H and 459J of the Corporations Act 2001 (Cth) to set aside a creditor’s statutory demand dated 25 February 2021 (“Demand”) issued by Sherrin Rentals Pty Ltd (“Sherrin”).

2. The Demand relates to the amount of $63,966.34, which is described in the schedule to the Demand as “money due for equipment hire and related goods and services under an agreement between [Sherrin] and [Malosi] dated 27 August 2019” and that schedule refers to fourteen tax invoices dated between 31 October 2020 and 24 February 2021. The Demand was verified by an affidavit dated 25 February 2021 sworn by Mr Sherrin, a general manager of Sherrin, who confirmed that the debt claimed was due and payable to Malosi and that he believed there was no genuine dispute about the existence or amount of the debt.

3. Malosi relied on a first affidavit dated 22 March 2021 of one of its directors, Mr Mohamad Akl. The first was filed within the 21 day period specified in s 459G of the Corporations Act and the second was purportedly filed in reply outside that period. Before turning to the substance of those affidavits, I should address an objection taken by Mr Ferrett, who appears for Sherrin, to the whole of Mr Akl’s second affidavit dated 21 May 2021, and I here incorporate the ex tempore judgment which I delivered as to that objection in the course of the hearing. Mr Ferrett objected to the whole of that second affidavit by reference to what has often been described as the “Graywinter principle”, by reference to the decision of the Federal Court of Australia in Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452; (1996) ACSR 581; [1996] FCA 822, but is properly understood as a reflection of the statutory requirements under s 459G(3) of the Corporations Act to which I will shortly refer.

4. Mr Rizk, who appears for Malosi, accepts that the issues raised by Mr Akl’s first affidavit, filed within the 21-day period specified in s 459G of the Corporations Act, are the position in respect of invoices relating to repairs (in paragraph 8), the position in respect of invoices totalling $19,009 in relation to repairs to excavator buckets (in paragraph 10), the proposition that the invoices attached to the Demand were invoices relating to repairs, so far as they were issued after 3 December 2020 (in paragraph 11), a further reference to a dispute as to damage to excavator buckets (in paragraphs 16 and 17) and presumably the associated repair costs and, by way of summary (in paragraphs 20(a)-(b)) a dispute relating to excavator buckets and repairs. Mr Akl also referred, in paragraph 22 of his first affidavit, to an offsetting claim for time relating to periods in which machines were broken down, which he then quantified as in the vicinity of $40,000 to $50,000. Mr Rizk fairly concedes that two issues raised in Mr Akl’s second affidavit, in respect of a claimed overcharge for days on which the machines were not used by Malosi and a claim for transport fees were not raised in his first affidavit dated 22 March 2021. It appears that paragraphs 19-36 of Mr Akl’s second affidavit relate to days that were charged although Malosi contends that the hired machines were not in use and to transport fees, together totalling $3,192.20, are within the scope of that concession. Paragraphs 35-53 relate to claims in respect of repair charges, some of which appear to be actively disputed, and others of which are met with a narrower proposition that Malosi does not understand the basis of the charge.

5. Mr Ferrett submits that, to the extent that matters were not raised in the first affidavit within the 21 day period specified in s 459G of the Act, they cannot properly be relied on in the application to set aside the Demand, and that turns on the scope of s 459G of the Act, as addressed in the case law. In Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund above, Sundberg J pointed to the requirement in s 459G(3) of the Act that there be an affidavit supporting an application to set aside a creditor’s statutory demand, and observed that the affidavit filed in that period must disclose material facts showing that there was a genuine dispute between the parties, and excluded later reliance on matters that are not disclosed, within the 21-day period, as constituting part of the material facts relied on to establish a genuine dispute.

6. The balance of authority indicates that the application of s 459G(3) of the Act, as reflected in Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund above, raises a fact specific inquiry whether an affidavit in support of an application to set aside a creditor’s statutory demand in fact supports the application, in respect of a relevant matter, and it will do so sufficiently to raise a relevant ground of dispute if that dispute is raised by necessary or reasonably available inference: Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd (2011) 286 ALR 768; (2011) 87 ACSR 1; [2011] NSWSC 1343; Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd (2012) 297 ALR 372; (2012) 92 ACSR 27; [2012] NSWCA 365. The Court of Appeal in turn referred to that principle in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; (2019) 136 ACSR 563; [2019] NSWCA 60, where Bell P criticised the use of the shorthand label “Graywinter principle” and referred to the historical origin of that principle. In Re Bonheur Holdings Pty Ltd (2019) 141 ACSR 409; [2019] NSWSC 1434 at [22], I pointed out, by reference to Bell P’s language in Grandview Ausbuilder Pty Ltd above, that the “Graywinter principle” had its foundation in s 459G of the Act which requires that an application be made within the 21-day period after a creditor’s statutory demand is served and that the affidavit be such as to support that application. I there noted that that is a matter which goes to the Court’s jurisdiction to hear the application and not a matter involving any element of discretion on the Court’s part. The inquiry raised by the “Graywinter principle” is, in effect, whether a dispute as to a particular matter was raised within the 21-day period, so as to be in issue as a basis on which the Demand is to be set aside. Counsel also drew my attention to the Court of Appeal’s decision in Ziegler as trustee for the Doris Gayst Testamentary Trust v Cenric Group Pty Ltd [2020] NSWCA 85, where Gleeson JA reviewed the case law which addressed what is required by way of evidence to establish a genuine dispute for an offsetting claim, and addressed the question whether the claim at issue in that case had been sufficiently raised in the affidavit in support.

7. Mr Rizk in turn refers to Malosi’s contention that, in this case, some aspects of relevant information emerged from Sherrin’s affidavits, and are in turn picked up in Mr Akl’s second affidavit, where he responds to invoices which, Mr Rizk contends, did not particularise the claim. It seems to me that that proposition does not advance matters, where the source of the limit on the Court’s jurisdiction is s 459G of the Act, requiring that the relevant matter that gives rise to a dispute be raised within the specified 21-day period.

8. It seems to me that the issues as to repair charges raised in paragraphs 35-53 of Mr Akl’s second affidavit refer to matters that were raised within Mr Akl’s first affidavit, so far as there were repeated references in that affidavit to a dispute as to repair charges and a claim that Malosi had been overcharged for repair charges. The issues raised in the second affidavit as to charges for days when equipment was not in use by Malosi, and as to transport costs, seem to me to be outside the scope of the dispute raised by the first affidavit, within the 21-day period specified by s 459G of the Act. It is, therefore, not open to Malosi to rely on those matters in order to set aside the Demand, and that does not depend on any exercise of the Court’s discretion, but is a consequence of the statutory limitations upon an application to set aside a creditor’s statutory demand under s 459G of the Act. For that reason, I rejected paragraphs 19-34 of Mr Akl’s affidavit dated 21 May 2021. I admit the balance of that affidavit.

9. I note, for completeness, that Mr Ferrett did not object to that affidavit on the basis that it was not properly in reply. On 17 May 2021, I had made an order extending the time for Malosi to file and serve its evidence in reply to 21 May 2021, following an earlier order for the service of evidence in reply. It seems to me that at least paragraphs 19-20, 21-34 and 37-53 of that affidavit are arguably evidence in chief, and not evidence in reply, and raise new issues to which Sherrin will have no opportunity to respond, when they are first led in reply. It may be that those paragraphs would have been rejected on that basis, as not reply evidence and outside the leave that had been granted, had objection been taken on that basis.

10. Turning now to the content of those parts of Mr Akl’s affidavit that were admitted, his evidence in his first affidavit was that Malosi was in the business of recycling and waste processing and he referred to Malosi hiring equipment from Sherrin on what he described as a “30 day rolling credit basis” and to his understanding that an invoice issued by Sherrin was due and payable within 30 days of its issue. Under the heading “genuine dispute”, Mr Akl referred to an earlier telephone conversation where a representative of Sherrin claimed that an amount was due in rental fees and repair charges, referred to an email attaching a deed of settlement (which was not relied on by either party) and indicated that Malosi “disagreed” with charges relating to repairs totalling $19,009. Mr Akl there stated, by a bare assertion only, that those charges were in dispute and were not due and payable and claimed that the invoices issued on and after 3 December 2020 in the schedule to the Demand related to repairs.

11. Mr Akl also referred to the issue of an earlier creditor’s statutory demand by Sherrin in the amount of approximately $83,000 on or about 9 February 2021, which was apparently withdrawn and which I need not further address. Mr Akl referred to the question of the condition in which excavator buckets were returned to Sherrin after hire and denied that those buckets were damaged or returned in a damaged form to Sherrin, and claimed, again by a bare assertion, that there was a genuine dispute about that matter and, implicitly, about several repair charges invoiced by Sherrin in respect of those buckets. Mr Akl also identified the basis on which Malosi seeks to set aside the Demand, namely that Sherrin “is using the statutory demand process as a debt collection tool”; that Sherrin failed to properly account for a credit in respect of the excavator buckets; that Sherrin knew that Malosi disputed the invoices relating to repairs; that the invoice dated 24 February 2021 was not due and payable; and that the entirety of the debt claimed under the Demand is not due and payable, for reasons that Mr Akl does not identify. Mr Akl’s first affidavit also identifies an offsetting claim against Sherrin for time that he claims the machines were broken down. He indicates that the quantification of the offsetting claim would be set out “in further detail in due course” and estimated that claim to be in the vicinity of $40,000 to $50,000. That did not occur and that claim was not pursued.

12. In the parts of Mr Akl’s second affidavit which were admitted, he referred to discussions and correspondence with Mr Whelan disputing repair invoices and did not identify the basis for any such dispute. Mr Akl identified disputes as to several invoices, and again refers to a dispute as to repair charges, now identified as being a dispute that the charges were “unreasonable or excessive”, or that Malosi did not accept that it was responsible for “repairs carried [out] as a result of fair wear and tear”.

13. Malosi also relies on an affidavit dated 31 May 2021 of its solicitor, Mr Khanji, referring to the commencement of proceedings in the Magistrate’s Court of Queensland against the directors of Malosi, in their capacity as guarantors of the debt claimed against Malosi, and annexed a copy of the relevant Statement of Claim.

14. Sherrin in turn relies on an undated affidavit of Mr Sherrin, which referred to a credit application submitted by Malosi to Sherrin and associated terms and conditions; to quotations for equipment hire issued by Sherrin to Malosi on 30 September 2019 and 10 June 2020 and rental agreements between Sherrin and Malosi dated 24 September 2019, 22 November 2019 and 22 October 2020; and to a statement of account for Malosi’s credit account showing an outstanding balance of $63,966.34, being the amount claimed in the Demand. Mr Sherrin’s affidavit exhibited the invoice and credit notes which specify rental charges, stand-down credits and repair invoices, and noted that rental charges totalled $46,492.94 and repair invoices totalled $17,473.40, and identified the work which was done in respect of the repair invoices. Mr Sherrin also referred to aspects of Malosi’s business which caused greater damage to rented excavation equipment than would ordinarily occur and referred to photographic evidence of damage which was the subject of some of the repairs claimed. Mr Sherrin also addressed correspondence containing stand-down credits, the return of two excavators to Sherrin in December 2020 and the subsequent return of three associated buckets to Sherrin in late February 2021, resulting in the issue of a credit note to Malosi, and repairs in respect of those buckets. Mr Sherrin also gave evidence of several payment arrangements made with Malosi, which were apparently not complied with by Malosi, since early 2020 and also addressed a letter of demand issued by Sherrin’s solicitors on 12 February 2021, in a greater amount that that claimed in the Demand since the excavator buckets had not then been returned, and to an email of the same date from a representative of Malosi indicating that the invoices were disputed.

15. Sherrin also relies on an affidavit dated 20 April 2021 of Mr Moore, a solicitor acting for Sherrin, which referred to correspondence received from solicitors acting for Malosi asserting a “genuine dispute” in respect of the Demand, and raising a range of other possible bases to set aside the Demand, and to his response to that letter. That correspondence does not take matters further.

Whether a genuine dispute is established

16. First, Malosi seeks to set aside the Demand on the basis of a genuine dispute, limited to invoices relating to repair charges. The Court has power to set aside a creditor's statutory demand under s 459H(1)(a) of the Corporations Act 2001 (Cth) where there is a genuine dispute between the company and the issuer of the demand about the existence or amount of the debt to which the demand relates. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464; [1997] FCA 681, the Full Court of the Federal Court observed that a genuine dispute must be bona fide and truly exist in fact, and the grounds for the dispute must be real and not spurious, hypothetical, illusory or misconceived. The threshold to establish a genuine dispute is not high, and it is necessary to bear in mind the observations of Barrett J (as his Honour then was) in Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18] that:

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

17. I also have regard to the decision of the Court of Appeal in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 where, the Court in summarising the case law applicable to offsetting claims, conducted a comprehensive review of the cases referable to establishing whether a genuine dispute was established. The Court emphasised that the evidence necessary for that purpose "need not conclusively prove or otherwise be incontrovertible or substantially non-contestable", and also observed (at [46]) that:

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

The Court also emphasised (at [47]) that the Court's role was, in such an application:

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

18. In Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 at [8], Barrett JA summarised the applicable principles and approved my observations in Re Wollongong Coal Ltd (2015) 110 ACSR 134; [2015] NSWSC 1680 at [9]-[22], as follows:

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

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

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

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

19. A similar approach was adopted by the Court of Appeal in in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd above. I have partly drawn on my summary of the relevant principles in Re Australian Tailings Group Pty Ltd [2019] NSWSC 1218 and in Re Garawin Pty Ltd [2020] NSWSC 983 for these observations.

20. By his outline of submissions dated 28 May 2021, Mr Rizk identifies the requirements to set aside a creditor’s statutory demand and refers to the affidavits of Mr Akl dated 22 March 2021 and 21 May 2021 as identifying “a number of issues with the repair charges” claimed in the Demand and submits that a genuine dispute arises in respect of those charges. In closing submissions, Mr Ferrett accepted that, once paragraphs 35-45 and 49-50 of Mr Akl’s 21 May affidavit were not rejected on the basis of the Graywinter principle (and, I interpolate, no objection was taken to them on the basis that they were not properly evidence in reply), they established a genuine dispute as to several repair invoices. Mr Ferret submitted that paragraphs 46-48 of that affidavit do not establish such a dispute. I do not accept that submission, where the amount of $957 claimed relates to the repair of a mud bucket attachment and Mr Akl’s first affidavit and the other paragraphs to which Mr Ferrett referred raise a contention that the mud bucket was not damaged beyond fair wear and tear and those repair costs were not properly charged. The amount of the disputed charges is $12,920.40 and the Demand should be varied to reduce it by that amount. Mr Ferrett submits, and I accept, that paragraphs 51-53 of Mr Akl’s affidavit go no further than to express his lack of understanding as to the basis of a charge of $4147 for repairs to a “tongue assembly” and do not establish an identified basis for a genuine dispute as to that matter: Re Tesrol Holdings Pty Ltd (2013) 97 ACSR 9; [2013] NSWSC 1534 at [42].

Whether an offsetting claim is established

21. An offsetting claim, for the purposes of s 459H(1)(b) of the Corporations Act 2001 (Cth), is the amount of a claim or claims that a company has against a person who served a creditor's statutory demand by way of counterclaim, set off or cross demand, whether or not that amount arises out of the same transaction or transactions as the debt to which the demand relates. If the Court is satisfied that a company has an offsetting claim, then the Court is required to calculate the substantiated amount of the demand by deducting any offsetting claim from the admitted amount of the debt, as defined. The Court of Appeal has in turn explained the test for an offsetting claim in Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd above (at [30]) as follows:

“It is settled law that s 459H requires the Court to be satisfied that there is a 'serious question to be tried'...or 'an issue deserving of a hearing' as to whether the company has such a claim against the creditor… The claim must be made in good faith: …”

22. The Court of Appeal also addressed the applicable principles in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd above (at [8] and [62]-[66]), in the judgment of Bell P, with whom Sackville AJA agreed (at [98]).

23. Mr Rizk refers to an offsetting claim and to the affidavits of Mr Akl dated 22 March 2021 and 21 May 2021. Mr Rizk’s first affidavit identifies an offsetting claim quantified as $40,000 to $50,000, but does not establish its basis, and the different matters relating to the offsetting claim in the second affidavit amount to a claim of $3,357.20. Mr Ferrett responds, and I accept, that there can be no basis for an offsetting claim, because no right to repayment of an amount, by way of restitution or otherwise, can arise where the amount has not been paid by Malosi. At best, the amounts claimed, to the extent that there is any evidence to support them in Mr Akl’s affidavits, could give rise to a genuine dispute in respect of a claim for payment of those amounts is made by Sherrin.

Whether the Demand should be set aside for some other reason

24. Mr Rizk submits that the Demand should be set aside under s 459J of the Act. That section confers a discretion to set aside a creditor’s statutory demand, and is available at least where the issue of that demand would be unconscionable or amounts to an abuse of process or where the issue of the demand would subvert the statutory scheme: Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation (2005) 157 ACTR 22; [2005] ACTCA 3 at [27]; Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393; [2007] NSWSC 1143 at [33]. The Court’s power to set aside a creditor’s statutory demand under that section exists to maintain the integrity of the process provided under Pt 5.4 of the Corporations Act and is not exercised by reference to subjective notions of fairness: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746; [1996] NSWSC 199; Re Modern Wholesale Jewellery Pty Ltd [2017] NSWSC 236 at [24].

25. First, Mr Rizk submits that the Demand was an improper attempt to collect a disputed debt without resort to legal proceedings. That submission cannot be accepted in respect of the unpaid rental amounts, which Mr Rizk acknowledges are not disputed, or the amount of the Demand as varied. The Court of Appeal observed in TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] NSWCA 118 at [95]-[96]:

“There is nothing wrong with a creditor issuing a statutory demand for an undisputed debt which the debtor refuses to pay. As Austin J said in Moutere v Deputy Cmr of Taxation [2000] NSWSC 379; 34 ACSR 533 at [54]:

“The policy underlying s 459H is that the statutory demand procedure should not be used to coerce a person to pay a disputed amount. A statutory demand is not an instrument of debt collection.”

The same point was made in Re Pages Sales Pty Ltd [2016] NSWSC 616 at [28] and Re Tesrol Holdings Pty Ltd [2013] NSWSC 1534 at [64]. In the latter case, Black J said:

“the proposition that a creditor’s statutory demand should not be used to collect a disputed debt necessarily depends upon it being established that the relevant debt is in fact a genuinely disputed debt. … Conversely, it does not seem to me that there is any impropriety in a creditor relying on the creditor’s statutory demand procedure, where a genuine dispute has not been raised, merely because the relevant debtor is not prepared to acknowledge that the debt is owing. There would be little utility in a statutory regime for the service of a creditor’s statutory demand if that regime could not be relied upon by a creditor as soon as the relevant debtor advised that the creditor had not established to the debtor’s satisfaction that the debt was owing.”

26. Second, Mr Rizk submits it is genuinely arguable that at least the February and possibly two January invoices were not due and payable at the date of the Demand, because there was a practice or implied term of allowing Malosi 30 days for payment of its invoices. The particular issues as to a claim for an amount that was not then due and payable were helpfully summarised by Rees J in Re Essential Media and Entertainment Pty Ltd [2020] NSWSC 990 at [98]-[102] as follows:

“A company may not dispute the existence of the debt claimed by the creditor, but dispute that the debt is “due and payable”. The courts have vacillated as to whether such a dispute should be dealt with under section 459H(1)(a), section 459J(1)(a) or section 459J(1)(b): see Portrait Express at 751 per Bryson J cf NT Resorts Pty Ltd v Deputy Cmr of Taxation (1998) 16 ACLC 957; (1998) 153 ALR 359 at 367 per Finkelstein J; A R Pilot Pty Ltd v Gouriotis [2007] NSWSC 396 per Barrett J at [19] and In the matter of Forza Plumbing Systems Pty Ltd [2013] NSWSC 1234 per Brereton J at [19]. In In the matter of MK Group Phoenix Pty Ltd [2014] NSWSC 1467, Black J concluded that a statutory demand claiming monies which were not due and payable gave rise to a defect in the demand that would cause substantial injustice for the purposes of section 459J(1)(a), would also be an abuse of the statutory demand procedure for the purposes of section 459J(1)(b), and, in that case, should also be set aside by reason of a genuine dispute as to whether the monies were due and payable: at [27] and [41]. In Tuffrock, Black J noted that a genuine dispute as to whether the debt is due and payable can provide a sufficient basis to set aside a creditor’s statutory demand under section 459J(1)(b), and was satisfied in that case that a genuine dispute had been established as to whether the debt was due and payable and set the demand aside under section 459J(1)(b): at [15] and [18].

The same approach was taken by Barrett AJA in In the matter of PostNet Australia Pty Ltd [2017] NSWSC 160 at [16] –[17] and Gleeson JA in In the matter of Longjing Pty Ltd (2017) 123 ACSR 456; [2017] NSWSC 1534 at [44]. More recently, in AspectFP Pty Ltd v Messer [2019] VSC 249, Gardiner AsJ concluded that the plaintiff’s proposed construction of a loan agreement was completely untenable, being that interest would only be payable at the plaintiff’s whim if and when it decided to repay the principal debt: at [23]. On the proper construction of the loan agreement, interest was due and payable. There was thus no genuine dispute under section 459H that the interest was due and payable.

As to the onus and standard of proof, Gleeson JA noted in Longjing at [46]:

… it is common ground that the same approach in terms of “onus” should apply under s 459J(1)(b) to the issue whether the debt the subject of the demand is not presently due and payable, as would be the case if the issue arose in the context of whether there was a “genuine dispute” in relation to the debt under s 459H(1). That is, the relevant question is whether there is a “plausible contention requiring investigation” that the debt is not presently due and payable: Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601 at [55] (Beazley P, Meagher JA and Gleeson JA).

In this regard, Gleeson JA expressed doubt as to the majority view in MNWA Pty Ltd v Deputy Cmr of Taxation (2016) 250 FCR 381; [2016] FCAFC 154 that proof on the balance of probabilities applied, noting that the majority’s comments were obiter: at [47]–[48]. Those doubts were shared by Black J in In the matter of JF Essential Power Pty Limited [2018] NSWSC 435 at [24] , where his Honour followed the dissenting judgment in MNWA …

Thus, when a company applies to set aside a statutory demand on the basis that there is a genuine dispute, not as to the existence or the amount of the debt, but whether it is due and payable within the meaning of section 459E, then the Court may set it aside either under section 459H(1)(a), 459J(1)(a) or 459J(1)(b), but, whichever route is taken, the Court must be satisfied before doing so that there is a “plausible contention requiring investigation” that the debt is not presently due and payable.”

27. Mr Rizk also submits that there is some other reason to set aside the Demand for the purposes of s 459J of the Act. First, Mr Rizk points to the fact that Sherrin included in its Demand, which was issued on 25 February 2021, an invoice issued on 24 February 2021 and refers to a usual practice between the parties that Malosi was provided with 30 days to pay an invoice after that invoice was issued. However, I accept Mr Ferrett’s submission in response that cl 4.10(b) of Sherrin’s terms and conditions for hire, on which both parties rely, made clear that all debts, including those that were the subject of further invoices, were immediately due and payable once Malosi had failed to pay an invoice by the time due for payments, as was plainly the case here in respect of the uncontested rental invoices. That express term plainly excludes any inconsistent practice or implied term, that had effected when such invoices were not overdue. There is no plausible basis for a claim that the amounts for the January and February 2021 invoices were not immediately due and payable when issued and no basis to set aside the Demand under s 459J of the Act on that basis.

28. Second, Mr Rizk submits that the proceedings issued by Sherrin against the guarantors, in the Supreme Court of Queensland, give rise to some other reason to set aside the Demand. I do not accept that submission. Although a creditor’s statutory demand may be set aside if parallel proceedings are issued against the company that is the subject of that demand, that approach should not be extended to the position where proceedings are brought against guarantors. As Randall AsJ observed in BSP Mining Pty Ltd v Ranger Resources Pty Ltd [2018] VSC 263 at [20] the authorities relating to parallel proceedings against the debtor are distinguishable where the proceedings are brought against guarantors, and a creditor’s conduct in pursuing a remedy against the guarantee and at the same time seeking to obtain the presumption that that the debtor is insolvent cannot be described as unreasonable, an abuse of process or as giving rise to substantial injustice.

Orders

29. For these reasons, the Demand should be varied by reducing the amount claimed by $12,920.40. I direct the parties to bring in agreed orders to give effect to this judgment, and as to costs, within 7 days or, if there is no agreement between them as to those orders, their respective draft orders and submissions not exceeding 5 pages as to the differences between them.

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Decision last updated: 04 June 2021