Re Modern Wholesale Jewellery Pty Ltd

[2017] NSWSC 236

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Modern Wholesale Jewellery Pty Ltd; In the matter of Global Austral Pty Ltd; In the matter of Modern Wholesale Jewellery Pty Ltd [2017] NSWSC 236
Hearing dates:	2, 9 and 22 February 2017
Decision date:	14 March 2017
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Order in each proceeding that that the Creditor’s Statutory Demand be set aside and that the Defendant pay the costs of the proceeding on an indemnity basis, as agreed or as assessed.
Catchwords:	CORPORATIONS – Winding up – Application to set aside creditor’s statutory demands under Corporations Act 2001 (Cth) s 459G – where debts identified in demands are the subject of District Court proceedings brought by the Defendant – where there is inconsistent evidence as to the terms of any agreements giving rise to the alleged debts – where there is a dispute as to whether the Defendant charged, and was permitted to charge, for legal, conveyancing, tax or credit services – whether a genuine dispute is established – whether the statutory demands should be set aside for some other reason.
Legislation Cited:	- Corporations Act 2001 (Cth), ss 459H, 459J - Legal Profession Uniform Law (NSW)
Cases Cited:	- Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601 - Commonwealth Bank of Australia v Garuda Aviation Pty Ltd [2013] WASCA 61; (2013) 45 WAR 92; 93 ACSR 168 - CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 45 WAR 92; 47 ACSR 100 - CVC Investments Pty Ltd v P&T Aviation Pty Ltd (1989) 18 NSWLR 295 - David Grant & Co Pty Ltd v Westpac Banking Corp [1995] HCA 43; (1995) 184 CLR 265 - Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 - First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939 - Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 2 - James Estate Wines Pty Ltd v Winelink (Australia) Pty Ltd [2003] NSWSC 744; (2003) 47 ACSR 72 - King Furniture Australia Pty Ltd v Higgs [2011] NSWSC 375 - Ligon 158 Pty Ltd v Huber [2016] NSWCA 330 - Mala Pty Ltd v Johnston (1994) 13 ACLC 100 - Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229 - Murphy v Teakbridge Pty Ltd [1999] NSWSC 1231 - Perlake Pty Ltd v Finance & Mortgage Corp (NSW) Pty Ltd (1996) 15 ACLC 76 - Portfolio Projects Pty Ltd v Oakes Building Co Pty Ltd (1987) 5 ACLC 911 - Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd [1996] NSWSC 199; (1996) 20 ACSR 746 - Professional Advantage Pty Ltd v Australian Broadcasting Commission [2007] NSWSC 607 - R2M Pty Ltd v Gourlay [2011] FCA 168 - Re Diveva Pty Limited [2015] NSWSC 509 - Re Scahill & Co Pty Ltd [2016] NSWSC 712 - Re Suters Holdings Pty Ltd [2012] NSWSC 1051 - Re Tetbury Pty Ltd [2017] NSWSC 37 - Re UGL Process Solutions Pty Ltd [2012] NSWSC 1256 - Re Wollongong Coal Ltd [2015] NSWSC 1680; (2015) 110 ACSR 134 - Re Zarzar Pty Ltd [2017] NSWSC 93 - Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 39 NSWLR 311; 20 ACSR 108, - Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772 - Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 - Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 - Wildtown Holdings Pty Ltd v Rural Traders Co Ltd [2002] WASCA 196; (2002) 172 FLR 35
Category:	Principal judgment
Parties:	2016/280393 Modern Wholesale Jewellery Pty Ltd (Plaintiff) Wyse & Young International Pty Ltd (Defendant) 2016/280408 Global Austral Pty Ltd (Plaintiff) Wyse & Young International Pty Ltd (Defendant) 2016/296755 Modern Wholesale Jewellery Pty Ltd (Plaintiff) Wyse & Young International Pty Ltd (Defendant)
Representation:	Counsel: W Soon (Plaintiff – in each matter)   Solicitors: JK Lex (Plaintiffs – in each matter) G Dimitriou (self-represented – in each matter)
File Number(s):	2016/280393; 2016/280408; 2016/296755

Judgment

1. These proceedings involve three applications to set aside three creditor’s statutory demands, two of which were issued by Wyse & Young International Pty Ltd (“WYI”) to Modern Wholesale Jewellery Pty Ltd (“Modern”) and the third of which was issued by WYI to Global Austral Pty Ltd (“Global”). The proceedings involve substantially the same facts and somewhat similar legal issues. I will deal first with the position as to the first creditor’s statutory demand issued to Modern (“First Modern Demand”) and refer back to that analysis, as appropriate, in dealing with the position as to the creditor’s statutory demand issued to Global (“Global Demand”) and the second creditor’s statutory demand issued to Modern (“Second Modern Demand”).

The first creditor’s statutory demand issued to Modern

2. On 30 August 2016, WYI issued the First Modern Demand to Modern which claimed the amount of $87,042. The schedule to the First Modern Demand described the debt as:

“[a]mount payable by [Modern] to [WYI] [c]omprising of unpaid invoices dated between the period 17 June 2012 to 30 June 2016 ([i]nclusive)”.

Although that description did not itself identify the particular invoices to which the First Modern Demand was directed, Modern appears to have been able to identify those invoices and took no point as to the adequacy of that description in submissions. The First Modern Demand was verified by an affidavit of the sole director of WYI, Mr George Dimitriou, dated 30 August 2016 which stated, inter alia, that the debt was due and payable and that he believed there was no genuine dispute about the existence or amount of the debt.

3. On the next day, 1 September 2016, WYI brought proceedings in the District Court of New South Wales, by which it claimed an amount of $163,279.95 (the amount which was subsequently claimed in the Second Modern Demand) against Modern, Global and five individuals. Paragraph 13 of the Statement of Claim filed in those proceedings identified the claim against Modern as comprising, in part, $87,042 claimed by WYI as fees for accounting and business services, being the same amount as was claimed in the First Modern Demand and paragraph 14 made a similar allegation in respect of Global, which I will address below. Paragraph 21 of that Statement of Claim pleaded that Modern had engaged WYI on or about 2 May 2012, although it did not specify the terms of that engagement, and paragraph 22 made a similar allegation in respect of Global which I will address below. Paragraphs 27–28 pleaded cost agreements and costs disclosure statements handed to the several individual defendants and signed by them, including on behalf of the companies, in August 2012. Paragraph 32 pleaded the issue of invoices in the amount of $296,720.22, substantially more than is now claimed in the Demands, and paragraphs 33ff pleaded that substantial payments had been made by the defendants in the District Court proceedings in respect of those invoices.

4. Modern filed its application to set aside the First Modern Demand on 19 September 2016, initially relying on a genuine dispute under s 459H of the Corporations Act 2001 (Cth). The basis of the application to set aside the First Modern Demand was extended, by Amended Originating Process filed on 5 October 2016, also to rely on s 459J(1)(b) of the Corporations Act. Modern contended that the First Modern Demand constituted an abuse of process, so far as the debt claimed was the subject matter of dispute in the proceedings brought by WYI against Modern in the District Court of New South Wales.

5. Modern relies, in support of its application to set aside the First Modern Demand, on an affidavit of its Director, Mr Kamel Barakat, dated 18 September 2016. Mr Barakat refers to a conversation with Mr Dimitriou in April 2012, in which he claims that Mr Dimitriou offered to provide business, accounting and taxation services to two companies and family members at a cost of no more than $10,000 a year and that Mr Barakat accepted that offer. Mr Barakat’s claim for an agreement formed on that basis is plainly inconsistent with the basis on which the First Modern Demand has been issued to Modern. It is also inconsistent with the terms of the written agreements on which WYI relies and may also be inconsistent with the basis on which payments have already been made by Modern to WYI, which are treated as a reduction in the amount claimed by WYI, although the nature and extent of that inconsistency was not fully explored in submissions before me. Mr Barakat’s evidence is that he could not recall (although he did not in terms deny) entering into the written costs agreements with WYI in a personal capacity or for any other entity and he also could not recall (although he also did not deny) being forwarded such agreements with respect to the 2012–2016 years.

6. Mr Barakat also refers to an email dated 18 August 2016 which he sent to Mr Dimitriou disputing the amounts claimed in the invoices which acknowledged that work was done but stated that he considered the outstanding amount claimed to be “excessive and unacceptable” and identified issues as to the invoices including claims of double counting, charges for amounts paid directly by Modern to third parties, charges for legal services said to have been provided by Modern in contravention of the Legal Profession Uniform Law (NSW), failure to disclose or agree an hourly rate and failure to scope the engagement. At least by 18 August 2016, it was apparent from that email that there was a dispute as to the invoices issued to Modern. Mr Barakat’s affidavit also identifies disputes as to amounts claimed in numerous individual invoices. It is not necessary for me to address those disputes given the views which I have formed on other grounds, and it is not appropriate for me to do so where those issues are likely to require determination in the proceedings in the District Court of New South Wales.

7. The near contemporaneous issue of the First Modern Demand and the commencement of proceedings in the District Court by WYI were likely to, and did, lead to significant procedural difficulties. Other procedural difficulties also arose in the District Court proceedings. WYI initially obtained default judgment against Modern in those proceedings on 20 October 2016, and that default judgment was then subsequently set aside on 4 November 2016. A Defence was filed by the Defendants, including Modern, in the District Court proceedings on 9 November 2016. That Defence, inter alia, denied liability for the amounts claimed by WYI for work that was alleged to relate to legal, conveyancing, tax or credit advice on the basis that WYI was not entitled to undertake such work; Modern admitted that some services were provided and denied that other services were provided by WYI; and Modern pleaded an agreement that Modern and other entities associated with Mr Barakat would pay a sum of $10,000 inclusive of GST to WYI each year for accounting and bookkeeping services, and referred to payments made in that regard, and denied that WYI had provided services to Modern in 2014–2016.

8. WYI subsequently brought a further application in the District Court on 4 December 2016 which seeks to reinstate the default judgment, notwithstanding that Modern has now filed its Defence, and it appears that application has been heard but not yet determined by the District Court. It is not necessary for me to seek to forecast the result of that application, because that default judgment did not exist when the Demand was issued; the present position is that the default judgment has been set aside and not reinstated; and WYI cannot rely on any judgment debt in this application. The reinstatement of that default judgment, if it occurs, would also have no impact upon the conclusions that I have reached below in respect of the application of s 459J of the Corporations Act to the three creditor’s statutory demands in issue in these applications. It appears that proceedings have also been commenced in the Real Property List of this Court in respect of caveats lodged by WYI. Modern also relies on the affidavit of its solicitor, Mr Kisrwani, dealing with the conduct of the District Court proceedings.

9. WYI in turn relies on a voluminous affidavit of Mr Dimitriou dated 3 November 2016 which appears to have been largely copied from an earlier affidavit in support of WYI’s application to set aside the order of the District Court that had set aside the earlier default judgment in favour of WYI against Modern, without particular regard to whether its content was relevant to these applications. WYI also relies on the exhibits to Mr Dimitriou’s affidavit filed in the District Court proceedings, comprising two lever arch folders of documents. Substantial parts of that affidavit were in the nature of bare assertions as to matters in issue as to the effect of agreements and were admitted as submission only.

10. Mr Dimitriou’s affidavit refers to numerous communications with Mr Barakat and members of his family in the course of WYI’s pursuit of payment for the services provided to Modern, Global and members of the Barakat family. A number of those conversations might, if Mr Dimitriou’s evidence was accepted in a trial on the merits, support an inference that an amount is due to WYI, although those communications do not appear to involve any specific admission that the particular amounts claimed by WYI against Modern or Global or any particular part of them are due and payable to WYI. That exhibit also includes copies of the invoices issued by WYI. However, the tender of invoices issued by a service provider does not, in itself, establish the fact that the work claimed in those invoices was done, or the amount for which it would properly be charged, in a manner that can exclude a genuine dispute as to the basis of the engagement, the basis of the relevant charges, whether the work was in fact done, or whether the costs of the work claimed are properly recoverable where other evidence exists which raises a dispute as to those matters.

11. WYI also relied on appointment letters and costs agreements, to which I have referred above. By way of example, a letter dated 2 May 2012, which was addressed to several individuals associated with the Barakat family, but not to Modern or Global, referred to the provision of advice to those individuals and also to those companies, and was signed on behalf of Modern by Mr Barakat. A further letter dated 15 June 2012 was addressed to Mr Barakat, refers to Modern and Global, and was signed by Mr Barakat on behalf of Modern and Global.

Whether a genuine dispute is established in respect of the First Modern Demand

12. I now turn to the question whether a genuine dispute has been established in respect of the First Modern Demand, so as to require that demand to be set aside or varied under s 459H(1)(a) of the Corporations Act. The principles applicable to determining whether a genuine dispute is established are well-known, and I have drawn here on my summary of them in Re Tetbury Pty Ltd [2017] NSWSC 37.

13. Section 459H(1)(a) of the Corporations Act provides that a creditor’s statutory demand may be set aside when the Court is satisfied that there is a genuine dispute about the existence or amount of a debt to which that demand relates. The test for a “genuine dispute” has been variously formulated as requiring that the dispute is not “plainly vexatious or frivolous” or “may have some substance” or involves “a plausible contention requiring investigation” and is similar to that which would apply in an application for an interlocutory injunction or a summary judgment: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 at 464, the Full Court of the Federal Court held that a “genuine dispute” must be bona fide and truly exist in fact, and the grounds for that dispute must be real and not spurious, hypothetical, illusory or misconceived. In CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100 at [16], Barrett J summarised the principle as follows:

“[T]he task faced by the company challenging a statutory demand on the genuine dispute grounds is by no means at all a difficult or demanding one. The company will fail in that task only if it is found, upon the hearing of its s 459G application, that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. 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.”

14. In Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27 at [44], Young AJA (with whom Hoeben JA and Ward J agreed) similarly noted that the question for a primary judge, in determining an application to set aside a statutory demand under s 459H(1)(a), is:

“[t]o determine whether there was a genuine dispute, that is one in which a plausible contention has been raised by the company on which the statutory demand was served.”

15. In Ligon 158 Pty Ltd v Huber [2016] NSWCA 330 at [8], Barrett AJA (with whom McColl and Meagher JJA agreed) in turn referred to Re Wollongong Coal Ltd [2015] NSWSC 1680; (2015) 110 ACSR 134 at [9]–[22] and summarised the relevant principles 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.” [citations omitted]

16. Mr Soon, who appears for Modern, submits that a genuine dispute exists as to the debt claimed against Modern in the First Modern Demand and relies on Mr Barakat’s evidence that accounting services were provided by WYI on a different basis to that for which WYI contends, pursuant to the alleged conversation to which I referred in paragraph 5 above. Mr Soon also relies on the claims made in the Defence by Modern in the District Court proceedings that WYI is not entitled to payment for legal, conveyancing, tax or credit services, where it was not, Modern claims, licensed or required to undertake that work. No substantive submissions were made by the parties as to whether a claim for restitution may lie in respect of such services or whether such a claim could be treated as giving rise to a debt for the purposes of a creditor’s statutory demand.

16. Mr Dimitriou, who appears for WYI in his capacity as its director, initially relied on the submissions on which WYI had relied in the District Court proceedings, although he substantially expanded those submissions in closing written submissions. WYI initially submitted that there is a public interest in winding up insolvent companies; while that proposition is correct, it takes the matter no further unless Modern is shown to be insolvent, and the question here is the anterior question whether the First Modern Demand should be set aside with the result that no presumption of insolvency will arise, even if Modern does not comply with it.

17. Mr Dimitriou also initially submitted that the debts claimed by WYI in the First Modern Demand are judgment debts. I do not accept that submission, where no default judgment had been given in the District Court at the time the First Modern Demand was issued, and the default judgment in the District Court on which WYI relied has since been set aside by that Court, although judgment has not yet been delivered in WYI’s application to reinstate it. WYI refers to case law that deals with the treatment of judgment debts and indicates that a genuine dispute cannot be established in respect of a judgment debt. There is no utility in addressing that case law further, where WYI does not presently have a judgment debt on which it may rely and where, in any event, I will hold below that there is some other reason to set aside the demands under s 459J of the Corporations Act. Mr Dimitriou also submitted that the dispute raised by Modern is not “precise, clear or coherent” and contends that an estoppel arises against Modern from the District Court’s default judgment. I do not accept the latter submission, where that default judgment has been set aside. Mr Dimitriou also submitted that the claims made by Modern cannot be characterised as a “genuine dispute” without “evidence the claims are said to be in dispute”. I have referred above to the evidence on which Modern relies to establish such a dispute.

18. In closing submissions, Mr Dimitriou submitted that Modern made a payment in reduction of the outstanding debt, after it was served with the First Modern Demand, and points to the length of time for which some of the debts claimed have been outstanding, and submits that there has been no previous dispute in respect of those debts. Those matters may have significant weight at a trial on the merits in respect of the dispute identified by Modern, but do not seem to me to be such as to exclude the existence of matters that require further inquiry or a serious question to be tried in respect of at least whether WYI was entitled to provide and charge for parts of the relevant services, which it is alleged that it did hold the requisite statutory licences to provide.

19. In submissions, Mr Dimitriou referred to the decisions in Eyota Pty Ltd v Hanave Pty Ltd above and Spencer Constructions Pty Ltd v G&M Aldridge Pty Ltd above as to the content of a genuine dispute. Mr Dimitriou also submits, with substantial force, that:

“[T]he court ought not set aside the stat[utory] demands based on the applicants pretence ‘there is a dispute because I said so’ and is needed [sic] to determine whether there was a genuine dispute, that is one in which a plausible contention must have been raised by the company on which the statutory demand was served.”

21. I broadly accept that submission. As I noted in Re Diveva Pty Limited [2015] NSWSC 509 at [26], I do not understand recent decisions of the Court of Appeal, including Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601 and the subsequent decision in Ligon 158 above, to require a judge at first instance to eschew any evaluative exercise as to whether there is a plausible basis for a genuine dispute or offsetting claim, where such an evaluation is contemplated by the earlier cases to which those decisions refer, and is necessarily required by any determination of whether there is a serious question to be tried, an issue deserving of a hearing, or a plausible contention requiring investigation. It does not seem to me that the effect of those decisions is to create a position where any creditor’s statutory demand may be set aside by the simple expedient of leading affidavit evidence of an oral conversation to the effect that a debt need not be paid.

22. In this case, Mr Barakat’s affidavit evidence raises a factual issue as to whether there existed an agreement for a fixed fee on an annual basis, although WYI may ultimately succeed at a hearing on the merits having regard to the evidence of costs agreements apparently signed by Mr Barakat on behalf of Modern (and Global) and of payments made in a manner that may not be consistent with the agreement for which he contends. It is not necessary, given the other findings which I reach, to express a view as to whether Mr Barakat’s evidence of an oral agreement in different terms to the written agreements on which WYI relies (which Mr Barakat says he does not recall, but does not deny, having executed) would, without more, give rise to a genuine dispute. In any event, there seems to me to be at least a substantial factual and legal dispute as to the extent to which charges for particular categories of work, which may or may not be properly characterised as legal, conveyancing, tax advisory or credit work, are properly recoverable by WYI against Modern and in what amount. It is by no means clear whether the evidence as it stands would allow the Court to determine a substantiated amount for the purposes of s 459H of the Corporations Act. Even if that could be done, it seems to me that the amount of the debt that is in dispute on that basis is so substantial that the First Modern Demand should in any event be set aside under s 459J of the Corporations Act, to which I will refer below.

23. Mr Dimitriou also points to other matters, which he submits should have the effect that the creditor’s statutory demands not be set aside, including that the debts claimed by WYI “cannot be denied”; that the relevant work was done by persons employed by or associated with WYI with Modern’s and Global’s knowledge; that the amount of the debt owed to (or at least, I interpolate, claimed by) WYI is substantial; the lateness of raising any dispute as to that debt; and the existence of the written costs agreements. Mr Dimitriou also refers to a suggested contradiction in the evidence relied on by the Plaintiffs as to the terms of conversations between Mr Dimitriou and Mr Barakat, as between Mr Barakat’s evidence in these proceedings and the Defence filed by another member of the Barakat family in the District Court proceedings. Mr Dimitriou also points to documentary and other matters which he submits should lead the Court to conclude that Mr Barakat was content for Modern and Global to execute retainer agreements guaranteeing the companies’ obligations for all members of the Barakat family for which outstanding fees are claimed by WYI. While the matters to which Mr Dimitriou refers may have weight at a final hearing on the merits, the Court’s role, in an application of this kind, is not to reach findings on the merits in respect of a claim where a genuine dispute exists. It seems to me that these matters cannot provide an answer to the existence of a genuine dispute as to the debt, where one is otherwise established for the reasons noted above, or to the existence of other reasons to set aside the First Modern Demand to which I refer below.

Whether the First Modern Demand should be set aside under s 459J of the Corporations Act

24. I now turn to Modern’s claim that the First Modern Demand should be set aside under s 459J(1)(b) of the Corporations Act. Section 459J(1)(b) of the Corporations Act permits the Court to set aside a demand where there is some other reason for it to do so. The Court's power to set aside a demand under that section exists to maintain the integrity of the process provided under Pt 5.4 of the Corporations Act and is to be used to counter an attempted subversion of the statutory scheme, but is not exercised by reference to subjective notions of fairness: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd [1996] NSWSC 199; (1996) 20 ACSR 746; Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229; Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 at [16]. I will deal first with the implications of parallel proceedings in respect of a claim for debt and an application to set aside a creditor’s statutory demand and then with Mr Soon’s submission as to the use of a creditor’s statutory demand in respect of a disputed debt.

25. Mr Soon submits that the First Modern Demand should be set aside on the basis that it involves an abuse of process, where the amounts and debts on which it is based are the subject of the District Court proceedings commenced on 1 September 2016, the day after the First Modern Demand was issued. Mr Soon submits that the fact of commencement of the District Court proceedings indicates that there must be a dispute as to their subject matter. Mr Soon also submits that WYI cannot rely on the default judgment initially granted in its favour in the District Court proceedings where, as I noted above, that judgment has been set aside and a Defence has now been filed by Modern in the District Court proceedings. Mr Soon relies on the decision in Perlake Pty Ltd v Finance & Mortgage Corp (NSW) Pty Ltd (1996) 15 ACLC 76, which he cites as authority that the issue of a creditor’s statutory demand based on the same debts as are claimed in other proceedings constitutes an abuse of process. Mr Soon also submits that the creditor’s statutory demand procedure is not to be used as an alternative method of debt recovery, implicitly, as to disputed debts in the place of court proceedings. Mr Soon submits that the commencement of the District Court proceedings impugns Mr Dimitriou’s claim, in the affidavit verifying the First Modern Demand, that the debt claimed by WYI against Modern is not genuinely disputed.

26. In WYI’s closing written and oral submissions, Mr Dimitriou responds that the service of the First Modern Demand, and the commencement of the District Court proceedings, do not give rise to some other reason to set aside the First Modern Demand, and other relevant demands. Mr Dimitriou submits that there is no contradiction in WYI’s commencing the District Court proceedings and also issuing the First Modern Demand where, by contrast with the decision in Perlake, different people are not sued for the same debt. I accept that that distinction exists between the present case and Perlake; however, that distinction does not seem to me to avoid the existence of some other reason to set aside the creditor’s statutory demand, by reason of the matters to which I will refer below. Mr Dimitriou also submits that the purpose of the statutory demand procedure and the purpose of the District Court proceedings are different; however, that is a matter which Barrett AJA emphasised in Re Zarzar Pty Ltd [2017] NSWSC 93, to which I will refer below, in observing that the contemporaneous reliance on the two different approaches may give rise to some other reason to set aside a creditor’s statutory demand.

27. In my view, the decision in Perlake Pty Ltd v Finance & Mortgage Corp (NSW) Pty Ltd above may be distinguished, in some respects, from the present case since it involved the issue of a creditor’s statutory demand on a company for the same debt that was claimed in other proceedings against individuals and, as Ward J subsequently observed in King Furniture Australia Pty Ltd v Higgs [2011] NSWSC 375, involved inconsistent claims and court proceedings there instituted before (rather than, in the case of the First Modern Demand, shortly after) a creditor’s statutory demand was issued. In this case, while the First Modern Demand was issued to Modern and claims are also made against individuals in the District Court proceedings, there is no necessary inconsistency between the claim against Modern and the claim against those individuals where WYI seeks to rely on guarantees alleged to have been given by Modern and those individuals.

28. There are several early decisions in which the existence of parallel proceedings, including the issue of a creditor’s statutory demand and parallel court proceedings, have been treated as involving an abuse of process, including Portfolio Projects Pty Ltd v Oakes Building Co Pty Ltd (1987) 5 ACLC 911 and Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 39 NSWLR 311; 20 ACSR 108, and broadly similar views appear to have been expressed by Master Adams in Mala Pty Ltd v Johnston (1994) 13 ACLC 100 and in Murphy v Teakbridge Pty Ltd [1999] NSWSC 1231. I recognise that, in James Estate Wines Pty Ltd v Winelink (Australia) Pty Ltd [2003] NSWSC 744; (2003) 47 ACSR 72, to which Mr Dimitriou refers, Austin J noted a question whether that approach survived the decision of the High Court of Australia in David Grant & Co Pty Ltd v Westpac Banking Corp [1995] HCA 43; (1995) 184 CLR 265. However, his Honour there expressed (at [28]) the tentative view, without deciding, that wider forms of abuse of process did survive that decision, and it is not clear to me why that approach would not do so.

29. Mr Dimitriou also points out that, in James Estate Wines Pty Ltd v Winelink (Australia) Pty Ltd above, Austin J observed (at [24]) that the existence, for a period of time, of two concurrent statutory demands expiring at different times in respect of the same debt was not necessarily an abuse of process. However, his Honour also observed (at [25]) that there may well be a presumption of oppression where there are two concurrent statutory demands, while noting that it was open to the party issuing them to demonstrate that there is good reason why this has occurred. His Honour held that, in that case, there was sufficient explanation for that duplication, which was addressed in part by withdrawing one of those demands. In the present case, it does not seem to me that WYI offers sufficient explanation for the duplication between the claim in respect of the services in respect of both the First Modern Demand and the Second Modern Demand, nor has WYI withdrawn either demand, although it sought to vary the Second Modern Demand in closing submissions, after having put Modern to the costs of setting it aside, to seek to exclude that duplication.

30. In Re Zarzar Pty Ltd above, to which I drew the parties’ attention on the second day of hearing, Barrett J addressed the question of the parallel commencement of proceedings and issue of a creditor’s statutory demand and observed at [22] that:

“While there is no explicit rule precluding parallel resort by a creditor to both the statutory demand procedure and debt recovery proceedings, the reality is that it is an abuse of the statutory demand process to continue to press and rely on a demand while at the same time suing for the relevant debt or debts. This is because the two procedures have different objectives. The aim in serving a statutory demand is not to recover the debt (although eliciting payment may become a welcome by-product) but to obtain the benefit of a presumption of insolvency through non-compliance with the demand. The aim of recovery proceedings, by contrast, is to compel payment and obtain monetary satisfaction. The same reasoning holds good, in my view, when the alleged indebtedness is asserted by the putative creditor by way of set-off defence in proceedings commenced by the alleged debtor. Again, the putative creditor abandons its stance of waiting for the expiration of a statutory period in order to obtain a presumption of insolvency (or, as an alternative, to obtain voluntary payment by the debtor in the meantime) in favour of positive assertion of the right to be paid as a means of obtaining recovery by way of reduction of a liability.”

31. It seems to me that there is substantial force in his Honour’s observations in that respect. It also seems to me that there is also a further reason why the contemporaneous, or near contemporaneous, commencement of contested proceedings in respect of a debt and the service of a creditor’s statutory demand in respect of that same debt may amount to an abuse of the creditor’s statutory demand procedure such that the demand should be set aside under s 459J of the Corporations Act. That course has the potential, as this case amply demonstrated, to multiply the costs incurred by the parties, since a recipient who contests the debt will then be required, potentially within similarly short periods, both to file a Defence in the substantive proceedings, or otherwise face the risk of default judgment, and to bring an application to set aside the creditor’s statutory demand in this Court or the Federal Court of Australia. Issues may then arise, as they have here, as to whether two proceedings should proceed in parallel or one should be deferred until the other has been heard. That course will inevitably increase the costs incurred by the parties, but also involves the risk that scarce hearing time in the Courts, which is funded by the community and largely not by the parties, will be devoted to resolving the procedural difficulties which that course has created.

32. In this particular case, the extent of duplication and the wasted costs arising from the contemporaneous service of the First Modern Demand and the commencement of the District Court proceedings against Modern are highlighted by the fact that the first day of the hearing in this matter was to be followed, on the next day, by a listing of the District Court proceedings, and the second day of the hearing in this matter was also to be followed by an adjourned listing of the District Court proceedings. It seems to me that some other reason to set aside a creditor’s statutory demand is established where, as here, the course adopted by a creditor that issues a creditor’s statutory demand is likely to force the party that receives it to the cost and inconvenience of overlapping proceedings, one brought on the basis that there is no genuine dispute as to the debt, and the other directed to determining such a dispute. It seems to me that these matters, together with the other matters to which I will refer below, require that the First Modern Demand be set aside for some other reason under s 459J of the Corporations Act.

33. I now turn to Mr Soon’s submission as to the use of a creditor’s statutory demand in respect of a disputed debt. Mr Soon relies on the decision in CVC Investments Pty Ltd v P&T Aviation Pty Ltd (1989) 18 NSWLR 295 for the proposition that the use of a creditor’s statutory demand as a means of debt collection, in respect of a disputed debt, is an abuse of process. Although the case law is not wholly consistent as to this issue, there is authority that a particular situation in which a creditor’s statutory demand may be set aside under s 459J(1)(b) is where it claims substantial amounts that its issuer should have recognised are genuinely disputed: First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939; Wildtown Holdings Pty Ltd v Rural Traders Co Ltd [2002] WASCA 196; (2002) 172 FLR 35 at [41]; Re UGL Process Solutions Pty Ltd [2012] NSWSC 1256 at [44]. It seems to me that the amount of the First Modern Demand that is referable to amounts that fall within categories where WYI’s entitlement to charge the relevant fees is disputed (as Mr Barakat had advised in his email of 18 August 2016) is so substantial and that the First Modern Demand should be set aside on that basis.

34. A third difficulty arises because the First Modern Demand comprises part of the total debt that is claimed against Modern, being that part of the debt that comprises amounts referable to accounting and other services provided to Modern. The Second Modern Demand, to which I will refer below, claims a larger amount, being the total of the amount claimed in the First Modern Demand plus an amount claimed against Modern by way of guarantees alleged to have been given by Modern in respect of amounts billed by WYI to Global and other members of the Barakat family. Although the decision of the Court of Appeal of the Supreme Court of Western Australia in Commonwealth Bank of Australia v Garuda Aviation Pty Ltd [2013] WASCA 61; (2013) 45 WAR 92; 93 ACSR 168 is authority that a creditor’s statutory demand can be issued for part of a debt, Newnes J (with whom McLure P and Pullin JA agreed) there observed (at [35]) that:

“It is not the case, as submitted by senior counsel for the respondent, that it would then be open to a creditor simply to make a series of demands for different portions of a larger debt. In the absence of good reason for making separate demands of that nature, such demands would constitute an abuse of process and be liable to be set aside under s 459J(1)(b): see Arcade Badge Embroidery Co Pty Ltd v DCT (2005) 157 ACTR 22; [2005] ACTCA 3 at [27]. In any event, it is not obvious why a creditor would choose to take such a course.”

35. It seems to me that WYI has chosen to take the course to which Newnes J referred in this case, and no good reason has been shown for WYI serving both the First Modern Demand for part of the debt claimed against Modern, excluding amounts arising under guarantees, and then the Second Modern Demand for the whole of the debt claimed against Modern, including those amounts. That course put Modern to the costs of moving to set aside both creditor’s statutory demands and to a risk of a presumption of insolvency if it did not either do so or pay the amount claimed on the face of both demands that, by reason of the duplication, exceeded the total debt that WYI alleges is owed.

36. I recognise that Mr Dimitriou, in closing submissions, indicated that WYI sought to vary the amount of the Second Modern Demand so that it related only to the amount claimed under the guarantees alleged to have been given by Modern, rather than both to that amount and the amount which is also the subject of the First Modern Demand. It seems to me that that offer does not address the difficulties that arise from first serving a creditor’s statutory demand for part of a debt and then serving an overlapping creditor’s statutory demand for the whole of that debt. First, that offer came far too late, where Modern had already been put to the costs of setting aside two parallel statutory demands, one for part and one for all of the debt claimed against it; and it did not address the difficulty which would then arise from serving two statutory demands, for two parts of a debt, rather than a single statutory demand for the whole. It seems to me that that matter also provides some other reason to set aside the First Modern Demand under s 459J(1)(b) of the Corporations Act. For all these reasons, the First Modern Demand should be set aside.

Creditor’s statutory demand issued to Global

37. By the Global Demand, WYI claimed an amount of $28,490, which was described in the schedule as an amount payable by Global comprising of unpaid invoices dated 15 May 2015. The Global Demand was also verified by an affidavit of Mr Dimitriou dated 30 August 2016. On 1 September 2016, WYI also brought proceedings in the District Court of New South Wales against, inter alia, Global. Paragraph 14 of the Statement of Claim filed in those proceedings identified a claim for $28,490 in respect of accounting and business services provided to Global, the same amount as was claimed by the Global Demand. Paragraph 22 of that Statement of Claim pleaded that Global had engaged WYI on or about 13 June 2012, although it again did not specify the terms of that engagement. The balance of the amount claimed against Global appears to relate to alleged guarantees by Global of amounts due by other parties, including Modern. A default judgment was subsequently given in favour of WYI and against Global in the District Court proceedings and then set aside as noted above. Global filed its Defence in the District Court proceedings on 9 November 2016, which denies liability for charges for legal, conveyancing, tax or credit work on the basis that WYI is not entitled to provide such work and again pleads an agreement for the provision of accounting and bookkeeping services by WYI for the amount of $10,000 per year.

38. Global filed its application to set aside the Global Demand issued to it on 19 September 2016, initially relying on a genuine dispute under s 459H of the Corporations Act. The basis of the application to set aside the Global Demand was extended, by Amended Originating Process filed on 5 October 2016, also to rely on s 459J(1)(b) of the Corporations Act. Global contended that the Global Demand constituted an abuse of process, so far as the debt claimed was the subject matter of dispute in the proceedings brought by WYI against Global in the District Court of New South Wales.

39. Global relies, in that application, on an affidavit of Mr Barakat, who says that he is director of Global, in similar terms to his affidavit in support of the application to set aside the First Modern Demand issued by WYI to Modern. That affidavit also refers to the conversation alleged to have taken place with Mr Dimitriou, relating to the engagement of WYI on the basis of an annual fee of $10,000, and Mr Barakat indicates that he again does not recall (but does not deny) the signature of written costs agreements relating to Global. Mr Barakat also refers to his email dated 18 August 2016, and it was apparent at least from that date that there was a dispute as to the invoices issued to Global. Mr Barakat’s affidavit in respect of the Global Demand also identified disputes as to amounts claimed in numerous individual invoices. It is also not necessary for me to address those disputes given the views which I have formed on other grounds, and it is not appropriate for me to do so where those issues are likely to require determination in the proceedings in the District Court of New South Wales. WYI relied on Mr Dimitriou’s affidavit evidence, to which I have referred above, in response.

40. Mr Dimitriou, on behalf of WYI, puts similar submissions in respect of the Global Demand to those which he put in respect of the First Modern Demand. He similarly submits that Global’s claim to have raised a genuine dispute is not supported by documentary evidence and that Global relies on the oral representations set out in Mr Barakat’s affidavit evidence, and again emphasises the execution of retainer agreements in respect of the services provided by WYI to Global, and refers to a suggested inconsistency between Mr Barakat’s affidavit evidence in that respect and the Defence filed by another member of the Barakat family in the District Court proceedings. Mr Dimitriou also refers to a dispute, on which he expanded in oral submissions, as to the circumstances in which tax returns were not lodged for Global, which it is not necessary or appropriate to seek to determine in application of this kind.

41. The Global Demand raises the same issues, so far as a genuine dispute is concerned, as the First Modern Demand. It seems to me that a genuine dispute is established, at least in respect of a substantial part of that demand, so far as issues are raised as to WYI’s entitlement to charge for services that Global alleges it was not permitted to provide. Some, but not all of the issues raised under s 459J(1)(b) in respect of the First Modern Demand also arise in respect of the Global Demand. No question arises, in respect of the Modern Demand, of service of a demand for part of the debt claimed, or of service of multiple creditor’s statutory demands partly for the same amounts. However, it seems to me that the Global Demand is also liable to be set aside under that section, for the same reasons as the First Modern Demand, so far as the contemporaneous service of the Global Demand and commencement of District Court proceedings involved both the inconsistency to which Barrett AJA referred in Re Zarzar Pty Ltd above, and the cost and inconvenience of multiplication of proceedings to which I have referred above. It seems to me that the Global Demand is also liable to be set aside under that section, for the same reasons as the First Modern Demand, so far as a substantial part of it relates to debts where WYI’s entitlement to provide and charge for the relevant services was disputed, as was apparent from Mr Barakat’s email dated 18 August 2016. For these reasons, the Global Demand should be set aside.

The second creditor’s statutory demand issued to Modern

42. As I noted above, WYI brought proceedings against Modern in the District Court of New South Wales on 1 September 2016 claiming the amount of $163,279.95. About two weeks later, WYI issued the Second Modern Demand dated 15 September 2016 to Modern, in which it claimed the amount of $163,279.95. That amount was described in the schedule to the Second Modern Demand as an amount payable by Modern to WYI:

“Comprising of the guarantee obligation [sic] of unpaid invoices dated between the period 17 June 2012 to 30 June 2016 ([i]nclusive) totaling $163,279.95.”

That description did not make clear which invoices were the subject of the claim, the extent to which they were paid, or the source of the guarantee relied upon, although Modern again appears to have had no difficulty identifying those matters and no point was taken as to those matters in submissions.

43. The Second Modern Demand was also verified by an affidavit of Mr Dimitriou dated 15 September 2016, which also did not identify the relevant guarantees, but confirmed that the debt claimed was due and payable and that Mr Dimitriou believed there was no genuine dispute as to the debt. The latter proposition obviously does not sit comfortably with the fact that, two weeks before, WYI had commenced District Court proceedings, presumably on the basis that there was a dispute to be resolved in the District Court in respect of the debt. I have referred to the subsequent history of the District Court proceedings in dealing with the First Modern Demand and the Global Demand above.

44. On 5 October 2016, Modern filed an application to set aside the Second Modern Demand, under ss 459H and 459J(1)(b) of the Corporations Act on the basis that the debt was genuinely disputed and the demand was an abuse of process in that the alleged debt was the subject of the District Court proceedings. The application to set aside that demand is again supported by an affidavit of Mr Barakat affirmed 4 October 2016 which referred to the commencement of the District Court proceedings for the same amount as claimed in the Second Modern Demand; again referred to the alleged conversation with Mr Dimitriou (as set out in paragraph 5 above) which was said to have established the basis on which Modern would be charged for WYI’s services; refers to Mr Barakat’s lack of recollection of (but does not deny) the costs agreements relating to Modern, in terms corresponding to his evidence in his affidavit concerning the First Modern Demand, and also says that Mr Barakat does not recall (although he also does not expressly deny) that Modern gave a guarantee to WYI in respect of unpaid invoices between 17 June 2012 and 30 June 2016.

45. Although the evidence on which WYI relies is unclear as to the matters that are said to have given rise to the guarantee said to have been given by Modern, or other entities, of the costs claimed against them, it is not necessary to determine whether a genuine dispute arises in respect of the existence of that guarantee for the purposes of s 459H of the Corporations Act, where that Demand originally included a substantial amount of the accounting and other fees (also claimed in the First Modern Demand) as to which a serious dispute is established, and where I have concluded that the Second Modern Demand should be set aside for some other reason under s 459J of the Corporations Act.

46. It seems to me that the Second Modern Demand is also liable to be set aside under s 459J(1)(b) of the Corporations Act, for the same reasons as the First Modern Demand and the Global Demand, so far as the commencement of the District Court proceedings and the subsequent service of the Second Modern Demand involved both the inconsistency to which Barrett AJA referred in Re Zarzar Pty Ltd above and the cost and inconvenience of multiplication of proceedings to which I have referred above. The basis for such an order is strengthened by the fact that the District Court proceedings were commenced before the service of the Second Modern Demand, so that the position in respect of this demand corresponds to that in Perlake Pty Ltd v Finance & Mortgage Corporation (NSW) Pty Ltd above. It seems to me that the Second Modern Demand is also liable to be set aside under s 459J(1)(b), for the same reasons as the First Modern Demand and the Global Demand, so far as a substantial part of it relates to claims for accounting and other fees where WYI’s entitlement to provide and charge for the relevant services was genuinely disputed, as I have held above. It does not seem to me that WYI’s belated attempt to vary the Second Modern Demand, to remove the amounts claimed for those services, alters that result.

Costs

47. In their opening submissions, Modern and Global submitted that WYI should be ordered to pay its costs of these applications, if the creditor’s statutory demands were set aside under s 459J(1)(b) of the Corporations Act, on an indemnity basis, or otherwise on an ordinary basis. In closing submissions, Modern and Global pressed that submission, and also submitted that this was a case where it ought to have been apparent to WYI that the creditor’s statutory demands would be set aside. In closing submissions, WYI submitted that, if the creditor’s statutory demands were set aside, there should be no order as to costs, or alternatively any order as to costs should be reserved, to be dealt with in the proceedings in the Real Property List which, it appears, also exist between the parties.

48. In my view, the costs of this application should follow the event, and the result of the application warrants an order for costs against WYI on an indemnity basis. The case law permits an order for indemnity costs in respect of an application to set aside a creditor’s statutory demand which involves the improper use of the statutory demand procedure or persistence in the claim where it should have been apparent to the defendant that there was a genuine dispute as to the debt claimed. In CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd above at [19], Barrett J referred to the warning previously given by Santow J in several judgments that a creditor who issued a statutory demand in respect of a genuinely disputed debt was at risk of indemnity costs, where it put the applicant to set aside the statutory demand to expense by doing so. His Honour there noted that the party which issued a statutory demand might, in some circumstances, be entitled to test the other party’s claim that the debt was genuinely disputed, but also noted that that principle had a limit to it and that there were cases which were “so devoid of prospects of success as to be perverse” and that, if a defendant is put on notice of an “obvious and irremediable weakness in its position” and does not withdraw a statutory demand, it may well be appropriate for the court to award costs to the plaintiff on an indemnity basis. In Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772 at [4]–[5], White J again observed that creditors are often ill-advised to proceed with a statutory demand once plausible grounds for a dispute are asserted, and they risk an order for indemnity costs if they do so: see also Professional Advantage Pty Ltd v Australian Broadcasting Commission [2007] NSWSC 607; R2M Pty Ltd v Gourlay [2011] FCA 168; Re Suters Holdings Pty Ltd [2012] NSWSC 1051; Re Scahill & Co Pty Ltd [2016] NSWSC 712. In this case, Modern and Global have been put to the costs of these applications to set the three creditor’s statutory demands aside, heard over two days of substantive submissions (and a third day which was adjourned by reason of events affecting Mr Dimitriou), to which they would not have been exposed had the creditor’s statutory demands not been served or had those demands been promptly withdrawn.

49. It seems to me that there is no reason not to make an order for costs, by reason of any possible outcome favourable to WYI in the District Court proceedings, including the possibility that its default judgments may be reinstated, or in the proceedings in the Real Property List in this Court. Whether or not WYI is successful in either or both of those proceedings will not affect the fact that the creditor’s statutory demands should be set aside for the reasons set out above.

Orders

50. For these reasons, I make orders in each proceeding that the relevant creditor’s statutory demands be set aside, and that the Defendant pay the costs of the proceedings on an indemnity basis, as agreed or as assessed.

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Decision last updated: 14 March 2017