Re Speedy Loans Pty Ltd

[2014] VSC 273

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

CORPORATIONS LIST

S CI 2014 01527

IN THE MATTER OF SPEEDY LOANS PTY LTD (ACN 102 596 465)

B E T W E E N

SPEEDY LOANS PTY LTD (ACN 102 596 465)	Plaintiff
v
JBT LAWYERS PTY LTD (ACN 135 848 181)	Defendant

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JUDGE:	Gardiner AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	3 June 2014
DATE OF JUDGMENT:	13 June 2014
CASE MAY BE CITED AS:	IMO Speedy Loans Pty Ltd
MEDIUM NEUTRAL CITATION:	[2014] VSC 273

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CORPORATIONS — Application to set aside statutory demand by incorporated solicitor for legal fees by reason of non-disclosure under Legal Profession Act 2004 — Demand set aside.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr St. John Hibble	Piper Alderman
For the Defendant	Mr J. Bowers-Taylor (solicitor)	JBT Lawyers

HIS HONOUR:

1. On 12 March 2014, the defendant, JBT Lawyers Pty Ltd (JBT), an incorporated legal practice, served a statutory demand on the plaintiff Speedy Loans Pty Ltd (Speedy Loans), claiming that the sum of $36,105.89 was owing for the provision of legal services. The demand was accompanied by an affidavit of JBT’s director, Jonathan Bowers‑Taylor sworn 11 March 2014, as required by s 459E(3) of the Corporations Act 2001 (Cth) (the Act). 

1. The schedule to the demand described the debt as follows:

Date	Invoice No	Description	Amount
14 May 2013	001255	General File	$727.87
28 May 2013	001269	General File	$261.03
13 March 2013	001141	General File	$930.38
12 June 2013	001293	Speedy Loans Pty Ltd v Jelbro Nominees Pty Ltd	$50,263.01
21 June 2013	001297	Speedy Loans Pty Ltd v Jelbro Nominees Pty Ltd	$1,913.93
25 June 2013	001307	Speedy Loans Pty Ltd v Jelbro Nominees Pty Ltd	$300.00
2 July 2013	001283	Speedy Loans Pty Ltd v Jelbro Nominees Pty Ltd	$7,689.83
25 September 2013	001412	Speedy Loans Pty Ltd v Jelbro Nominees Pty Ltd	$939.12
1 October 2013	001425	Speedy Loans Pty Ltd v Slaviero	$7,009.75
31 October 2013	Less payment	-$25,000.00
14 February 2014	Less payment	-$8,929.03
Total Amount of Debt	$36,105.89

1. On 2 April 2014, Speedy Loans made application by originating process for an order that the statutory demand be set aside by reason of the existence of alleged genuine disputes and offsetting claims. It also contended that the demand should be set aside for “some other reason” pursuant to s 459J(1)(b) of the Act by reason that the description of the debt in the schedule to the demand gave rise to a substantial injustice. In support of the application, Speedy Loans relies on affidavits of George Petselis sworn 2 April 2014 and 28 May 2014, and Nathan Brunt sworn 29 April 2014 and 27 May 2014.

1. JBT opposes the application and relies on affidavits of Mr Bowers‑Taylor sworn 21 May 2014 and 2 June 2014, and an affidavit of Clare Long sworn 2 June 2014. 

1. As shown above, the schedule to the demand contends that the debt is comprised of invoices for several matters in which JBT acted for Speedy Loans.  Several invoices are said to be concerned with a “General File”, several more for a matter described as “Speedy Loans Pty Ltd v Jelbro Nominees Pty Ltd”, and one for another matter, “Speedy Loans Pty Ltd v Slaviero”.  The schedule then contains entries that apply various payments made by Speedy Loans to the indebtedness, and claims the alleged balance owing, $36,105.89. 

1. In Mr Petselis’ first affidavit, which accompanied the originating process, he descends to some detail about alleged disputes in respect of each of those matters.  In the written submissions filed by JBT, it emerged that the alleged dispute that was the determinative issue related to the Jelbro Nominees Pty Ltd (Jelbro) matter.  As such, a good deal of the evidence filed on behalf of Speedy Loans had no central relevance to the application.

Factual background 

1. Speedy Loans is in the business of lending money on security and in the course of this, JBT provided Speedy Loans with professional advice over a number of years. 

1. In January 2013, Speedy Loans was approached by a Mr Fiorenza.  Mr Fiorenza had loan obligations to Jelbro, which held security over a property at Suspension Street in Ardeer.  In addition, Mr Fiorenza had loan obligations to other parties who held security over various properties, including the Suspension Street property. 

1. Jelbro had issued proceedings in this Court against Mr Fiorenza seeking possession of the Suspension Street property under the mortgage given to Jelbro, together with judgment for the sum owing by him under his loan obligations to Jelbro.  Jelbro obtained default judgment against Mr Fiorenza and a warrant of possession was issued for the Suspension Street property.  Mr Fiorenza approached Speedy Loans to refinance his loan obligations in order to extricate himself from this predicament. 

1. In order to refinance the liability to Jelbro, JBT advised Speedy Loans to make application to the Supreme Court for orders that Jelbro transfer the mortgage held over the Suspension Street property to Speedy Loans pursuant to s 87 of the Transfer of Land Act 1958 (Vic). JBT indicated that in order for this to occur, Speedy Loans would need to pay Jelbro approximately $220,000 to $250,000 to secure an assignment of the Jelbro liability and the Jelbro mortgage.

1. On 3 April 2013, an originating motion, summons and supporting affidavits were filed on behalf of Speedy Loans.  On 4 April 2013, JBT sent Speedy Loans a costs agreement in relation to the Jelbro proceeding. 

1. The trial of the Jelbro proceeding commenced on 11 June 2013. On the evening of 12 June 2013 settlement discussions commenced between the parties and the matter settled.  Mr Petselis deposes that in the course of the settlement negotiations, in order to decide the amount to offer to pay out the Jelbro liability, he asked Mr Bowers-Taylor to confirm whether the legal fees for the Fiorenza matter were of the order of $53,000, a sum he says was more than what had already been paid to JBT in relation to the matter.  He states that Mr Bowers‑Taylor did not dispute this, and that in reliance on this, an agreement was reached to settle the Jelbro proceeding. 

1. Mr Petselis says that on 25 June 2013, he received an email from JBT advising that further invoices totalling approximately $60,000 had been rendered by JBT in relation to the Jelbro matter.  Mr Petselis says that when he received that email he telephoned Mr Bowers‑Taylor and enquired as to why he was not advised of the further fees at the time of the settlement negotiations on 13 June 2013.   He states that Mr Bowers‑Taylor was not responsive to this enquiry.  Mr Petselis says that the terms of settlement were executed on the basis of and in reliance upon the understanding as to the position as to the quantum of the legal fees in the Jelbro matter.  He states that if the further fees had been disclosed at the negotiations leading up to the settlement, the amount offered by Speedy Loans to Jelbro to settle the Jelbro proceeding would have been significantly lower to take into account those fees. 

1. Speedy Loans contends that in the circumstances, JBT has breached its disclosure obligations under s 3.4.13 of the Legal Profession Act 2004 (the LPA) by reason that a reasonable estimate of the legal costs in the Jelbro matter were not provided at the time of the settlement of the proceeding and, pursuant to s 3.4.17 of the LPA, that the fees are not due and payable until they have been reviewed by the Costs Court under Division 7 of the LPA. Further, he states that Speedy Loans has a right under Division 7 of the LPA to apply to the Costs Court for a review for the whole or any part of the legal costs in relation to the Jelbro matter within 12 months after the bills were given by JBT. That period has not yet expired. Mr Petselis deposes that Speedy Loans has instructed its lawyers to make application for taxation of JBT’s invoices in relation to the Jelbro matter.

1. Mr Petselis contends that there is thereby a genuine dispute between the parties in respect of invoices No. 001293, 001297, 001307 and 001283, which are among those invoices identified in the demand.  Those invoices total $61,105.89. 

1. In response to this, Mr Bowers-Taylor states in his affidavit of 21 May 2014 that he did not tell Mr Petselis at the time of the negotiations that the total of the costs for the Jelbro proceeding were only $53,000.  He states that at the time of settlement, he telephoned his office and obtained and provided to Mr Petselis an estimate of the outstanding work in progress, including counsel’s fees.  I note that, other than saying that he did not say that such costs were limited to $53,000, Mr Bowers-Taylor does not state in his affidavit what his estimate of the costs was.  At the hearing of this matter I enquired of Mr Bowers-Taylor, who appeared on behalf of JBT, what amount it was that he related to Mr Petselis as a result of that exchange, but he was not able to recall.[1]

   [1]Transcript p 13, line 12.

Genuine dispute in respect of the debt 

1. In Statutory Demands and Winding Up in Insolvency,[2] it is observed:

5.22The company seeking to set aside the demand on the basis that there is a genuine dispute bears the onus of establishing that such a dispute exists on the balance of probabilities.  The onus is not a heavy one and the courts afford considerable latitude to a company asserting the existence of a genuine dispute.  Accordingly, the task faced by a company challenging a statutory demand on the genuine dispute ground is by no means a difficult or demanding one and is no more onerous than seeking to resist the creditor’s application for summary judgment.  What is required is something between mere assertion and the proof that would be necessary in a court of law.  The company served with the demand does not need to prove on oath that it has a defence to the claim made against it in the statutory demand. Where the creditor relies upon a barely articulated claim, the company’s ‘plausible contention requiring further investigation’ does not have to rise higher than the creditor’s inadequate articulation of the claim.

[2]Farrad Assaf, 2^nd ed (2012)  (citations omitted).

1. In CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd,[3] Barrett J stated:

[16]… It is sufficient that I repeat what I have said in other cases, namely, that the 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 s459G 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.

[3][2003] NSWSC 728 (emphasis added).

1. Part 3.4 of the LPA regulates the requirements for cost disclosures by legal practitioners to their clients. Relevantly in the context of this case, s 3.4.13 provides:

(1)If a law practice negotiates the settlement of the litigious matter on behalf of a client, the law practice must disclose to the client, before the settlement is executed –

(a)a reasonable estimate of the amounts of legal costs payable by the client if the matter is settled (including any legal costs of another party that the client is to pay); and

(b)[not relevant]

(2)[not relevant]

1. The Jelbro proceeding was clearly a litigious matter,[4] and JBT was required to comply with s 3.4.13 in respect of the settlement negotiations on 13 June 2013.

   [4]See definition in s 3.4.2 of the Legal Profession Act where such expression is defined as “ …  a matter that involves, or is likely to involve, the issue of proceedings in a court or tribunal.”

1. The provision is silent as to the method of disclosure.  Section 3.4.11 provides that the disclosure required in ss 3.4.9 and 3.4.10(1) must be made in writing but no mention is made in s 3.4.11 as to the form of disclosure required in 3.4.13. 

1. Section 3.4.17 deals with the consequences of non-disclosure under Part 3.4. It provides:

(1)If a law practice does not disclose to a client or an associated third party payer anything required by this Division to be disclosed, the client or associated third party payer (as the case may be) need not pay the legal costs unless they have been reviewed under Division 7.

(2)A law practice that does not disclose to a client or an associated third party payer anything required by this Division to be disclosed may not maintain proceedings against the client or associated third party payer (as the case may be) for the recovery of legal costs unless the costs have been reviewed under Division 7.

(3)If a law practice does not disclose to a client or an associated third party payer anything required by this Division to be disclosed and the client or associated third party payer has entered into a costs agreement with the law practice, the client or associated third party payer may also apply under s 3.4.32 for the costs agreement to be set aside.

(4)If a law practice does not disclose to a client or an associated third party payer anything required by this Division to be disclosed, then, on a review of the relevant legal costs, the amount of the costs may be reduced by an amount considered by the Taxing Master to be proportionate to the seriousness of the failure to disclose.

(5)[not relevant]

(5A)[not relevant]

(6)[not relevant]

(7)[not relevant]

1. As yet, there has been no review of the subject invoices under Part 3.4 of the LPA. In my view, because of this a genuine dispute arises in these circumstances because Speedy Loans has established on an application of the relevant test that there is a genuine dispute as to whether there has been appropriate disclosure under s 3.4.13. At the very least, even assuming that oral disclosure suffices in the purpose of s 3.4.13, the parties are at serious odds about what was discussed in respect of the issue of disclosure in and about the settlement of the Jelbro proceeding. Mr Bowers-Taylor does not state in his affidavit what he disclosed such costs to be, and even when pressed in submissions at the hearing of this proceeding as to the amount, was not able to recall the amount he disclosed to Mr Petselis. As such, I consider it is more than arguable that the invoices in respect of the Jelbro matter are not payable by Speedy Loans until there has been a review in accordance with s 3.4.38(1) of the LPA. It follows that until this occurs, any legal costs allegedly owed in relation to the Jelbro matter are not due and payable as a debt for the purposes of s 459E of the Act.

“Some other reason” why the demand should be set aside

1. Mr Hibble, counsel for Speedy Loans, also pressed an argument that the statutory demand should be set aside because it is defective.  His basis for contending this is that it is not possible for Speedy Loans to determine from the face of the statutory demand what sums are allegedly owed in relation to which files or invoices.  As a result, he submits that this leaves Speedy Loans to have to guess which invoices JBT allege are unpaid, and unable to determine from the face of the demand which invoices are the subject of genuine disputes.  He states that this causes substantial injustice because JBT seeks to raise the presumption of insolvency against Speedy Loans where it has been denied the opportunity to assess the amounts claimed against it pursuant to individual invoices, including the opportunity to use its cost review rights under the Legal Profession Act in relation to specific invoices or files. 

1. I am not attracted by this submission.  As Mr Petselis’ first affidavit reveals, Speedy Loans was not put in any position of disadvantage in going about its mounting of its application to set aside the statutory demand.  I accept only that it was put to some extra inconvenience and costs because it proceeded to address disputes in respect of all of the subject invoices, when ultimately the dispute really involved only the Jelbro matters.  I therefore reject any argument based on that ground. 

1. In the circumstances, I will make orders that the statutory demand dated 11 March 2014 served on Speedy Loans by JBT be set aside.  I will also order that JBT is to pay Speedy Loans’ costs of this proceeding, including any reserved costs.