Sky and Space Company Ltd v K&L Gates - [2024] WASC 109

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   SKY AND SPACE COMPANY LTD -v- K&L GATES [2024] WASC 109
CORAM:   QUINLAN CJ
HEARD:   2 APRIL 2024
DELIVERED          :   2 APRIL 2024
PUBLISHED           :   4 APRIL 2024
FILE NO/S:   COR 204 of 2023
BETWEEN:   SKY AND SPACE COMPANY LTD
Plaintiff
AND
K&L GATES
Defendant

Catchwords:

Corporations - Application to set aside a statutory demand - Alleged debt consists of legal costs - Where demand includes amounts not owing to the creditor - Whether defect that will cause substantial injustice unless the demand is set aside - Application for costs assessment - Whether genuine dispute - Statutory demand set aside

Legislation:

Corporations Act 2001 (Cwth), s 459E, s 459H, s 459J
Legal Profession Uniform Law, s 198

Result:

Statutory demand set aside

Category: B

Representation:

Counsel:

Plaintiff	:	A D McDonald & D R Purdy
Defendant	:	J M Healy

Solicitors:

Plaintiff	:	Pragma Lawyers
Defendant	:	K&L Gates

Case(s) referred to in decision(s):

Aldridge Electrical Industries Pty Ltd v Mobitec AB [2001] NSWSC 823
First Line Distribution Pty Ltd v Whiley (1995) 18 ACSR 185
In the matter of Horizons (Asia) Pty Ltd [2021] NSWSC 1690
Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd (2002) 20 ACLC 726
Martinez v Al Maha Pty Ltd [2021] NSWSC 932
Re Wollongong Coal Ltd (2015) 110 ACSR 134
Rusca Bros Services Pty Ltd v DLaw Pty Ltd, in the matter of Rusca Bros Services Pty Ltd (No 2) [2019] FCA 1865
WA Glass Pty Ltd v Auto Control Systems Pty Ltd [No 2] [2023] WASCA 85

QUINLAN CJ:

(This judgment was delivered extemporaneously and has been edited to correct grammar and infelicities of language and to include correct references to relevant evidence and authorities.)

Introduction and overview

The defendant, K & L Gates, is an Australian law firm. The defendant is related to a law firm in the United States of America, K & L Gates LLP (K & L Gates LLP). The plaintiff is a former client of both the defendant and K & L Gates LLP.
On 8 December 2023, pursuant to s 249E of the Corporations Act 2001 (Cth) (Corporations Act), the defendant served a statutory demand on the plaintiff, stating that the plaintiff owed the defendant the sum of $744,997.58 in unpaid legal fees. That sum reflected the total of 10 separate invoices referred to in the demand.
It is not in dispute that, of the total amount stated in the statutory demand, $534,840.75 (that is, about three quarters) was never owing to the defendant as creditor. That amount reflected invoices issued in US dollars by K & L Gates LLP.
In addition, the plaintiff has issued a Summons for Taxation in the Costs Court of the Supreme Court of Victoria to both the defendant and K & L Gates LLP, for a costs assessment of all of the invoices referred to in the statutory demand. The defendant accepts, in relation to four of the invoices, that the application for a costs assessment was made within 12 months. There is a statutory prohibition on the defendant taking action to recover those amounts (Legal Profession Uniform Law (Uniform Law), s 198(7)(b)). The defendant does not press those amounts at this time.
The defendant, however, submits that there is not a genuine dispute in relation to two of the invoices, being an invoice dated 30 October 2022 for $130,384.61, and an invoice dated 19 December 2022 for $31,662.84. Those invoices total $162,047.45. The defendant submits that the Court should exercise its discretion pursuant to s 459H(4) of the Corporations Act to vary the demand to that amount and declare the demand to have had effect, as so varied as from when the demand was served on the company.
For reasons that I will now give, the statutory demand should be set aside in its entirety.
First, in my view, the demand suffered from significant defects, which defects would cause substantial injustice unless the demand is set aside. Secondly, if I am wrong about that, I am satisfied that there is some other reason why the demand should be set aside.

Factual background

The evidence in relation to the application consisted of the following.
The plaintiff relied upon:
(a)an affidavit of Xavier Jean Robert Kris, sworn on 21 December 2023 (Mr Kris' affidavit),
(b)an affidavit of Daniel Robert Purdy, affirmed on 22 December 2023 (Mr Purdy's first affidavit); and
(c)a further affidavit of Daniel Robert Purdy, affirmed on 20 February 2024 (Mr Purdy's second affidavit).
The defendant relied upon an affidavit of Chaim Harry Kingsley affirmed on 13 March 2024 (Mr Kingsley's affidavit).
Salient facts arising from the evidence include the following.
The statutory demand provides:[1]
The Company owes K & L Gates ABN 81 310 965 026 of Level 25, 525 Collin Street, Melbourne Victoria (Creditor) the amount of A$744,997.58, being the total amounts of the debts described in the Schedule.
[1] Mr Kris' affidavit, Attachment XK-2, pages 130 -133.
The Schedule to the statutory demand is as follows:
As is apparent from the Schedule, the statutory demand refers to 10 invoices. The evidence establishes that those invoices were issued pursuant to retainers set out in three separate engagement letters:
(a)an engagement letter dated 13 October 2022 with respect to K & L Gates' New York office (that is, K & L Gates LLP) (first engagement letter);[2]
(b)an engagement letter dated 13 October 2022 with respect to the defendant (second engagement letter);[3]
(c)an engagement letter dated 15 December 2022 with respect to the defendant (third engagement letter).[4]
[2] Mr Purdy's first affidavit, page 118 – 121.
[3] Mr Purdy's first affidavit, page 94 – 97.
[4] Mr Purdy's first affidavit, page 106 – 109.
It is apparent that the first engagement letter and the second engagement letter relate to advice in relation to the plaintiff's potential listing on the NASDAQ/NYSE via 'an acquisition and de-SPAC transaction', each retainer relating to the United States aspects and the Australian aspects of the transaction, respectively.
The third engagement letter was described as relating to 'non-adverse corporate law advice pertaining to matters that arise from time to time', with the 'work scope … to be determined on a case-by-case basis'. The scope of that retainer is not entirely clear.
Three of the invoices in the statutory demand (namely those dated 12 October 2022, 8 November 2022 and 6 December 2022) were issued by K & L Gates LLP pursuant to the first engagement letter. In relation to those invoices, Mr Kingsley deposed that the defendant:[5]
acknowledged and agreed that for the purposes of section 459E(1) of the Corporations Act 2001 (Cth) (the Act), [the defendant] and K & L Gates LLP are separate 'persons' and [the defendant] was not entitled to issue the statutory demand claiming amounts owing to K & L Gates LLP, in connection with [the three invoices].
[5] Mr Kingsley's affidavit, [20(a)].
It is therefore apparent that those amounts (which total $534,840.75) were not amounts in relation to which the defendant was ever relevantly a creditor.
The balance of the invoices referred to in the statutory demand were issued by the defendant pursuant to either the second engagement letter or the third engagement letter.
By application dated 20 December 2023, the plaintiff applied, by Summons for Taxation, to the Costs Court of the Supreme Court of Victoria for an assessment of costs pursuant to s 198 of the Uniform Law. The application was made in relation to all of the invoices referred to in the statutory demand.
On 6 February 2024, Judicial Registrar Conidi made programming orders in relation to an application by the defendant and K & L Gates LLP alleging that the Summons for Taxation was out of time.[6] Those orders provide that, following the filing of affidavits and submissions, and subject to any matters requiring clarification, a determination of that issue would be made on the papers not before 6 May 2024.
[6] Mr Purdy's second affidavit, page 3.
The application that the Summons for Taxation is out of time relates to the invoices that were issued on, or prior to, 19 December 2023.
There is no dispute that the application for costs assessment with respect to the invoices issued on, or after, 28 February 2023 was within time.[7] In relation to those invoices, Mr Kingsley deposed that the defendant:[8]
acknowledged and agreed that by reason of [the plaintiff's] Summons filed in the Supreme Court of Victoria against [the defendant] and K & L Gates LLP, there was a prima facie 'genuine dispute' for the purposes of section 459H(1)(a) of the Act, about the existence or amount of the debt owing in connection with [the four invoices].
[7] Section 198(3) of the Uniform Law provides that an application for costs assessment must be made within 12 months after the bill was given to the client (subject to an extension of time under s 198(4)).
[8] Mr Kingsley's affidavit, [20(b)].
In submissions before me, the defendant also accepted that one of the invoices issued on 19 December 2022, that is, the invoice in the sum of $22,149.93, was an invoice issued pursuant to the same engagement letter as those invoices issued on or after 28 February 2023. On that basis, the defendant accepted that that invoice could be said to be an interim bill which may be the subject of an assessment after the final bill (in what is sometimes called piggybacking of interim bills in taxation proceedings; see s 193 of the Uniform Law).[9]
[9] See generally Martinez v Al Maha Pty Ltd [2021] NSWSC 932.
That leaves the invoice dated 30 October 2022 for $130,384.61 and the invoice dated 19 December 2022 for $31,662.84.

Relevant law

Section 459E of the Corporations Act provides that a creditor may serve a statutory demand on a company in respect of a debt which is, or debts which are, due and payable where the amount exceeds the statutory minimum ($2,000).
Pursuant to s 459G of the Corporations Act, a company served with a statutory demand may apply for an order setting aside the statutory demand, provided it does so within the statutory period of 21 days after the demand is served, and complies with the provisions of s 459G(3).
Sections 459H and 459J of the Corporations Act relevantly provide:
459HDetermination of application where there is a dispute or offsetting claim
(1)This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a)that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b)that the company has an offsetting claim.
(2)The Court must calculate the substantiated amount of the demand in accordance with the formula:
Admitted total — Offsetting total
where:
admitted total means:
(a)the admitted amount of the debt; or
(b)the total of the respective admitted amounts of the debts;
as the case requires, to which the demand relates.
offsetting total means:
(a)if the Court is satisfied that the company has only one offsetting claim—the amount of that claim; or
(b)if the Court is satisfied that the company has 2 or more offsetting claims—the total of the amounts of those claims; or
(c)otherwise—a nil amount.
(3)If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.
(4)If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:
(a)varying the demand as specified in the order; and
(b)declaring the demand to have had effect, as so varied, as from when the demand was served on the company.
(5)In this section:
admitted amount, in relation to a debt, means:
(a) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt—a nil amount; or
(b)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt—so much of that amount as the Court is satisfied is not the subject of such a dispute; or
(c)otherwise—the amount of the debt.
offsetting claim means a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).
respondent means the person who served the demand on the company.
(6) This section has effect subject to section 459J.
459J Setting aside demand on other grounds
(1)On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b) there is some other reason why the demand should be set aside.
(2)Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.
The principles applicable to the determination of whether there is a 'genuine dispute' for the purposes of s 459H(1) of the Corporations Act are well settled and were recently summarised by the Court of Appeal in WA Glass Pty Ltd v Auto Control Systems Pty Ltd [No 2].[10] I need not set them out here.
[10] WA Glass Pty Ltd v Auto Control Systems Pty Ltd [No 2] [2023] WASCA 85 [46] – [50] (Buss P, Mitchell & Vaughan JJA).
As to the meaning of 'defect' in s 459J(1)(a) of the Corporations Act, s 9 of that Act provides that 'defect' in relation to a statutory demand to include:
(a)an irregularity; and
(b)a misstatement of an amount or total; and
(c)a misdescription of a debt or other matter, and
(d)a misdescription of a person or entity.
Section 198 of the Uniform Law relevantly provides:
198 Applications for costs assessment
(1)Applications for an assessment of the whole or any part of legal costs payable to a law practice may be made by any of the following—
(a) a client who has paid or is liable to pay them to the law practice;
…
(2)An application under this section is to be made in accordance with applicable jurisdictional legislation.
(3)An application under this section must be made within 12 months after—
(a)the bill was given to, or the request for payment was made to, the client, third party payer or other law practice; or
(b)the legal costs were paid if neither a bill nor a request was made.
(4)However, an application that is made out of time may be dealt with by the costs assessor if the designated tribunal, on application by the costs assessor or the client or third party payer who made the application for assessment, determines, after having regard to the delay and the reasons for the delay, that it is just and fair for the application for assessment to be dealt with after the 12-month period.
…
(7)If an application for a costs assessment is made in accordance with this Division—
(a) the costs assessment must take place without any money being paid into court on account of the legal costs the subject of the application; and
(b)the law practice must not commence any proceedings to recover the legal costs until the costs assessment has been completed.
I turn then to the parties' respective positions.

Parties' submissions

The plaintiff submitted, in general terms, first, that there were substantial defects in the statutory demand, and that a substantial injustice would be caused unless the demand is set aside (s 459J(1)(a)). The particular defects relied upon by the plaintiff were:
(a)the identification of the defendant as the 'Creditor' in relation to all of the invoices referred to in the statutory demand in circumstances in which the defendant was not the alleged creditor (and related references to the 'Creditor' in the statutory demand); and
(b)in relation to the amounts said to be owing pursuant to the invoices issued by K & L Gates LLP in US dollars, that the conversion of the purported debt from US dollars to Australian dollars was not the subject of any notice, or other evidence, as to the date on which the exchange rate was calculated.
Secondly, the plaintiff submitted that there was, in any event, some other reason why the demand should be set aside (s 459J(1)(b)). In that respect, the plaintiff referred to the application before the Costs Court in the Supreme Court of Victoria and the related nature of all of the invoices that had been issued by either the defendant or K & L Gates LLP. Those matters gave rise to genuine dispute as to the amount of any debt.
The defendant, for its part, submitted that it only pressed the debt with respect to the two invoices issued under the second engagement letter, namely the invoices dated 30 October 2022 and 19 December 2022, totalling the sums of $162,047.45. The defendant submitted that, as a consequence, the Court need not be troubled by the amounts said to be owing to K & L Gates LLP and the invoices that are subject of a costs assessment brought 'within time' or which might otherwise be included in such an assessment pursuant to the 'piggyback' principle.
In relation to the amounts that are currently the subject of a cost assessment, it is clear that those amounts may not be the subject of a statutory demand. In Rusca Bros Services Pty Ltd v DLaw Pty Ltd,[11] Markovic J held that, in circumstances in which there was an outstanding cost assessment in relation to an alleged debt, 'the debt the subject of the Demand is not due and payable and the Demand should be set aside, pursuant to s 459J(1)(b) of the Act'.[12] Her Honour also held that there was an alternative basis upon which to set aside the statutory demand in that case, namely that, on the evidence before her Honour, there was a genuine dispute about the debt the subject of the demand, for the purposes of s 459H(1)(a) of the Corporations Act.[13]
[11] Rusca Bros Services Pty Ltd v DLaw Pty Ltd, in the matter of Rusca Bros Services Pty Ltd (No 2) [2019] FCA 1865 (Rusca Bros).
[12] Rusca Bros [71] (Markovic J).
[13] Rusca Bros [80], [95] (Markovic J).
While recognising the effect of Rusca Bros on the invoices subject of a costs assessment brought 'within time', the defendant nevertheless submitted that there was no genuine dispute in relation to the two invoices issued under the second engagement letter. In particular, the defendant submitted that the prohibition in s 198(7) of the Uniform Law on recovery proceedings to recover legal costs where there is an outstanding costs assessment, did not apply in relation to an application which was out of time.
In that regard, the defendant relied on the decision in In the matter of Horizons (Asia) Pty Ltd.[14] In that case Rees J concluded in relation to s 198(7) of the Uniform Law:[15]
[F]or the purposes of section 198(7), an application for a costs assessment is made in accordance with Division 7 of Part 4.3 if the application is made within 12 months of the bill being given. In this way, the legislature has struck what it has considered to be an appropriate balance between consumers and legal practitioners …. Where an application for a costs assessment has been made 'out of time', at least where the Manager, Costs Assessment is yet to reach a determination that it is just and fair to deal with the application after the 12-month period, then the application for a costs assessment has not been made in accordance with the Division. It may be that once such a determination is made the application will then become an application made in accordance with the Division. It is not necessary to reach a concluded view about this as there is no such determination in this case.
The company has not made an 'application for a costs assessment ... in accordance with this Division' within section 198(7). Rather, it has made an application other than in accordance with the Division, being 'an application ... made out of time' that awaits the determination of the Manager, Costs Assessment as to whether the application will be entertained. As such, the prohibition on the law firm commencing proceedings to recover the costs does not apply and the amount claimed in the statutory demand remains due and payable. There is no reason to set aside the demand under section 459J(1)(b) of the Corporations Act.
[14] In the matter of Horizons (Asia) Pty Ltd [2021] NSWSC 1690 (Horizons (Asia)).
[15] Horizons (Asia) [67] – [68] (Rees J).

In relation to the capacity of the Court to, in effect, redraw the boundaries of the statutory demand, particularly in light of the inclusion of the amounts from the invoices issued by K & L Gates LLP, the defendant relied upon Re Wollongong Coal Limited.[16]
[16] Re Wollongong Coal Ltd (2015) 110 ACSR 134 (Re Wollongong Coal).

Disposition

Defects - s 459J(1)(a) of the Corporations Act

For the reasons that follow, I am satisfied that because of a defect in the demand, substantial injustice will be caused unless the demand is set aside (s 459J(1)(a)).
First, I am satisfied that the statutory demand in this case was defective. The demand included substantial sums (almost three quarters of the total debt alleged) that were not, and could never be said to be, owing to the defendant, namely the amounts said to be owing to K & L Gates LLP.
In this regard, the plaintiff drew an analogy with cases in which statutory demands are made on behalf of multiple creditors for a composite debt. In First Line Distribution Pty Ltd v Whiley,[17] for example, the statutory demand referred to a single amount said to be owed to three separate creditors. In setting aside the demand, Cohen J said:[18]
The form of the demand, having three separate creditors claim a composite debt in one statutory demand, does constitute a defect under s 9 of the Law, although it is not a defect within the examples given in the definition section. I am of the opinion that it is a defect of a nature which will lead to substantial injustice if it is not set aside. A creditor is required, in a statutory demand, to claim the debt in a certain and specific manner, but in the present case, three individual creditors claim one composite amount in a single demand.
The company is required by the statutory demand to pay, compound for or secure the amount claimed, but there is no indication as to how the company is to do this where the amount claimed is owing to three different creditors. If, for example, the company discharges its debt to one creditor, it is unclear from the demand whether that payment will affect the debts owing to the other creditors. The recipient of the statutory demand is entitled to know exactly what he or she owes to whom, and how the debt may be discharged. This statutory demand is most confusing, and its defects, in my opinion, are productive of substantial injustice. On this basis, too, the statutory demand should be set aside.
[17] First Line Distribution Pty Ltd v Whiley (1995) 18 ACSR 185 (First Line Distribution).
[18] First Line, 189 – 190 (Cohen J).
First Line Distribution is, as the defendant submitted, not directly analogous with the present case. Nevertheless, the reasoning in that case applies here with even greater force; the present case is further removed from that in First Line Distribution. In the present case, the statutory demand itself does not even reveal that it relates to debts owed to two potential, or putative, creditors. On the contrary, the demand states that the entirety of the debt was owed to the defendant which, on any view, it was not.
The statutory demand in the present case is, therefore, not only potentially confusing as to whom the debt is owed. It is, in fact, misleading as to whom the debt is owed. In the present case, as the defendant admitted, the large majority of the debt the subject of the statutory demand was not owed to the defendant, but to another entity: K & L Gates LLP. This is not, in my view, a mere technicality. It goes to the existence and identity of the creditor itself. The defendant is a law firm. It knows who it is. And it would know the difference between any separate entities that make up K & L Gates worldwide.
Nor does this misstatement of the alleged creditor merely concern whether there was a genuine dispute. It is a statutory demand by a person who was not, and is not, relevantly, a creditor with respect to the debt.
For this reason alone, in my view, there is a significant defect in the statutory demand.
The second defect sought to be relied upon the plaintiff was that the amounts owing with respect to the invoices issued by K & L Gates LLP were expressed in Australian dollars, without revealing the date of the conversion. In that regard, the plaintiff relied upon the decision of Aldridge Electrical Industries Pty Ltd v Mobitec AB,[19] for the proposition that the absence of a conversion date for a debt in foreign currency is, relevantly, a defect.
[19] Aldridge Electrical Industries Pty Ltd v Mobitec AB [2001] NSWSC 823 [29] (Santow J).
Given that the alleged defect arising from the lack of a conversion date relates to the same invoices for which the defendant was not a creditor (that is, those issued by K & L Gates LLP), in my view, it is not necessary to determine whether that irregularity would, itself and alone, have been a defect giving rise to substantial injustice. Nevertheless, I am satisfied that, together with the other matter I have identified, the failure to include the basis upon which those amounts were calculated adds to the nature of the defect in the present case.
The question then arises as to whether, in light of the defects, a 'substantial injustice will be caused unless the demand is set aside' (within the meaning of s 459J(1)(a) of the Corporations Act). That question is to be determined having regard to the nature of the procedure concerning statutory demands and the requirement that such a demand is to inform the debtor in clear, correct and unambiguous terms what it must do to forestall the statutory presumption of insolvency. The nature of those requirements and the potentially dramatic adverse consequences that flow from a statutory demand are a matter of importance, as explained by Barrett J in Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd.[20]
[20] Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd (2002) 20 ACLC 726 [21] (Barrett J).
In the present case, in this context, as I have noted above the defendant relied upon Re Wollongong Coal as authority for the proposition that the demands could be adjusted under s 459H(4) of the Corporations Act, including in circumstances in which the amount claimed was inflated or comprised matters which were obviously in dispute. In that case, Black J provided the following useful summary of principle:[21]
In some circumstances, the inclusion in a creditor’s statutory demand of substantial amounts that are not properly due may be a defect in the demand that would give rise to substantial injustice, by requiring the recipient of the demand to move to set aside that demand, even if it paid any amount of it which was otherwise properly due: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd [1996] NSWSC 199; (1996) 20 ACSR 746 at 750; Re UGL Process Solutions Pty Ltd above at [42]. The inclusion of amounts not properly due in a demand may also support the setting aside of the demand under s 459J(1)(b) as an abuse of the statutory procedure under Pt 5.4 of the Act. In First State Computing Pty Ltd v Kyling above, on which Mr Withers relies, Santow J observed that a statutory demand could be set aside under s 459J(1)(b) by reason of a substantial overstatement in the amount claimed, and that, where a statutory demand has been so grossly inflated as to comprise matters which it should have been obvious from the outset were in genuine dispute between the parties at the time the demand was served, then an order under s 459J(1)(b) setting aside that statutory demand may well be required to prevent such an abuse of the regime under Pt 5.4 of the Act. In Wildtown Holdings Pty Ltd v Rural Traders Company Ltd [2002] WASCA 196 at [41], Templeman J (with whom Steytler J and Miller J agreed) observed that an error of $31,000 in a total of $131,000 was not a minor misstatement as to the quantity of a debt. That is, of course, a matter of degree, to be determined in the circumstances of the particular case. In Re UGL Process Solutions Pty Ltd above at [44], I similarly observed that:
... in my view, a statutory demand for a substantially overstated amount, where more than half of the amount claimed was conceded to be genuinely disputed, and substantially all of the balance of the debt claimed was found to be genuinely disputed at the hearing, is nonetheless inconsistent with the proper use of the statutory regime. In my view, the Demand therefore should also be set aside in its entirety under s 459J(1)(b) of the Corporations Act.
[21] Re Wollongong Coal [82] (Black J).
As can be seen from this passage, Black J confirmed that the inclusion of substantial amounts not due could give rise both to a defect resulting in substantial injustice (s 459(1)(a)) and to there being some other reason why the demand should be set aside (s 459(1)(b)).
In my view, the size and nature of the overstatement in this case ($534,840.75 of a $744,997.58 demand, which could never have been said to be owing to the defendant) is such that it would give rise to substantial injustice not to set aside the statutory demand.
For that reason, in my view, I would set aside the statutory demand, pursuant to s459J(1)(a).

Some other reason - s 459J(1)(b) of the Corporations Act

If I am wrong about that, I am satisfied, in any event, that there is some other reason to set aside the statutory demand, within the meaning of s 459J(1)(b) of the Corporations Act.
First, as Black J said in Re Wollongong Coal (and the cases referred to therein) a substantial overstatement of the amount, not properly due in a demand, may be inconsistent with the proper use of the statutory regime, and so a basis to set aside the demand pursuant to s 459J(1)(b). In the present case, the amounts included in the demand relating to a completely different creditor were almost three quarters of the total demand. Those amounts should never have been included in the statutory demand issued by the defendant. In those circumstances, it would give rise to a substantial injustice to require a person to respond to such a notice under pain of presumed insolvency, even if it were the case that they paid an amount which was properly due.
Secondly, as set out above, all of the invoices issued by the defendant and K & L Gates LLP are currently the subject of an application before the Costs Court of the Supreme Court of Victoria. There is a preliminary issue as to whether or not the application for cost assessment should be accepted in relation to a number of the invoices the subject of the application. That question is, itself, to be determined on or after 6 May this year and, if the application with respect to those invoices is accepted, it will mean that the entirety of the costs will be the subject of an assessment before the Costs Court.
In my view, there is nothing in the present case to suggest that the application to the Costs Court for cost assessment has not been made in good faith or is without reasonable cause. While the application in relation to some of the invoices is out of time, the delay is not substantial. Indeed, some of the invoices were issued on 19 December 2022, which would be only a day or two out of time.
The only evidence relied upon by the defendant to suggest otherwise is an internal presentation of the plaintiff given in December 2022, which refers to accounts payable and includes amounts apparently referable to the defendant and to K & L Gates LLP.[22] I would not regard that presentation as a basis for concluding that the plaintiff had, at that time, accepted that it had foregone any opportunity that it might have to challenge the amounts incurred by way of a costs assessment. That is particularly so given that some of the invoices were issued days before the date of that presentation.
[22] Mr Kingsley's affidavit, page 112.
The defendant submits, in accordance with Horizons (Asia), that in relation to the applications for costs assessment that have been made outside the 12-month period, the prohibition in s 198(7) of the Uniform Law is not engaged. The construction of the Uniform Law reached by Rees J in that case is one which accords with the distinction in the Uniform Law between an application for costs assessment and an application being made 'in accordance with this Division' and it was not submitted to me that that construction is plainly wrong. I therefore follow that decision insofar as Rees J concluded that the prohibition in s 198(7) of the Uniform Law is not engaged in relation to an 'out of time' application for costs assessment. That means that there is not, as it were, an absolute prohibition on the recovery of amounts outside the 12-month time frame and it could not be said that those amounts have ceased to be due and payable.
Nevertheless, that conclusion does not finally answer the question as to whether there is nevertheless a 'genuine dispute' or other reason for setting aside the statutory demand under s 459(1)(b) of the Corporations Act. In that regard, the cases considering statutory demands for legal fees in the context of applications for costs assessment have drawn a distinction between, on the one hand, whether there is a debt 'due and payable' such that a statutory demand must be set aside and, on the other hand, whether or not an application for costs assessment gives rise to, or evidences, a genuine dispute in relation to the debt.
In Rusca Brothers, for example, Markovic J dealt with the application, first, on the basis that the existence of an incomplete costs assessment application meant that the law firm was precluded by s 198(7) of the Uniform Law from taking steps to recover its costs and in those circumstances, the debt the subject of the demand was not 'due and payable' such that the demand should be set aside pursuant to s 459(1)(b).[23]
[23] Rusca Bros [71] (Markovic J).
As I noted above, however, Markovic J went on to consider alternative bases for setting aside the demand in that case including that there was a genuine dispute as to the amount the subject of the demand. Her Honour also concluded that, on the evidence before her and the fact of the assessment application in which the parties had actively engaged, there was a genuine dispute about the debt for the purposes of s 459H(1)(a).[24]
[24] Rusca Bros [80], [95] (Markovic J).
As I understand the way in which Rusca Bros was decided, if the debt is not 'due and payable' because there is an outstanding cost assessment, that will be a complete answer to whether or not the statutory demand is properly issued, but that, in any event, an outstanding cost assessment may demonstrate a genuine dispute.
That, in my respectful view, was also the approach of Rees J in Horizons (Asia). In that case, her Honour again considered those issues quite separately.
Importantly, in Horizons (Asia), Rees J concluded that, notwithstanding the application for a costs assessment, there was not a genuine dispute. Indeed, her Honour held that the application for cost assessment was not propounded in good faith. Her Honour concluded:[25]
[T]he company has had considerable detail about these charges for 18 months and made no further complaint nor, until recently, sought to have the costs assessed. When viewed in the whole of the circumstances emerging from the evidence, such a ground does not appear to be propounded in good faith but, 'merely constructed in response to the pressure represented by the statutory demand'. … This ground fails.
[25] Horizons (Asia) [52] (Rees J).
Her Honour then went on to consider, as a separate question:[26]
[W]hether by seeking to file a costs assessment outside the 12-month timeframe prescribed by the Legal Profession Uniform Law, the unpaid costs cease to be 'due and payable' such that the statutory demand must be set aside. (Emphasis added)
[26] Horizons (Asia) [53] (Rees J).
In relation to that question, her Honour reached the conclusion set out at [38] above.
Applying these cases in the present case, while s 198(7), if it applies, would have been a complete answer to the demand, the fact that s 198(7) does not apply does not answer the question as to whether, in any event, there is a genuine dispute or, otherwise reasonable grounds, for setting aside the demand.
In the present case, as I have set out, applications in relation to all of the invoices are before the Costs Court in the Supreme Court of Victoria. If the preliminary application is dealt with in favour of the plaintiffs - that is, if the Court concludes it is just and fair for the application for assessment to be dealt with after the 12-month period - then consistent with what Rees J said in Horizons (Asia) at [67], the prohibition in 198(7) of the Uniform Law might then be engaged. If the preliminary application goes the defendant's way - that is, the Court concludes it is not just and fair for the application for assessment to be dealt with after the 12-month period - that would remove an obstacle in relation to the recovery of any amounts for which a cost assessment would no longer be permitted. The defendant would then be permitted to take whatever steps it considered appropriate to recover those amounts.
It nevertheless remains the case that the dispute is still live and will be determined in the relatively near future.
The parties made a number of submissions as to the piggyback concept: that is, whether or not the two invoices issued under the second engagement letter could nevertheless be included within a taxation in relation to the overall assessment of costs charged by the defendant. In my view, it is unnecessary to determine whether or not those invoices could be so included under that concept. There is, nevertheless, considerable overlap in fact between the work that was carried out in relation to the second engagement letter and the first engagement letter, as reflected by the references in invoices issued under the second engagement letter to the scheme which was then the subject of other advice under the third engagement letter.[27] That overlap itself, in my view, would be relevant to the exercise of the discretion by the Costs Court in the Victorian Supreme Court as to whether to accept the costs assessment in so far as it is out of time.
[27] Compare the subject matters of the invoices at Mr Purdy's first affidavit at pages 52 and 62 respectively.
In light of the fact that there is that outstanding application in relation to the invoices issued under the second engagement letter and that the applications by the plaintiff have been made in good faith, in my view, it would not be an appropriate case to attempt to salvage from a total demand of $744,997.58 some smaller amount which, depending upon the outcome of the application before the Costs Court, may need to be revisited in any event.
For those reasons, if I am wrong in relation to the defects giving rise to substantial injustice, in my view there is some other reason why the demand should be set aside in its entirety.
The statutory demand will be set aside. I will hear the parties in relation to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
MM
Research Associate to the Hon Chief Justice Quinlan
4 APRIL 2024