[2022] NSWSC 972
Canadian Aero Services Ltd v O'Malley [1974] SCR 592
Chan v Zacharia (1984) 154 CLR 178
[1997] FCA 1366
Ex parte James (1803) 8 Ves 337
32 ER 385
Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397
(2019) 136 ACSR 563
Source
Original judgment source is linked above.
Catchwords
[2022] NSWSC 972
Canadian Aero Services Ltd v O'Malley [1974] SCR 592
Chan v Zacharia (1984) 154 CLR 178[1997] FCA 1366
Ex parte James (1803) 8 Ves 33732 ER 385
Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397(2019) 136 ACSR 563[2019] NSWCA 60
Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 45287 ACSR 1[2011] NSWSC 1343
Howard v Commissioner of Taxation (2014) 253 CLR 83[2014] HCA 21
Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd (2012) 91 ACSR 170[2012] NSWSC 943
Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd (2012) 297 ALR 372[2012] NSWCA 365
NA Investments Holdings Pty Ltd v Perpetual Nominees Ltd (2010) 79 ACSR 544[2010] NSWCA 210
Phipps v Boardman [1964] 1 WLR 993[1964] All ER 187
Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd (No 3) (2014) 46 WAR 483[2011] WASCA 17
Tang Man Sit v Capacious Investments [1996] AC 514[1996] 1 All ER 193
United Australia Ltd v Barclays Bank Ltd [1941] AC 1[1940] 4 All ER 20
Vadori v AAV Plumbing (2010) 77 ACSR 616
[2010] NSWSC 274
Warman International Ltd v Dwyer (1995) 182 CLR 544
Judgment (38 paragraphs)
[1]
ll ER 193
United Australia Ltd v Barclays Bank Ltd [1941] AC 1; [1940] 4 All ER 20
Vadori v AAV Plumbing (2010) 77 ACSR 616; [2010] NSWSC 274
Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18
Category: Principal judgment
Parties: Platypus Impact Housing Australia Limited (ACN 654 195 445) (Plaintiff)
Jack Elsegood (Defendant)
Representation: Counsel:
E Ball (Plaintiff)
F Assaf SC and B Hord (Defendant)
By this application under section 459G of the Corporations Act 2001 (Cth) the plaintiff, Platypus Impact Housing Australia Ltd (PIHA), seeks to set aside the statutory demand dated 28 September 2023, which was issued by the defendant, Jack Elsegood, to PIHA on 4 October 2023 pursuant to s 459E of the Corporations Act demanding payment of the amount of $200,000.
PIHA is a registered charitable organisation that aims to develop affordable housing. PIHA is not a registered Community Housing Provider (CHP) but works alongside CHPs in relation to particular developments.
From 4 October 2021, Colin Curran became the Chief Executive Officer of PIHA. Mr Curran provided two affidavits in support of the application.
From 4 October 2021 until his resignation on 10 March 2023, Mr Elsegood was a director of PIHA. Mr Elsegood was also a real estate agent of Domain Residential Northern Beaches Pty Ltd. Mr Elsegood did not read any of the affidavits which were filed and served in support of his opposition to the application and did not tender any of the documents contained in the exhibits to those affidavits. Instead, he tendered a small number of documents in support of his case.
I permitted PIHA to tender an excerpt of the affidavit of Mr Elsegood affirmed 11 November 2023 in support of the application.
PIHA admits the existence and the amount of the debt of $200,000 owing by PIHA to Mr Elsegood for the repayment of a loan but says that it has an offsetting claim against Mr Elsegood within the meaning of s 459H(1)(b) and (5) of the Corporations Act which provide the basis for the setting aside of the statutory demand. Whether there is such an offsetting claim is the principal issue that I am required to determine.
Mr E Ball appeared as counsel for PIHA, instructed by McLachlan Thorpe. Mr F Assaf SC with Mr B Hord appeared as counsel for Mr Elsegood, instructed by Legacy Legal.
[4]
Mr Curran's credibility
There was a relatively short cross-examination of Mr Curran on limited issues (T46-63).
Mr Curran was previously a bankrupt between 20 October 1997 and 24 July 2001 and between 7 March 2011 and 6 April 2014. According to the records maintained by the Australian Securities and Investments Commission (ASIC), Mr Curran was also a "person disqualified from managing corporations" under s 206B(3) of the Corporations Act between 7 July 2010 and 6 July 2013.
Mr Curran placed his curriculum vitae in evidence. In Mr Curran's curriculum vitae he described himself as "2009 - 2013 Retired", which covers the period in which he was bankrupt and a "person disqualified from managing a corporation" by ASIC . As the word "retired" is commonly understood, Mr Curran was not "retired" in that period. Mr Curran was evasive at first in cross-examination on this topic (T48.5-10):
Q. I repeat the question. Is there some other reasons, Mr Cu[r]ran, that there's a gap in your affidavit between 2009 to 2013?
A. Not that I recall.
Q. Are you sure about that?
A. Yes.
When confronted with the evidence of his bankruptcy and disqualification, Mr Curran readily admitted to them (T48.12-49.46). The topic of his "retirement" was then raised again in the following exchange (T50):
Q. --you see that statement, 2009-2013, that's not entirely correct is it?
A. Well, I was retired. I couldn't do anything.
Q. You weren't retired were you, Mr Cu[r]ran?
A. I couldn't be a - a director. I didn't do anything. I was retired.
…
Q. But more importantly, Mr Cu[r]ran, you've represented to this Court that between 2009 and 2013 you were retired. Didn't you?
A. Yes
Q. And what I'm saying to you is this, in fairness to you, I'm saying that that statement is untrue.
A. Well, I think - I don't agree.
…
Q. Because what you're saying, Mr Curran, is you're asserting that the reason why there's a gap in your CV is because you were retired. And what I'm suggesting to you is that statement is wrong.
A. I disagree.
While I consider that Mr Curran was not entirely candid in this exchange, I consider that the entry on his CV as "retired" was probably borne of his embarrassment at being made a bankrupt and disqualified by ASIC. I think it is entirely plausible that Mr Curran felt that he was forcibly "retired" in that period.
But I do not consider Mr Curran's answers on that topic undermine his credit generally on the subjects on which he came under attack during cross-examination during the hearing. Mr Curran rejected the proposition that he was prone to make things up as and when it suited him (T50.49-51.8). I conclude that Mr Curran did his best to give his answers honestly. This is especially the case when none of his evidence about the relevant events was the subject of challenge from any competing version from Mr Elsegood or anyone else who might have been called by Mr Elsegood.
[5]
CCD Developments and the Christensen Ridge development land
On 18 November 2020, CCD Developments Pty Ltd was registered. Since then, the directors of CCD Developments have been Christopher Zenonos, Daniel Cuda and Constantinos Vorkas. The equal shareholders of CCD Developments are companies associated with each of Messrs Zenonos, Cuda and Vorkas.
There are two adjoining parcels of land located in Nikenbah, Hervey Bay, Queensland, the registered proprietor of which was Betty Joan Christensen - one parcel located at 238-272 Maryborough Hervey Bay Road, Nikenbah (Stage I Christensen Ridge development land) and the second located at 44 Chapel Road, Nikenbah (Stage II Christensen Ridge development land).
I will refer to the Stage l Christensen Ridge development land and the Stage II Christensen Ridge development land collectively as the Christensen Ridge development land.
When Betty Joan Christensen died, control of dealing with the Christensen Ridge development land passed to her personal representatives, Joan Hiscock and Bevan Christensen.
At some time prior to September 2021, CCD Developments entered into call option deeds with Joan Hiscock and Bevan Christensen to purchase both parcels of the Christensen Ridge development land, subject to development approval (CCD Call Options).
[6]
PIHA, Mr Elsegood's role with PIHA, PIHA's board and development process
On 4 October 2021, PIHA was registered as an unlisted Australian public company limited by guarantee and Mr Curran became its Chief Executive Officer for which services he is paid. Also on that date, the initial directors of PIHA were appointed, being Ian Hopkins (who was and remains the Chair of PIHA), Hari Krishna Sallakonda (a real estate agent from Legend Real Estate) and Mr Elsegood. None of the directors of PIHA receive remuneration. The proceedings at the PIHA board meetings were confidential and none of the development opportunities raised at those meetings were made available to the public.
Mr Elsegood's role with PIHA was to source opportunities and to consider the merit of these opportunities as well as those that were introduced by others. Mr Elsegood was asked to source funds and investments for PIHA as well as source and pursue potential joint venture partners to assess projects coming to fruition. The directions Mr Curran gave Mr Elsegood were to assist with and run feasibility studies on sites and projects, pursue joint venture partners and investors, negotiate bulk purchases of apartments with numerous developers, and to cold call developers, agents and brokers to source deals.
PIHA has only undertaken housing developments in New South Wales and Queensland.
The development process generally followed by PIHA involves these steps:
1. An introduction and tabling of a housing development opportunity to the PIHA board, usually by Mr Curran.
2. The consideration by the PIHA board whether to act on the development opportunity, including whether it would be commercially viable and suitable for a CHP.
3. PIHA and the vendor negotiate and exchange a contract for put and call options in relation to the relevant parcel of land, followed by a due diligence period of about 60 to 90 days and then settlement within 12 months.
4. PIHA and a CHP enter into a non-binding heads of agreement in advance of a contract for put and call options between them.
5. PIHA submits an application for development approval to the local council for the proposed development.
6. PIHA commences preparatory documentation to obtain an operational works certificate which takes about six months and involves liaising with an architect, surveyor, a geo-technician and electrical and civil engineers.
7. PIHA exercises the option to call with the vendor.
8. PIHA exchanges the contract for a put and call option with the CHP.
9. The CHP exercises the call option with PIHA once funding is secured.
10. PIHA appoints an engineer to oversee works and serve as superintendent.
11. The appointed engineer invites about three contractors to submit tenders to perform the civil works, with the tender process taking about three weeks.
12. PIHA selects the contractor at the end of the tender process.
13. The selected civil contractor performs the civil works, including connecting roads, erecting lights, installing sewers, curbs, gutters and drainage, which takes about 18 months for 100 residential allotments.
14. The relevant council certifies the development is complete according to the development approval, after which the council lodges the certificate of registration with New South Wales Land Registry Services or Titles Queensland (as the case may be) who issue the registered title for each residential allotment.
15. The CHP settles, paying the contract price usually within 21 days after registration.
[7]
PIHA, CCD Developments and the Christensen Ridge development land
In about September 2021, James Doyle (a real estate agent) telephoned Mr Curran and told him about an opportunity to purchase 100 residential allotments from a larger parcel of land of 230 residential allotments to be developed on the Stage I Christensen Ridge development land. Mr Doyle told Mr Curran that CCD Developments had an option to purchase the land from the registered proprietors, who were the personal representatives of Betty Joan Christensen, subject to development approval.
On 18 January 2022, Mr Doyle sent an email to Mr Curran to which he attached photographs and a link to a video of the Stage l Christensen Ridge development land.
On 22 March 2022, Mr Curran introduced the Stage l Christensen Ridge development land opportunity at a PIHA board meeting at which Messrs Hopkins, Sallakonda and Elsegood were also present. Ms Toni David took the minutes of the meeting, which state:
Harvey Bay - develop site w/l site after DA (James = agent)
300 - 400 subdivision
At about this time, Mr Curran called Mr Elsegood and told him there was a potential deal in Nikenbah, Hervey Bay, which he subsequently knew to be the Christensen Ridge development land. Mr Elsegood was driving to Yeppoon at the time. At the request of Mr Curran, Mr Elsegood went to Nikenbah to inspect the site to conduct some due diligence. Mr Elsegood concluded that the Christensen Ridge development land was attractive for an investment. Mr Elsegood attended to the initial due diligence, including considering values, sales projections, costs of the development and a feasibility study.
About one month later, Mr Curran had a telephone call with Mr Doyle in which he said that, subject to board approval, PIHA preferred to purchase the whole Stage l Christensen Ridge development land rather than just 100 hundred residential allotments within it. Mr Doyle subsequently told Mr Curran that he had contacted CCD Developments to see if they were interested in selling the entire Stage l Christensen Ridge development land, for a price of $15.5 million including GST.
The Stage II Christensen Ridge development land had the potential for 310 residential allotments. The development approval application was, however, not ready to be lodged for the Stage ll Christensen Ridge development land. The price of the Stage ll Christensen Ridge development land was about $20.77 million, subject to a price reduction if the development approval was for less than 310 residential allotments.
[8]
$200,000 loan to PIHA
In August 2022, Mr Curran told the PIHA directors that the initial deposit under the anticipated sale contract in respect of the Stage l Christensen Ridge development land would be $100,000 and the initial call option fee under the anticipated contract for put and call options for the Stage II Christensen Ridge development land was a further $100,000.
At the same time, Mr Elsegood said to Mr Curran that he would loan PIHA the $200,000 from his share of the sale of the Domain rent roll, but ultimately that transaction did not proceed.
On about 20 August 2022, Mr Curran asked Gregory Pace, a real estate salesperson and personal acquaintance of Mr Curran, to advance $200,000 as a loan to PIHA for both the initial deposit and the initial call option fee, with interest of 3% per month. Mr Curran told Mr Pace that Mr Elsegood would pay him $200,000 within about a month from the sale of his share in the Domain rent roll and that PIHA would then pay $200,000 to Mr Elsegood after the successful settlement of the anticipated sale contracts for the Christensen Ridge development. Mr Pace agreed to that proposed course.
On about 22 August 2022, Mr Curran telephoned each of the PIHA directors in turn to inform each of them that Mr Pace had agreed to loan $200,000 to PIHA. In Mr Curran's telephone call with Mr Elsegood, Mr Elsegood confirmed that the arrangement was acceptable and would give him time to sell his share of the Domain rent roll.
On 22 August 2022, Mr Pace electronically transferred $200,000 into Mr Curran's bank account, who then transferred that amount to PIHA in increments across three transactions on 22 and 23 August 2022.
On 29 August 2022, the PIHA board met by video with Messrs Curran, Hopkins, Elsegood and Sallakonda present. The minutes of the meeting were taken by Ms David. During the course of the meeting it was noted that the initial deposits of $100,000 for each stage of the Christensen Ridge development had been paid by PIHA, exchange was expected before 31 August 2022 and the PIHA board proposed to appoint Mr Pace as a consultant.
[9]
Christensen Ridge development land contracts exchanged
On 25 August 2022, CCD Nikenbah Pty Ltd was registered with Messrs Zenonos, Cuda and Vorkas as the directors and companies associated with them as the equal shareholders. As a result, CCD Developments and CCD Nikenbah had the same directors and the same shareholders.
On 28 August 2022, CCD Developments and CCD Nikenbah entered into nomination agreements pursuant to which CCD Developments nominated CCD Nikenbah to exercise the call options in the CCD Call Options.
On 2 September 2022, CCD Nikenbah and PIHA exchanged a contract for the sale of the Stage l Christensen Ridge development land for the sale price of $15.5 million including GST (Stage l Sale Contract), with the initial deposit of $100,000 payable that day and the balance of the deposit of $400,000 payable five days after the unconditional development approval was obtained in respect of that land.
On 2 September 2022, CCD Nikenbah and PIHA exchanged a put and call option deed for the Stage II Christensen Ridge development land for the total sale price of $20.5 million including GST (Stage ll Option Deed), with the initial call option fee of $100,000 payable that day and the balance of the call option fee payable of $400,000 when the Stage l Sale Contract settled.
Performance of the Stage l Sale Contract and the Stage ll Option Deed depended on the CCD Call Options and also the obtaining of an unconditional development approval by 30 March 2023.
On 2 September 2022, PIHA transferred $200,000 into the trust account of the solicitors acting for CCD Nikenbah, $100,000 of which was the initial deposit under the Stage l Sale Contract and $100,000 of which was the initial call option fee under the Stage II Option Deed.
On 3 September 2022, Mr Curran telephoned Mr Elsegood and informed him about the exchanges of the Stage l Sale Contract and the Stage II Option Deed and that each contract could be terminated if an unconditional development approval was not obtained by 30 March 2023.
On 13 September 2022, Gadens sent an email to Mr Curran, which was copied to Messrs Hopkins, Sallakonda and Elsegood, summarising the terms of the Stage l Sale Contract and the Stage II Option Deed and confirming that the $200,000 had been transferred.
[10]
Mr Elsegood makes transfers to Mr Pace
Between about 26 September 2022 and 21 October 2022, Mr Elsegood made a total of six bank transfers to Mr Pace in the sum of $200,000 in accordance with the arrangements made on about 20 August 2022. These transfers gave rise to the $200,000 debt owing from PIHA to Mr Elsegood which is the subject of the statutory demand.
[11]
PIHA takes steps concerning the Christensen Ridge development land
On 29 September 2022, a meeting of the PIHA board took place by video which was attended by Messrs Hopkins, Elsegood, Sallakonda and Curran, with the minutes taken by Ms David. At the meeting it was resolved that PIHA would pay a 5.5% commission to each of Messrs Elsegood and Sallakonda to act as agents in the sale of the Christensen Ridge development land and it was noted that Mr Pace had been appointed as a consultant to PIHA.
On 18 October 2022, Mr Elsegood and Mr Curran flew from Sydney to the Sunshine Coast where they met Mr Pace and then they all drove to Hervey Bay to visit the Christensen Ridge development land. On 20 October 2022, Mr Elsegood and Mr Curran flew back from the Sunshine Coast to Sydney.
On 18 November 2022, PIHA created a document titled "Feasibility: Christensen Ridge, Hervey Bay - 18 November 2022" which forecasted a total profit after tax of $34,375,235 for the Stage I Christensen Ridge development land. Mr Curran was cross-examined about this amount but did not resile from it (T60-63).
On 23 November 2022, CCD Developments obtained development approval in relation to the Stage l Christensen Ridge development land.
[12]
Heads of Agreement
On 10 December 2022, Mr Elsegood sent an email to Mr Curran which attached a Heads of Agreement between PIHA and what was described as "[a]n entity comprising Trevor Groeneveld, Biagio Abignano and (Jacks Entity) or their nominees ('Developer')" which had been signed by Messrs Elsegood and Sallakonda on behalf of PIHA and also by Messrs Groeneveld and Abignano. In summary, the Heads of Agreement provided for the joint development of the Stage I Christensen Ridge development land.
Mr Elsegood had sourced Mr Groeneveld and Mr Abignano as joint venture partners to assist with the acquisition and development of the Christensen Ridge development land, which he progressed to the Heads of Agreement.
On 10 December 2022, Messrs Curran and Elsegood had a meeting at which Mr Curran told Mr Elsegood that he had breached his fiduciary obligations to act in the best interests of PIHA by entering into the Heads of Agreement and that Mr Curran intended immediately to seek legal advice from Shaun McGushin of Ash Street Law.
On 15 December 2022, Mr McGushin sent an email to Mr Elsegood, which was copied to Messrs Curran and Hopkins, which stated that Mr Elsegood clearly has a conflict of interest in his role as a director of PIHA because he has a material personal interest in the "Developer" and the proposed development of the Stage I Christensen Ridge development land. Amongst other things, Mr McGushin stated that the Heads of Agreement had not been agreed by PIHA and had not been approved by the PIHA board as required under its constitution, that no PIHA board meeting had been held and that PIHA was not bound by the Heads of Agreement. Mr McGushin further said that because of Mr Elsegood's material personal interest, he was not able to be present at the PIHA board meeting to consider the matter or vote in relation to it. Mr McGushin concluded by saying that notwithstanding this and without prejudice to PIHA's rights, PIHA was still prepared to consider proceeding with the development but on terms that needed to be agreed.
Mr Curran was cross-examined about PIHA still being prepared to consider proceeding with the development under the Heads of Agreement. He said it would have to be on terms that needed to be agreed, which was why the Heads of Agreement did not go ahead, and that there needed to be a proper meeting and agreement of the board of PIHA, which is the process of PIHA as a public company and a charity (T57).
[13]
Christensen Ridge development land sales and funding
In mid-December 2022, Mr Curran asked Mr Doyle to arrange for surveys of 50 residential allotments of the Stage I Christensen Ridge development land, so that solicitors could prepare put and call, and sale, contracts to enable PIHA to proceed to sell the residential allotments "off the plan".
Between January and March 2023, PIHA exchanged about 25 contracts for put and call options over residential allotments of the Stage I Christensen Ridge development land with a 5-10% deposit, subject to registration of the new title in respect of the respective residential allotments.
PIHA also exchanged a heads of agreement subject to finance approval on 70 residential allotments of the Stage I Christensen Ridge development land for about $27 million with a CHP.
Sometime in 2022, PIHA retained Stephen Hodgkinson to apply for funding approval for it in respect of the Christensen Ridge development land. Subsequently, Mr Hodgkinson sought funding approval from Balmain Commercial and Benchmark in respect of the Christensen Ridge development land, which progressed to an advanced stage.
[14]
Appeal of development approval for Stage I Christensen Ridge development land
On 9 January 2023, the owners of the golf driving range neighbouring the Stage I Christensen Ridge development land, Hayley Brooks and Stephen Taylor, filed a notice of appeal in the Queensland Planning and Environment Court against the development approval which CCD Developments had obtained for the Stage I Christensen Ridge development land (DA Appeal).
In March or April 2023, Mr Curran believes that CCD Developments approached Ms Hiscock and Mr Christensen as vendors of the Stage I Christensen Ridge development land to extend the time for obtaining the unconditional development approval beyond 30 March 2023.
[15]
Mr Elsegood requests repayment of $200,000
On 15 February 2023, Mr Elsegood sent an email to Mr Hopkins, amongst others, in which he said he had funded the two option deeds for the Christensen Ridge development land for $200,000 in total and that he now found himself in a "poor cash flow position" with a number of debts to both the Australian Taxation Office and ASIC. Mr Elsegood requested repayment of those funds, saying "I simply cannot wait any further".
On 16 February 2023, Mr Hopkins sent an email to Mr Elsegood in reply saying that the $200,000 was contributed as equity for which the return is assumed to come from the project. Mr Hopkins also stated:
At the moment PIHA does not have the funds to repay you. But I would have thought that Trevor [Groeneveld] or Biagio [Abignano] would be the logical source of funds in this situation.
I can empathise with your situation. If PIHA's ability to repay you changes I will let you know.
On 16 February 2023, Mr Elsegood responded by email to Mr Hopkins, copied to Messrs Curran and Sallakonda, stating that the funds for the option fee were loans, not equity, and that he intended to still have funds to contribute into the joint venture entity. Mr Elsegood also said:
PIHA has funds available and I simply require them so, please make these funds available to repay.
PIHA has made loans to non-directors due to circumstance and it wasn't an issue then, therefore I demand that these loans are repaid.
[16]
Establishment of Fraser Coast Projects Pty Ltd
On 16 February 2023, Fraser Coast Projects Pty Ltd was incorporated, with Messrs Zenonos and Cuda as directors and companies associated with each of them as equal shareholders. Unlike CCD Developments and CCD Nikenbah, Mr Vorkas was not included in the management and ownership of Fraser Coast.
[17]
Resignation of Mr Elsegood as a director of PIHA
On 10 March 2023, Mr Elsegood tendered his resignation as a director of PIHA to avoid any conflict between PIHA and a joint venture company to enter into an arrangement with PIHA to develop the Christensen Ridge development land.
On 14 March 2023, Mr Pace became a director of PIHA.
On 15 March 2023, the PIHA board comprising Messrs Hopkins, Sallakonda and Pace resolved to accept Mr Elsegood's resignation as a director with effect from 10 March 2023.
[18]
Fraser Coast involvement in Christensen Ridge development land
On 22 March 2023, Fraser Coast, Ms Hiscock and Mr Christensen entered into new call option deeds for the Stage I Christensen Ridge development land and the Stage II Christensen Ridge development land, with a purchase price of $6.35 million plus GST and $6.6 million plus GST respectively (Fraser Coast Call Options). The terms of the Fraser Coast Call Options permitted Fraser Coast to nominate a third party to exercise the call option.
At the time that the Fraser Coast Call Options were executed, Mr Curran was not aware of them.
[19]
No development approval and Mr Curran's visit to Christensen Ridge development land
On 30 March 2023, no unconditional development approval for the Christensen Ridge development land had been obtained. This meant that the condition precedent to the Stage I Sale Contract and the Stage II Option Deed had not occurred.
On 30 March 2023, Mr Curran flew from Sydney to Hervey Bay where he met Simon Power, a civil contractor, with whom he visited the Christensen Ridge development land along with Mr Doyle. On 31 March 2023, Mr Curran returned to Sydney.
[20]
Fraser Coast offer nomination to PIHA
On 11 April 2023, Mr Zenonos sent an email to Mr Curran, copied to Mr Cuda, which referred to an earlier discussion, stated that Fraser Coast was looking to nominate PIHA as the buyer for the Stage I Christensen Ridge development land and attached the draft nomination agreement and the Fraser Coast Call Option that had been signed for each of the Stage I Christensen Ridge development land and the Stage II Christensen Ridge development land. Mr Zenonos set out a summary of the Fraser Coast Call Options saying (quoted below exactly as written):
Stage I contract price is currently $6.35 million and there is a reference in the deed to us getting a $250,000 plus Gst discount to this price from our sellers. We have successfully negotiated with the owners to pay half of the $500, 000 plus gst required to the appellants to drop the appeal and this will be deducted from the contract price on stage 1 contract. Therefore stage 1 contract will be reduced to $6.1 million plus GST. ( Total inc GST $6710 000 )
The total price of the contract for stage 1 and the nomination fee will be $15.5 million inc of GST.
Therefore the total nomination fee will be $8 765 000 inclusive of Gst.
This demonstrates that PIHA was aware of Fraser Coast's involvement with the Christensen Ridge development land from that time.
On 23 April 2023, Mr Curran sent an email to Mr Hopkins and Warren Denny of Piper Alderman (solicitors for PIHA) which forwarded the email received on 11 April 2023 from Mr Zenonos. Mr Curran said that he had spoken to Mr Zenonos the previous day, and that Mr Zenonos had said that if PIHA did not sign the new nomination deed they would sell to another party. Mr Curran commented (quoted below exactly as written):
You will note which I overlooked initially the new option deed is a different entity to CDC Nikenbah Pty Ltd.
Apparently they executed this new agreement with the Christensen the vendors.
Surely they are bound as directors of both entities to honour the original contracts ?
This situation is extremely worrying, your opinion would be greatly appreciated.
[21]
CCD Developments terminate Stage I Sale Contract and Stage II Option Deed
On 25 April 2023, Mr Cuda on behalf of CCD Developments sent an email to Mr Denny advising that the Stage I Sale Contract was terminated as the Stage I call option deed had come to an end and the Stage II Option Deed was terminated as the Stage II call option deed had also come to an end. Mr Cuda said that the initial deposit under the Stage I Sale Contract and the initial call option fee under the Stage II Option Deed would be refunded to PIHA.
On 26 April 2023, Mr Denny forwarded to Mr Curran the email of 25 April 2023 from Mr Cuda.
On 26 April 2023, on the instructions of Mr Curran, Mr Denny sent a letter to the directors of CCD Nikenbah, Fraser Coast and CCD Developments stating that PIHA considered there was no proper basis to terminate the Stage I Sale Contract and the Stage II Option Deed. The letter alleged that CCD Nikenbah was in breach of its implied duty to act in good faith, CCD Nikenbah deprived PIHA of the intended benefit of those contracts, CCD Nikenbah was in breach of its implied undertaking to use all reasonable endeavours to enable fulfilment of the conditions contained in those contracts and that Messrs Zenonos and Cuda had engaged in unconscionable conduct by entering into the Fraser Coast Call Options.
On 26 April 2023, Mr Curran rang Mr Hodgkinson to tell him that CCD Developments had wrongly terminated the Stage I Sale Contract and the Stage II Option Deed, but that PIHA intended to undo that purported termination and he wanted Mr Hodgkinson to continue to arrange funding approval in respect of the Christensen Ridge development land.
[22]
Mr Curran meets with Mr Zenonos and Mr Elsegood
On 4 May 2023, Mr Curran met Mr Zenonos for lunch in Parramatta. Mr Curran says that at the lunch Mr Zenonos threatened not to sign a contract for PIHA to acquire put and call options for a development in Ipswich if Mr Curran did not agree that Fraser Coast should have the Christensen Ridge development, free of any legal proceeding. Mr Curran also said that Mr Zenonos then offered to pay $2 million to PIHA for Fraser Coast to have the Christensen Ridge development land and not sue it or any of its directors. Mr Curran also said that Mr Zenonos caused him to understand that Fraser Coast had nominated Nikenbah Developments Pty Ltd under the Fraser Coast Call Options and that settlement would be on the purchase price of $15.5 million including GST.
Messrs Curran and Zenonos then agreed that Mr Elsegood could join them. Mr Elsegood then met Messrs Curran and Zenonos at another venue. There is no evidence about what took place in the meeting between Messrs Curran, Zenonos and Elsegood at the other venue.
On 5 May 2023, Mr Curran met Mr Elsegood at the Richmond Club in Richmond, New South Wales. Mr Elsegood then handed Mr Curran a document which Mr Curran understood to be a series of the following demands made by Mr Elsegood to Mr Curran:
1. Mr Curran to procure the release of $500,000 for each stage of the Christensen Ridge development land from CCD Developments to Mr Elsegood;
2. Mr Curran to procure from the PIHA board a letter instructing Messrs Zenonos and Cuda to release $200,000 directly to Mr Elsegood;
3. Mr Curran to procure a transfer of the 25 exchanged sales which PIHA held in respect of the Stage I Christensen Ridge development land from PIHA to CCD Nikenbah;
4. Mr Curran to cause PIHA to acknowledge resignation payment terms;
5. Mr Curran to provide to Mr Elsegood all information on the Christensen Ridge development land and the operational works particularly;
6. Mr Elsegood to be paid $200,000;
7. Mr Elsegood to be reimbursed $50,000 which he lost to Maxlife Properties Australia Ltd;
8. Mr Elsegood to be reimbursed $50,000 for the outstanding marketing for Goulburn in relation to Maxlife Properties Australia Ltd;
9. $185,000 which Mr Elsegood claimed in relation to a deal in Frenchs Forest; and
10. Payment of commission of 5% plus GST in relation to the Christensen Ridge development which Mr Elsegood wanted transferred to CCD Nikenbah, with various splits depending on who made the sales.
[23]
Nikenbah Developments
On 11 May 2023, Nikenbah Developments was registered. The directors of Nikenbah Developments are Messrs Groeneveld and Abignano and one of its shareholders is Elsegood Holdings Australia Pty Ltd, a company of which Mr Elsegood is the sole director, secretary and shareholder. Elsegood Holdings is recorded as holding 10,600 D class shares in Nikenbah Developments, out of Nikenbah Developments' total paid up capital of $100,000.
On 26 May 2023 at 6:54am, Mr Zenonos received an email which attached a notice of discontinuance of the DA Appeal.
On 26 May 2023 at 10:54am, Mr Zenonos sent an email to Messrs Groeneveld, Abignano and Elsegood, copied to Mr Cuda, which forwarded them the notice of discontinuance of the DA appeal and said as follows:
Hi Boys,
See below and attached email from the appellants lawyer. It should happen pretty quickly now.
Dan and I had a discussion yesterday regarding the 400k for Jack. We are happy to assist in keeping this deal moving quickly but ask that you pay the 4.5mill as quick as you can so we can nominate you as the buyer as soon as the DA is lifted. My understanding after my discussion with Trevor yesterday was that you are in the process of finalising your internal shareholders agreement and will be ready to go straight after that if we assist with Jacks funds.
Can you please give us an indication of when this will be and we will then confirm Jacks 400k coming from the 4.5 mill nomination fee.
On 26 May 2023 at 3:24pm, Mr Groeneveld sent an email to Messrs Zenonos, Abignano and Elsegood, copied to Mr Cuda, which stated:
Chris, Jack, Biagio and I have discussed this. I have also spoken about it with yourself and Dan. We are as motivated as you are to get this contract exchanged, but we need to have the proper agreements setup prior as we have external parties coming in as part of Jack group and we will also need to have the DA formally lifted and confirmed by Council. We have instructions given to our accountants and lawyers and they understand we want it done ASAP. The funds are there and ready to go so we will move on this as quickly as we can. And as if we are going to put our 1.5 mil at risk. We have our 2 brokers (one of them yours, so you can check with him) confirming they have funders willing to put forward offers to fund, and this is in addition to the one we already have sitting there ready to go. We have 60 days to lockdown funding. Mate, get on the plane and go to Vegas. Bring us back some $100,000 chips. This is all going to happen.
[24]
Further feasibility forecast by PIHA
On 26 May 2023, PIHA created a document titled "Feasibility: Christensen Ridge, Hervey Bay - 26 May 2023" which forecasted a total profit after tax of $14,000,317 for the Stage I Christensen Ridge development land. This was considerably reduced from the total profit after tax of $34,375,235 which had been forecast as at 18 November 2022 (which is referred to above). Mr Curran was cross-examined about this reduction, accepting that he did not refer to the 23 May 2023 forecast in his affidavit (T63.1-13).
[25]
Federal Court proceedings against Messrs Zenonos and Cuda and Fraser Coast
On 24 July 2023, by leave of the court, Mr Vorkas brought proceedings in the name of CCD Developments and CCD Nikenbah in the Federal Court of Australia against Messrs Zenonos and Cuda and Fraser Coast in relation to the Christensen Ridge development land (CCD Proceedings). In the CCD Proceedings, it was alleged that each of Messrs Zenonos and Cuda breached the statutory and fiduciary duties they owed to CCD Developments and CCD Nikenbah by:
1. failing to cause CCD Developments to exercise the CCD Call Options on or before 30 March 2023 which had the effect that they lapsed, so that CCD Nikenbah was precluded from buying the Christensen Ridge development land for $12.6 million and selling it to PIHA for $36 million; and
2. diverting the opportunity of the Christensen Ridge development land to themselves through Fraser Coast.
In the CCD Proceedings, it was alleged that Fraser Coast was a person involved in the breaches of statutory duties and knowingly assisted Messrs Zenonos and Cuda in their breaches of fiduciary duties as part of a dishonest and fraudulent design.
[26]
Dealings with the Christensen Ridge development land
On 18 August 2023, Fraser Coast withdrew the caveat on the title to the Stage I Christensen Ridge development land it had lodged on 5 June 2023.
On 18 August 2023, Ms Hiscock and Mr Christensen transferred title to the Stage I Christensen Ridge development land to Nikenbah Developments.
[27]
PIHA's acceptance of the end of Stage I Sale Contract and the Stage II Option Deed
In about August 2023, Mr Curran telephoned Mr Hodgkinson and told him he could no longer see any realistic prospect of PIHA taking control of the Christensen Ridge development land and asked him to immediately stop any work to obtain funding approval for PIHA in respect of it.
[28]
Service of statutory demand
On 4 October 2023, the statutory demand was served on PIHA.
[29]
PIHA's response to statutory demand
On 19 October 2023, the solicitors for PIHA wrote to the solicitors for Mr Elsegood stating that PIHA relied on three of the grounds in ss 459H and 459J of the Corporations Act, being that there was a genuine dispute about the existence or amount of the debt to which the statutory demand related, PIHA had an offsetting claim and there was some other reason why the demand should be set aside. In the letter, the basis of the alleged offsetting claim was said to be breaches of Mr Elsegood's directors' duties owed to PIHA under ss 182 and 183 of the Corporations Act and breaches of his fiduciary obligations to PIHA in preferring his own interests to PIHA's interests in relation to the Stage I Christensen Ridge development land. It was asserted that:
Our client intends to issue proceedings against your client in respect of the loss of a chance to earn the development profit, and will seek at a minimum damages of $27,000,000, plus interest and costs. The damages amount is 90% of the budgeted forecast development profit. Our client reserves its right to seek a higher amount of damages from your client.
The letter of 19 October 2023 attached an ASIC search of Nikenbah Developments dated 21 August 2023. Mr Elsegood says that this demonstrates that PIHA was aware of Mr Elsegood's involvement with Nikenbah Developments at that time. I agree that I can infer that from 21 August 2023, PIHA was aware of that fact.
The solicitors for PHIA concluded the letter by demanding that Mr Elsegood withdraw the statutory demand by 4:00pm on 20 October 2023, failing which PIHA would file and serve an application in this court to set aside the statutory demand.
This was the first time that PIHA raised an alleged claim against Mr Elsegood in relation to his involvement with Fraser Coast and Nikenbah Developments.
Mr Curran admitted in cross-examination that the statement contained in the 19 October 2023 letter, that there is a genuine dispute between PIHA and Mr Elsegood about the existence or the amount of the debt owed to Mr Elsegood, was wrong (T51.43-53.4).
Mr Curran asserts that PIHA's wasted expenditure on the Christensen Ridge development land totals $225,913.08, including legal costs, commissions, variable expenses, joint venture agreement costs and conveyancing costs.
There is no evidence that PIHA has commenced proceedings against Mr Elsegood in any forum in connection with the purported offsetting claim, which Mr Curran deposed on 23 October 2023 that PIHA intends to pursue.
[30]
Financial position of PIHA
The profit and loss statement of PIHA for the year ended 30 June 2022 demonstrates that it made a loss of $58,762.66. The profit and loss statement of PIHA for the year ended 30 June 2023 demonstrates that it made a loss of $230,002.94. In each of those years, the balance sheet of PIHA reveals that PIHA had a deficiency of assets to liabilities of $58,762.66 and $288,765.60 respectively.
[31]
ADMISSIBILITY OF THE 26 MAY EMAILS
The 26 May emails referred to above were the subject of challenge to their admissibility by Mr Elsegood.
On the argument about admissibility, PIHA relied on the affidavit of Jesse Samuel Gibson (a solicitor for PIHA) sworn 19 April 2024 (Gibson affidavit) to establish that:
1. on 16 January 2024, PIHA caused a subpoena to produce to be issued to and served on Mr Vorkas (Subpoena); and
2. on 1 February 2024, Mr Vorkas (by his solicitors) produced documents to PIHA in response to the Subpoena which included the 26 May emails.
PIHA also relied on the terms of a notice to produce dated 22 November 2023 (Notice to Produce) which was issued to Mr Elsegood seeking the production of documents falling within the following categories (noting the misspelling of "Nikenbah" as "Nikenbar"):
1 This notice to produce.
2 The shareholders agreement of Nikenbar Developments Pty Ltd ACN 667 910 607 (Nikenbar Developments).
3 The term sheet, and/or the option agreement, and/or the contact, for the sale of 238-272 Maryborough Hervey Bay Road, Nikenbah QId 4655 and/or 44 Chapel Road Nikenbah QId 4655 (Christensen Ridge development) from Joan Betty Hiscock and Bevan Roy Christensen as personal representatives of Betty Joan Christensen (deceased) (together, Vendors) to Nikenbar Developments (Nikenbar Agreement).
4 All emails to and from you, Jack Elsegood (Jack) and:
(a) Trevor Groeneveld; and/or
(b) Biagio Abignano; and/or
(c) both and/or either of the Vendors,
during January to June 2023, concerning or relating to:
(d) the Nikenbar Agreement; and/or
(e) the Nikenbar Development's shareholder agreement; and/or
(f) the appointment of a sales agent of Nikenbar Developments as alleged in paragraph 99 of the affidavit of you, Jack, affirmed on 11 November 2023 (Jack's Affidavit); and/or
(g) the offer to you, Jack, to become a shareholder in Nikenbar Developments as alleged in paragraph 99 of Jack's Affidavit; and/or
(h) the offer to third parties to become shareholders in Nikenbar Developments as alleged in paragraph 99 of Jack's Affidavit.
PIHA also relied on the terms of the two affidavits of Mr Curran.
In summary, in opposition to the admissibility of the 26 May emails, Mr Elsegood contended as follows:
1. The 26 May emails were only provided to Mr Elsegood as an annexure to the Gibson affidavit three days in advance of the hearing and are not in conformity with the order made on 4 March 2024 by Black J which stated:
Note that all evidence has been filed no further evidence to be relied on without leave.
There was no application for leave and, if one were made, then it should be rejected on the basis that Mr Elsegood would be prejudiced by the adducing of the evidence because he has approached the application to set aside the statutory demand on the basis that it is a claim for loss. If Mr Elsegood had known that it was not put in that way, he would have taken a different direction in his evidence. Further, there was no explanation for the delay of PIHA since at least 1 February 2024 when the 26 May emails were produced in answer to the Subpoena.
1. The evidence is not relevant because PIHA is seeking to articulate a new claim or a new ground for setting aside the statutory demand outside the 21 days in contravention of the Graywinter principle, as affirmed in Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd (2012) 91 ACSR 170; [2012] NSWSC 943 (Infratel (No 1)) by Black J and Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd (2012) 297 ALR 372; [2012] NSWCA 365 (Infratel (No 2)) by the Court of Appeal. While the relevant parts of the affidavits of Mr Curran set out a claim for breach of fiduciary duty resulting in loss, expressed as wasted expenditure and loss of profits, until the days immediately before the hearing it had never been articulated or quantified by PIHA as an account of profits claim, which is a different claim.
2. The 26 May emails have been obtained in contravention of the implied undertaking to the Federal Court of Australia and the documents produced in response to the Subpoena have never actually been produced to the court. The 26 May emails did not fall within the terms of the Notice to Produce.
[32]
Statutory provisions
Section 459H(1) of the Corporations Act is in the following terms:
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.
Section 459H(5) provides that "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).
[33]
Authorities
In Re Libdy Developments Pty Ltd [2023] NSWSC 647, Williams J at [10]-[11] collected the applicable principles from the authorities for determining whether there is a genuine "offsetting claim" within s 459H(1)(b) of the Corporations Act as defined in s 459H(5), saying (footnotes omitted):
[10] In Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; (2019) 136 ACSR 563; [2019] NSWCA 60 at [61]-[65], Bell P (as the Chief Justice then was) addressed what is required in order to demonstrate the existence of a genuine offsetting claim:
[61] …it is desirable to say something as to the meaning of the word 'genuine' in the context of the definition of 'offsetting claim' in s 459H(5) of the Corporations Act and how it has been interpreted in the case law. …
[62] In Ozone Manufacturing Pty Ltd v DCT (2006) 94 SASR 269; [2006] SASC 91 at [46]-[49] per Debelle J (with whom Besanko and Layton JJ agreed) said:
[46] The meaning of the expression 'offsetting claim', like the meaning of 'genuine dispute' has been illuminated by analogies found in applications for injunctions to restrain the commencement, advertisement and prosecution of winding-up proceedings pre-dating the enactment of s 459G and in the opposing of a notional application by the person who has served the statutory demand for summary judgment against the company for the debt the subject of the demand: Chase Manhattan at 136. Thus, when deciding whether an offsetting claim exists, the test is whether the court is satisfied that there is a serious question to be tried that the person on whom the demand has been served has an offsetting claim: Scanhill Pty Ltd v Century 21 Australasia Pty Ltd [1993] FCA 618; (1993) 12 ACSR 341 at 357, or that the claim is not frivolous or vexatious: Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37, or that it is not fictitious or merely colourable: Edge Technology Pty Ltd v Lite-on Technology Corporation [2000] NSWSC 471; (2000) 156 FLR 181 at 184-5 , citing Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 13 ACSR 787 .
[47] The test whether an offsetting claim exists is the same as for a genuine dispute, that is to say, the claim must be bona fide and truly exist in fact and that the grounds for alleging the existence of the dispute are real and not spurious, hypothetical, illusory or misconceived. The issue is whether the offsetting claim is bona fide, real and not spurious: Edge Technology per Santow J at [25].
[48] I do not think that the test identified by Santow J imposes a more onerous task on the party disputing the statutory demand than the serious question test. The expression 'good faith' means arguable on the basis of facts asserted with a sufficient particularity to enable the court to determine that the claim is not fanciful: Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 per Palmer J. McPherson JA expressed the same concept in these terms in JJMMR Pty Ltd v LG International Corporation [2003] QCA 519 at [18]:
Anyone can make a claim to a right of setoff against a creditor. What the definition in s 459H(5) requires, however, is that it be 'genuine'. The same word in s 459H(1) has already elicited so many synonyms and shades of meaning that it will not help to add more. Its antithesis is to be seen in the word 'artificial'. The claim to set off against the debt demanded must not have been manufactured or got up simply for the purpose of defeating the demand made against the company. It must have an existence that is objectively demonstrable independently of the exigencies of the demand that evoked it.
The observations of Palmer J and McPherson JA were applied by Chesterman J in Cooloola Dairies Pty Ltd v National Foods Milk Ltd [2004] QSC 308; [2005] 1 Qd R 12.
[63] In addition to these valuable observations, reference should be made to the judgment of McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 where his Honour, having characterised the test for whether or not there was a 'genuine claim' in terms of whether there was 'a plausible contention which requires investigation', went on to say:
'This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit 'however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be' not having 'sufficient prima facie plausibility to merit further investigation as to [its] truth'. (cf Eng Mee Yong v Letchunanan [1980] AC 331 at 341 ), or 'a patently feeble legal argument or an assertion of facts unsupported by evidence': cf South Australia v Wall (1980) 24 SASR 189 at 194.'
[64] The Victorian Court of Appeal has spoken of 'prima facie plausibility' in this context: TR Administration Pty Ltd v Frank Marchetti Pty Ltd [2008] VSCA 70; 66 ACSR 67 at [71]; see also Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 at [48]-[49].
[65] Most recently, in Re Citadel Financial Corporation Pty Ltd [2019] NSWSC 65 at [30], White JA said:
'In judging the sufficiency of the evidence to give rise to an offsetting claim, the question is not whether the evidence is sufficient to establish the offsetting claim or its amount, but whether it is sufficient to establish that the offsetting claim is genuine and its genuine level (Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605; Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 at [48] and [49]). It is sufficient if there be a plausible contention requiring investigation (Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd at [70]). The offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion and not be merely fanciful or futile (TR Administration Pty Ltd v Frank Marchetti Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67 at [71] cited with approval in Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd at [52]-[53]).'
[11] Bell P had earlier observed that:
[8] "The establishment of an offsetting claim for the purposes of s 459H does not, of course, constitute a finding that the claim is a good one, or that it has been made out. It represents nothing more than a finding that there is a serious question as to the existence of an offsetting claim or an issue deserving of a hearing as to whether the company has such a claim against the creditor and that a claim is made in good faith and is arguable and not frivolous or vexatious: Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 47 FCR 451 at 460 , 467 per Beazley J (as her Honour then was); In the matter of Oztec Pty Ltd [2012] NSWSC 1234 at [22] per Black J…"
[34]
Submissions of PIHA
PIHA submits that the crux of its offsetting claim against Mr Elsegood is that he has obtained for himself valuable benefits in the Christensen Ridge development land in circumstances where he came into the opportunity to obtain those benefits by reason of his being and working as a director of PIHA. It is said that the benefits Mr Elsegood obtained are analogous (if not equivalent) to a secret commission, albeit one bestowed on him after his resignation as a director. PIHA contends that Mr Elsegood occupied a fiduciary position and was therefore prohibited, without the informed consent of PIHA, from:
1. entering into any engagement in which he had, or could have had, a personal interest conflicting with that of PIHA (the "no conflict" rule); and
2. retaining any benefit or gain obtained or received by reason of or by use of his fiduciary position or through some opportunity or knowledge resulting from it (the "no profit" rule).
PIHA relies on these principles derived from Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36, Deane J at 198-199; Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18, Mason CJ, Brennan, Deane, Dawson, and Gaudron JJ at 557; Howard v Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21, French CJ and Keane J at [33].
PIHA contends that Mr Elsegood's conduct in obtaining benefits in and from the Christensen Ridge development land violated the "no profit" rule, and also contravened s 183(1) of the Corporations Act which states that a person who obtains information because they are or have been a director of a corporation must not improperly use the information to gain an advantage for themselves or someone else.
PIHA says that Mr Elsegood as a fiduciary cannot unilaterally absolve himself of liability by resigning from his office as a director in order to take a benefit for which he should otherwise account, relying on Streeter v Western Areas Exploration Pty Ltd (No 2) (2011) 278 ALR 291; [2011] WASCA 17, Murphy JA, (McLure P and Buss JA agreeing) at [370]-[371], citing Green & Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1, Canadian Aero Services Ltd v O'Malley [1974] SCR 592, Ex parte James (1803) 8 Ves 337; 32 ER 385, Lord Eldon at 390-1, and Phipps v Boardman [1964] 1 WLR 993; [1964] All ER 187, Wilberforce J at 1012.
PIHA also says that it does not matter whether or not PIHA would or could otherwise have taken the opportunity comprising the Christensen Ridge development land but for Mr Elsegood's conduct, citing Vadori v AAV Plumbing (2010) 77 ACSR 616; [2010] NSWSC 274, Ward J (as the President then was) at [200] to the effect that in applying the no conflict and no profit rule it does not matter whether:
1. the fiduciary acted bona fide and in what the fiduciary thought was in the best interests of the beneficiaries;
2. no loss is caused or that a profit was actually made for the beneficiary; and
3. the profit is made in circumstances where there is no conflict of interest.
[35]
Submissions of Mr Elsegood
Mr Elsegood argued that the offsetting claim is not genuine, that it is a fiction recently invented in response to the service of the statutory demand and that this fact alone is significant for determining the genuineness or otherwise of the offsetting claim. Mr Elsegood says that the claim has not been advanced in good faith, referring in particular to the decisions in Grandview and Access Solutions International Pty Ltd v Taglieri [2015] VSC 494, Randall AsJ at [55], the latter of which is to the effect that to be genuine, the offsetting claim must be demonstrated to have a sufficient objective existence and prima facie plausibility to distinguish it from an assertion and that an offsetting claim made after the statutory demand is issued suggests that the alleged offsetting claim is not genuine and that the subsequent steps are a contrivance to give weight to an unmeritorious claim.
Mr Elsegood says that there has been a failure on the part of PIHA to pursue the offsetting claim which has been known about since at least 4 May 2023, when Mr Curran met Mr Zenonos, and then on 5 May 2023, when Mr Curran met Mr Elsegood alone. Further, Mr Elsegood says that there was no evidence that a claim against Mr Elsegood was raised in any form, prior to the letter of 19 October 2023, in response to the statutory demand and there is no evidence that PIHA has commenced proceedings against Mr Elsegood in any forum for the purported offsetting claim.
Mr Elsegood also says that the lack of genuineness is also supported by PIHA having prevaricated and been inconsistent in the arguments that have been put and advanced in response to the statutory demand. Mr Elsegood detailed these prevarications and inconsistencies as follows:
1. the assertion that the debt of $200,000 was an equity contribution was abandoned;
2. there were inconsistent assertions in relation to the so-called loss of opportunities, with a $27 million figure contained in the letter of 19 October 2023, the forecasts of $34.375 million and now the most recent figure of about $14 million.
3. there have been claims for expenses of two different amounts with an assertion in Mr Curran's affidavit referring to expenses in the amount of $225,913.08 and then an amount of $185,757.50 in the list of expenses attached to the letter of 19 October 2023;
4. the claim for loss of profits was hopeless and an ambit claim, suffering from a number of deficiencies, not least of which are causation issues and it has now been abandoned; and
5. at the heal of the hunt there is the more recently invented account of profits claim.
[36]
Determination
In essence, PIHA alleges that:
1. The opportunity of the Christensen Ridge development land came to the attention and knowledge of Mr Elsegood from March 2022 onwards while he was a director of PIHA.
2. Mr Elsegood has subsequently taken advantage of that opportunity for his own profit or benefit by his involvement in the commercial arrangements into which he has entered in relation to Nikenbah Developments, including through the $400,000 payment apparently made to Mr Elsegood as evidenced in the 26 May emails and his shareholding (via Elsegood Holdings) in Nikenbah Developments which may be valued at least around $671,000 (if taken as being 10% of the value of Nikenbah Developments, expressed as what it paid for the Stage I Christensen Ridge development land of $6,710,000) for which he must account or pay compensation to PIHA.
3. The claim arose on about 18 August 2023 when Nikenbah Developments acquired the title to the Stage I Christensen Ridge development land.
The claim for breach of fiduciary duties proposed to be brought by PIHA against Mr Elsegood is one which appears to come within the well-known principles established in Chan and Warman, which are summarised in the following passage from Howard by French CJ and Keane J at [33] (footnotes omitted):
[33] Fiduciary duties apply beyond the exercise of powers and discretions flowing from the fiduciary relationship. A fiduciary cannot in his or her personal capacity be the subject of a conflict of interest. The general principle of equity, by reference to the liability to account, was stated by Deane J in Chan v Zacharia and was echoed in the unanimous judgment of the Court in Warman International Ltd v Dwyer:
"A fiduciary must account for a profit or benefit if it was obtained either (1) when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position".
The objective of the rule is "to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage". The appellant's case was based upon the first limb of the principle stated in Warman and later restated in Pilmer:
"… the fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is 'a conflict or a real or substantial possibility of a conflict' between personal interests of the fiduciary and those to whom the duty is owed."
[37]
ORDERS
For the reasons stated above, I propose to make the following orders:
1. Order that the statutory demand dated 28 September 2023 and served by the defendant on the plaintiff on 4 October 2023 be set aside on condition that the plaintiff, not later than 18 July 2024, commences in a court of competent jurisdiction the legal proceedings against the defendant described in [164] to [166] of the judgment in these proceedings by filing and serving the applicable originating process.
2. Order that the defendant pay the plaintiff's costs of these proceedings.
[38]
Amendments
06 August 2024 - [114] - date corrected (November 2023)
06 August 2024 - [110]-[111] - paragraph numbering fixed
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 06 August 2024
On 1 April 2022, Mr Doyle sent an email to Mr Curran which attached a plan for the Christensen Ridge development land.
At about this time, Mr Elsegood flew up to inspect the Christensen Ridge development land.
Mr Curran says that he rejected these demands, having formed the view that Mr Elsegood was asking Mr Curran to assist him in breaching fiduciary obligations to PIHA. Mr Elsegood submits that this purported breach of fiduciary duty can only be a reference to Mr Elsegood's involvement in Nikenbah Developments. Mr Elsegood also says that these "demands" were specifically referable to Mr Elsegood's ongoing role in the Christensen Ridge development land with Nikenbah Developments and Fraser Coast. But there was no mention of either entity at the meeting on 5 May 2023, which is unsurprising in the case of Nikenbah Developments, as it had not even been registered as a company at that time. For this reason, I find that PIHA was not aware of Mr Elsegood's involvement with Nikenbah Developments at that time.
In cross-examination (T59.1-29), it was put to Mr Curran that his statement that he formed the view that Mr Elsegood was asking Mr Curran to assist him in his breaches of fiduciary obligations to PIHA was not a view that he formed in May 2023. It was also put to Mr Curran that he included this in his evidence to try to corroborate an offsetting claim for the purposes of responding to the statutory demand. Mr Curran rejected these suggestions. I accept his rejection, particularly in light of there being no contrary version of the meeting which challenges the recollection of Mr Curran.
All of these three emails of 26 May 2023 are contained in the same email string within one document (together, 26 May emails). Mr Elsegood took objection to the admission of the 26 May emails into evidence. I consider that the 26 May emails should be admitted into evidence for the reasons set out in detail under the heading "Admissibility of the 26 May emails" below.
In cross-examination, Mr Curran maintained that at the time of the letter of 19 October 2023 and since (T53.20-54.16 and T55.1-36):
1. there was an intention by PIHA to issue proceedings against Mr Elsegood in respect of the loss of chance;
2. PIHA has taken steps to advance the offsetting claim but it is waiting for the result in the CCD Proceedings before any action is started against Mr Elsegood; and
3. the claim against Mr Elsegood has been discussed at board level by PIHA, legal advice obtained on it and it has been in PIHA's accounts for months.
I accept this evidence.
PIHA's argument in response ran as follows:
1. A leave application was made at the hearing. The explanation for the delay in providing the 26 May emails is that they were required to be produced in accordance with the terms of the Notice to Produce, but Mr Elsegood did not comply with them. In light of this, there can be no prejudice to Mr Elsegood as the 26 May emails are contained in his own document.
2. The 26 May emails constitute an important document because they quantify at least one fixed sum that Mr Elsegood appears to have received in alleged breach of his director's duties to PIHA. The Graywinter principle as applied to Mr Curran's affidavit does not prevent PIHA from relying on further evidence which seeks to quantify the claim for breach of director's duties seeking a compensation order under s 1317H of the Corporations Act. The decision of the Western Australian Court of Appeal in Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd (No 3) (2014) 46 WAR 483; [2014] WASCA 132 makes it clear that the amount of an offsetting claim for the purposes of s 459H is to be decided at the date of the hearing of the application to set aside, and not at some earlier time. Further, the 26 May emails were not in the possession of PIHA within the 21 day statutory period within which the supporting affidavit was required to be provided, which explains their absence from that affidavit.
3. The undertaking gives way to production of the 26 May emails on the Subpoena in this court, which was informally produced to PIHA and Mr Elsegood by Mr Vorkas. This has been remedied by the production of all documents provided in answer to the Subpoena to this court during the hearing on the authority of Mr Vorkas.
During the hearing (T10.43-11.44) I gave Mr Elsegood an opportunity to cure any prejudice to him by the admission of the 26 May emails into evidence by seeking an adjournment of the hearing on terms that PIHA pay the costs thrown away of doing so. I adjourned the hearing for five minutes to enable Mr Elsegood to provide instructions. At the resumption of the hearing, I was told that Mr Elsegood had made the decision to press on whilst maintaining that the only way to cure the prejudice to him was to reject the tender of the 26 May emails.
In my opinion, the 26 May emails fell within the categories required to be produced by Mr Elsegood under the Notice to Produce. The 26 May emails were emails to Mr Elsegood during the period from January to June 2023 concerning or relating to Nikenbah Developments' shareholders agreement. The email of 26 May 2023 at 10:54am explicitly states:
My understanding after my discussion with Trevor yesterday was that you are in the process of finalising your internal shareholders agreement and will be ready to go straight after that if we assist with Jacks funds.
As a result, the document containing the 26 May emails should have been produced by Mr Elsegood in November 2023. Instead, the 26 May emails did not come to the attention of PIHA until 1 February 2024 when Mr Vorkas produced documents to PIHA in response to the Subpoena. This explains a significant amount of the delay in PIHA indicating that the 26 May emails were sought to be relied upon as evidence by PIHA in these proceedings.
As for the delay between 1 February 2024 and 19 April 2024 (when the Gibson affidavit was sworn with the 26 May emails annexed to it), I do not consider that Mr Elsegood has been prejudiced by that delay. The purpose of the Gibson affidavit is to set out the provenance of the 26 May emails. The 26 May emails are contained in Mr Elsegood's own document. The suggestion that Mr Elsegood may have taken a different tack in his evidence if he had known that the 26 May emails would be relied upon is not supported by any reasoned argument. Mr Elsegood made the forensic choice not to go into evidence at the hearing. Mr Elsegood did not state any basis for why he might have taken a different course if he had known that the 26 May emails would become evidence in the proceedings. I also gave Mr Elsegood the opportunity to adjourn the hearing to cure any prejudice that he considered he may suffer by reason of the 26 May emails becoming evidence in the proceedings and on terms that PIHA would have to pay the wasted costs. Mr Elsegood decided not to apply for an adjournment.
As for the application of the Graywinter principle, it has its origins in Sandberg J's observations in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452; (1996) 21 ACSR 581 concerning the requirements under the statutory regime established by s 459G of the Corporations Act.
Section 459G of the Corporations Act provides:
(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2) An application may only be made within the statutory period after the demand is so served.
(3) An application is made in accordance with this section only if, within that period:
(a) an affidavit supporting the application is filed with the Court; and
(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.
In Re ABA Villawood Place Pty Ltd [2023] NSWSC 952, Black J at [31] stated that the essential requirement of s 459G that the Graywinter principle emphasises is:
… whether an affidavit in support of an application to set aside a creditor's statutory demand in fact supports that application …
The authorities concerning the Graywinter principle (which I will outline and discuss in greater depth below) indicate that the threshold requirement is:
1. a matter going to the court's jurisdiction to consider material filed beyond the statutory 21 day period; and
2. met where the affidavit filed with the court within the relevant period raises expressly, or by necessary or reasonably available inference, the existence of a genuine dispute.
The principal authorities addressing the scope and operation of the Graywinter principle are set out below.
In NA Investments Holdings Pty Ltd v Perpetual Nominees Ltd (2010) 79 ACSR 544; [2010] NSWCA 210, the Court of Appeal of this court considered whether an affidavit in support of an application under s 459G in fact supported that application. In that case, the affidavit was directed to an offsetting claim, but also served to put in evidence the document (a facility agreement) upon which the debtor company ultimately wished to advance a particular construction, which was at the heart of the alleged dispute. After listing the many cases that had discussed the Graywinter principle (at [78]), Lindgren AJA (with whom Beazley JA and Handley AJA agreed) at [86] stated:
… Whatever may be the outer limits of the concept of "supporting" in s 459G(3), in my view the requirement is met where, as here, the only issue sought to be raised by the company is one of construction within the four corners of the provision on which the statutory demand depends, and the document in question, albeit with other documents, is put into evidence by the affidavit filed and served within the 21-day period.
In Hopetoun Kembla Investment Pty Ltd v JPR Legal Pty Ltd (2011) 286 ALR 768; 87 ACSR 1; [2011] NSWSC 1343, Ward J (as her Honour the President then was) at [35]-[38] said:
[35] In Graywinter, Sundberg J said (at [587]):
"In order to be a 'supporting affidavit', an affidavit must say something that promotes the Company's case ... The affidavit need not detail, in admissible form, all the evidence that supports the contention of genuine dispute ... The affidavit must...disclose facts showing there is a dispute between the parties. A mere assertion that there is a genuine dispute is not enough, nor is a bare claim that the debt is disputed sufficient. (my emphasis)"
[36] There need not be an explicit articulation in the supporting affidavit of the ground(s) on which the application to set aside is to be raised, provided the ground is raised expressly or by necessary or a reasonably available inference (POS Media Online Ltd v B Family Pty Ltd (2003) 21 ACLC 533; [2003] NSWSC 147 per Austin J; Hansmar Investments Pty Ltd v Perpetual Trustee Ltd (2007) 61 ACSR 321; [2007] NSWSC 103 per White J).
[37] Barrett J in Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 25 ACLC 1392; 214 FLR 393; [2007] NSWSC 1143, noting that what was required was that the grounds of objection be evident on the face of the affidavit, nevertheless considered that where the ground of challenge was a defect by reason of an omission from the creditor's accompanying affidavit, it would be sufficient if this omission was discernible on the face of a document annexed to the affidavit in support accompanying the statutory demand, even though attention had not been drawn to the point sought to be raised thereby (approving Callite Pty Ltd v Adams [2001] NSWSC 52, where an available inference from the documents annexed to the relevant affidavit that a particular ground of challenge had been raised was held to be sufficient).
[38] Lindgren AJA in NA Investment Holdings Pty Limited v Perpetual Nominees Limited (2010) 79 ACSR 544; [2010] NSWCA 210 held that there is no requirement that the party seeking to set aside a statutory demand draw to the attention of the defendant the particular issue on which reliance will be sought to be placed (observing that such a submission confused the concept of "support" in the requirement for an affidavit in support with natural justice considerations). …
In Infratel (No 1), Black J considered the Graywinter principle as it applied to an affidavit made in support of the application to set aside a statutory demand which was challenged on the basis that it did not quantify the amount of the costs and expenses said to form part of the offsetting claim. In Infratel (No 1), Black J collected the authorities on what is sufficient to meet the Graywinter principle for the quantification of an offsetting claim, saying at [29]-[31]:
[29] There is authority that an offsetting claim will be sufficiently raised by an affidavit filed within the 21 day period required by s 459G of the Corporations Act where that affidavit states that the amount of that claim is greater than the amount of the debt, even if it does not provide further indication of the quantum of that claim, and this will be sufficient to allow further evidence to be led outside the 21 day period to supplement the evidence contained in the initial affidavit: Zenaust Imports Pty Ltd v Alembic Chemicals Works Co Ltd (1998) 28 ACSR 465; Endeavour Film Management Pty Ltd v Fox Studios Australia Pty Ltd [2003] NSWSC 1056 at [10]-[11]. In Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd, Gzell J noted that an initial affidavit which stated that the company had suffered loss due to defective wine and had an offsetting claim but said nothing about the quantum of that claim or whether it exceeded the debt and did not satisfy the requirement in s 459H(2), which "requires evidence to be put on within the statutory 21 day period enabling the Court to make a determination of the offsetting claim" and required that some evidence of quantum must be contained in the affidavit to enable the Court to take that course. His Honour there noted that the initial affidavit would be insufficient "if it does not contain material from which a Court ... can make an estimate of the amount of an offsetting claim", and, while that did not require the party to provide a final proof of those matters, it did require:
"sufficient material indicating the nature of the off-setting claim and the way in which it is calculated to enable the statutory exercise under Corporations Act 2001 (Cth), s 459H(2) to be carried out by the Court."
[30] In Kerslake Superannuation Pty Ltd v C & L Building Pty Ltd [2010] NSWSC 424 at [10], Barrett J observed that:
"This raises a question about the extent to which it is necessary, in accordance with the Graywinter principle, for the quantum of an offsetting claim to be established by the affidavit filed and served within the 21-day period. I have been taken to a statement in one decided case (Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd [above] at [28]) that may be thought to suggest that a precise quantification is needed at that point. In my view, that is not the position. A plaintiff who seeks to set up an offsetting claim no doubt has the primary aim of obtaining an order under s 459H(3) but must also be regarded as pursuing a secondary objective of securing exercise of the s 459H(4) discretion. In order to be a supporting affidavit within s 459G, the affidavit must raise grounds. In an offsetting claim case, all that is needed in the initial affidavit is some indication that the offsetting claim is of a magnitude that can sensibly be compared with the amount of the statutory demand. There is room for some measure of uncertainty, but the uncertainty will, of course, work to the detriment of the party seeking to establish the offsetting claim."
[31] In 185L6 Pty Ltd v Strata Corporation 07176 Inc [2011] SASC 164 at [25], Blue J noted that the effect of these decisions was that:
"Where the deponent of the original supporting affidavit deposed to quantum exceeding the debt, it was held to be sufficient, and where he did not, it was held to be insufficient, to permit the court to receive a subsequent affidavit on quantum."
This approach is consistent with the requirement for a supporting affidavit within 21 days under s 459G of the Corporations Act and with the policy identified by Graywinter and I would follow the approach adopted in these decisions.
In Infratel (No 2), Young JA (with whom Hoeben JA and Ward J agreed) at [36]-[37] and [42] concluded that Black J's reasoning in Infratel (No 1) was unarguably correct.
Mr Elsegood argued that Mr Curran's affidavit in these proceedings was in the same category as the affidavit in Infratel (No 1), which Black J described as an affidavit which:
1. "says nothing as to the amount of the cost and expense incurred in allowing the sites to be completed, so as to allow any determination as to whether that amount is greater than the amount of the debt, nor does it contain even a conclusory statement that that amount is greater than the amount of the debt" (at [28]); and
2. "neither contained a general statement that the quantum of any offsetting claim exceeded the debt nor did it provide any basis for calculation of the amount of the offsetting claim. In my view, that affidavit does not satisfy the standard contemplated by Kerslake, Broke Hills or 185L6 Pty Ltd v Strata Corporation 07176 Inc, since it does not allow any assessment of the magnitude of the offsetting claim" (at [32]).
PIHA argued that the decision in Infratel (No 1) must be read in the light of the subsequent observations of the West Australian Court of Appeal in Pravenkav.
In Pravenkav, the issue was whether the initial supporting affidavit must contain evidence sufficient to permit the court to quantify an offsetting claim. The court at [44]-[54] conducted a review of Infratel (No 1) and Infratel (No 2) (including the authorities on which Infratel (No 1) was based) and at [55] also reviewed the following intermediate appellate decisions to discern the proposition for which they stood:
1. The Full Court of the Supreme Court of Western Australia in Royal Premier Pty Ltd v Taleski [2001] WASCA 48, Ipp J at [57] - the evidence as a whole must be sufficient for the court to make an assessment of the offsetting claim.
2. The Western Australian Court of Appeal in Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91, Pullin JA (Newnes and Murphy JJA agreeing) at [29] - [36] - no distinction was drawn between the first affidavit and the second affidavit in support of the application.
3. The Full Court of the Federal Court of Australia in Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 25 ACSR 675; [1997] FCA 1366, French, Kiefel and Sundberg JJ at 697 - the amount of the offsetting claim has to be considered at the time the court is determining the application under s 459G and s 459H(4) assumes that the court may vary the amount in the demand, which necessarily contemplates that the court may take into account variations in the debt which have occurred since the service of the demand.
In Pravenkav, the court concluded at [56] that these intermediate appellate court authorities are consistent with the proposition that the amount of the offsetting claim for the purposes of s 459H is to be decided at the date of the hearing of the application to set aside and not at some earlier time. Further, the court concluded at [64]-[65]:
[64] In summary, as we have mentioned, the focus on the precise terms of the statutory duty make it clear that although the initial affidavit must 'support' the application, the application is not limited to the initial supporting affidavit. Hence, a court can consider additional affidavit evidence filed outside the 21 day period in order to supplement the initial supporting affidavit. There is no reason why, in an appropriate case, that additional affidavit evidence cannot supplement the initial supporting affidavit by providing evidence of quantum necessary where the basis of the application is a genuine dispute or offsetting claim under s 459H.
[65] For these reasons, the evidence from which the Court must calculate the substantiated amount of a statutory demand, in accordance with s 459H, need not always be contained in the supporting affidavit filed under s 459G.
In my view, the tender of the 26 May emails does not transgress the Graywinter principle for several reasons.
First, the absence of the 26 May emails from the affidavit of Mr Curran sworn 23 October 2023 is obviously explained by the fact that the 26 May emails were not in the possession of PIHA until 1 February 2024.
Secondly, the affidavit of Mr Curran sworn 23 October 2023 at [112]-[113] makes it very clear that the offsetting claim against Mr Elsegood is alleged to be that Mr Elsegood breached his director's duties and his fiduciary obligations owed to PIHA. While this is expressed as a loss of profits of around $34.375 million and a wasted expenses claim of about $226,000, I do not think that the Graywinter principle prevents PIHA from supplementing this evidence in respect of an offsetting equitable claim which, if brought, provides for PIHA to make an election between equitable compensation and an account of profits when judgment on the liability for that claim is given.
The law on this proposition is clear, deriving from the following authorities.
In United Australia Ltd v Barclays Bank Ltd [1941] AC 1; [1940] 4 All ER 20 (a case concerned with an election between actions in tort and assumpsit), Viscount Simon LC stated at 18-19 (emphasis added):
No doubt, if the plaintiff proved the necessary facts, he could be required to elect on which of his alternative causes of action he would take judgment, but that has nothing to do with the unfounded contention that election arises when the writ is issued. There is nothing conclusive about the form in which the writ is issued, or about the claims made in the statement of claim. A plaintiff may at any time before judgment be permitted to amend. The substance of the matter is that, on certain facts, he is claiming redress, either in the form of compensation - that is, damages as for a tort - or in the form of restitution of money to which he is entitled, but which the defendant has wrongfully received. The same set of facts entitles the plaintiff to claim either form of redress. At some stage of the proceedings, the plaintiff must elect which remedy he will have. There is, however, no reason of principle or convenience why that stage should be deemed to be recalled until the plaintiff applies for judgment.
In Tang Man Sit v Capacious Investments [1996] AC 514; [1996] 1 All ER 193, Lord Nicholls of Birkenhead (delivering the advice of the Privy Council) at 521 said:
Faced with alternative and inconsistent remedies a plaintiff must choose, or elect, between them. He cannot have both. The basic principle governing when a plaintiff must make his choice is simple and clear. He is required to choose when, but not before, judgment is given in his favour and the judge is asked to make orders against the defendant. A plaintiff is not required to make his choice when he launches his proceedings. He may claim one remedy initially, and then by amendment of his writ and his pleadings abandon that claim in favour of the other. He may claim both remedies, as alternatives. But he must make up his mind when judgment is being entered against the defendant. Court orders are intended to be obeyed. In the nature of things, therefore, the court should not make orders which would afford a plaintiff both of two alternative remedies.
In the ordinary course, by the time the trial is concluded a plaintiff will know which remedy is more advantageous to him. By then, if not before, he will know enough of the facts to assess where his best interests lie. There will be nothing unfair in requiring him to elect at that stage.
These principles have been applied by Australian courts in relation to the choice to be made between equitable compensation and an account of profits. In GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers [2005] VSCA 113, Warren CJ (with whom Chernov JA and Dodds-Streeton AJA agreed) at [56] held (footnotes omitted):
A plaintiff, where faced with a choice between an account of profits or equitable compensation, must make a decision as to which one it will pursue. For instance, in Tang Man Sit v Capacious Investments, the plaintiff was awarded an account of profits and compensation in the same suit and sought to enforce both remedies. However, in that case the Privy Council reiterated, as did the High Court in Warman International Ltd v Dwyer, that an account for profits and an award of damages are alternative and not cumulative remedies. Normally, where both remedies are available, a plaintiff must elect between them. Ordinarily, the election need not be made before the trial starts and may be delayed until determination of the cause of action. There is therefore no difficulty where the plaintiff claims both equitable compensation and an account of profits in the prayer for relief, however, election must be made when (but not before) judgment is given. Where the plaintiff does not know which remedy is more favourable at the time of judgment on liability, the court may order discovery or other orders designed to give the plaintiff the information it requires to make the election.
This principle has been repeatedly applied in other Australian courts, including in BCEG International (Australia) Pty Ltd v Xiao (2022) 162 ACSR 601; [2022] NSWSC 972, Rees J at [416]; Amcor Ltd v Barnes [2021] VSCA 6, Ferguson CJ, Beach and Whelan JJA at [297]; Du v Georgiadis [2020] VSCA 306, Kyrou, McLeish JJA and Macaulay AJA at [32]; Edwards v Liquid Engineering 2003 Pty Ltd (2008) 77 IPR 115; [2008] FCA 970, Gordon J at [76].
In the affidavit of Mr Curran sworn 23 October 2023, PIHA put forward evidence within the 21 day statutory period to outline the quantum of the offsetting claim expressed as equitable compensation. In accordance with Pravenkav, I am to assess the quantum of the offsetting claim at the time of the hearing. I consider that PIHA is entitled to supplement that evidence with further evidence in the form of the 26 May emails which were subsequently obtained by PIHA to demonstrate the quantum of the offsetting claim should an election be made to seek an account of profits instead. Given that this election would not have to be made until the time that judgment on the liability of that claim is given, I do not think that PIHA should be limited on this application to only being able to express the quantum as though it had already made an election to seek equitable compensation.
In accordance with the application of the Graywinter principle as expressed in Infratel (No 1) at [29], I think that this is a case in which Mr Curran's affidavit within the statutory period states that the amount of that claim is greater than the amount of the debt, and even if this does not provide further indication of the quantum of that claim, it will be sufficient to allow further evidence in the form of the Gibson affidavit to be led outside the 21 day period to supplement the evidence contained in the initial affidavit. Or to use the words expressed in Kerslake at [10], in an offsetting claim case, all that is needed in the initial affidavit is some indication that the offsetting claim is of a magnitude that can sensibly be compared with the amount of the statutory demand. This was done in the present case.
Finally, I do not consider that the 26 May emails were tendered in breach of the implied undertaking to the court pursuant to which Mr Vorkas had possession of them. PIHA obtained the 26 May emails from the production by Mr Vorkas in answer to the Subpoena. Mr Vorkas was therefore compelled to provide them to the court. The documents provided in answer to the Subpoena were ultimately produced to the court during the hearing on the authority of Mr Vorkas (T8).
For these reasons, I consider that the 26 May emails should be received into evidence and I accept their tender by PIHA.
PIHA emphasises the low and undemanding threshold for the determination of whether it has an offsetting claim under s 459H of the Corporations Act - it needs to be arguable on the facts before me so I can determine the basis for it, how it is calculated and that it is not fanciful. The offsetting claim is said to be the breaches of fiduciary duties and statutory directors' duties owed by Mr Elsegood to PIHA, giving rise to many remedies (constructive trust, equitable compensation, account or inquiry) and for statutory compensation under s 1317H of the Corporations Act. In particular, PIHA says that many of these remedies will depend either on the production of further evidence that is peculiarly within the possession or knowledge of Mr Elsegood or subsequent procedures being ordered following a successful final hearing on the merits of the claim.
PIHA says that the breaches of duty alleged against Mr Elsegood are genuine and not spurious. PIHA contends that all it need do is indicate some basis upon which the court could presently quantify the offsetting claim, even though further quantification might await a final hearing on the merits.
PIHA submits that the evidence which enables me to be satisfied that the amount of the offsetting claim against Mr Elsegood for his breaches of duties exceeds the $200,000 amount sought by the statutory demand is as follows:
1. Mr Elsegood received $400,000 from Nikenbah Developments in connection with his participation in the Christensen Ridge development land, which is a benefit for which Mr Elsegood must account or pay compensation to PIHA.
2. Mr Elsegood's company, Elsegood Holdings, holds 10,600 D class shares in Nikenbah Developments, representing 10% of its total paid-up share capital. Nikenbah Developments owns at least one asset, being the land comprising the Stage I Christensen Ridge development land, which has a value of at least $6,710,000 and up to $15.5 million. Mr Elsegood's indirect interest in Nikenbah Developments therefore has a face value in the order of at least $671,000 for which he must account or pay compensation to PIHA.
3. On the latest of PIHA's internal budget calculations the anticipated final value of the Christensen Ridge development land for PIHA was a net profit position of $14 million (revised down from the amount of $34,375,235 recorded on 18 November 2022).
PIHA says that in considering the genuineness of the claim, it must be considered that by its very nature it is a claim in which PIHA lacks a great deal of knowledge because it involves secret commissions and secret profits. PIHA says that it has done its best with the information it has to quantify the claim. PIHA points to the fact that Nikenbah Developments did not acquire the Christensen Ridge development land until 18 August 2023, so there was not much time between the acquisition of that benefit by Mr Elsegood and the issuing of the statutory demand. PIHA also says that, as Mr Curran explained during cross-examination, PIHA is mindful to wait for the progress of the CCD Proceedings, the facts of which are heavily bound up and related to these proceedings, before commencing the claim against Mr Elsegood. This gives one explanation as to why there has been a short but explicable delay.
PIHA made it clear that it is not pressing the "loss" case against Mr Elsegood because it accepts that there is a gap in the evidence between the termination of the Christensen Ridge development land with CCD Developments and Nikenbah Developments arriving on the scene. PIHA emphasised that it is only seeking to claim against Mr Elsegood to obtain the benefits that he has received in breach of his duties.
Finally, PIHA offered an undertaking to the court that PIHA would commence the proceedings against Mr Elsegood within 28 days of an order being made to set aside the statutory demand.
Mr Elsegood says that I should characterise these various claims as ambit claims which undercut the genuineness of them.
Mr Elsegood also says that the financial position of PIHA makes it clear that it is a loss-making enterprise and so should be characterised as a desperate claim made by a company in a desperate financial situation.
Mr Elsegood submits that the purported offsetting claim is void of fundamental integers and is pure assertion. It is said by Mr Elsegood that PIHA does not identify the role of Mr Elsegood in the purported scheme; the other participants in the scheme; where, when or how the scheme was hatched; whether the scheme was recorded in writing or whether it was entirely oral; how the scheme was executed; how the scheme caused PIHA to lose the opportunity to develop the Stage I Christensen Ridge development land; and how participation in the scheme was a breach of Mr Elsegood's director's duties and fiduciary duties.
Mr Elsegood says that PIHA was given multiple opportunities to participate in the Christensen Ridge development land, which it refused, while Mr Elsegood had been open and transparent about his engagement with the other parties and they only proceeded after it was clear that PIHA could not take up the opportunity.
Mr Elsegood said that if I was satisfied that the statutory demand should be set aside this is an appropriate case in which I should impose a condition under s 459M of the Corporations Act in making an order under s 459H, so that PIHA must commence proceedings in a court of competent jurisdiction in respect of the offsetting claim within 28 days of this judgment. Mr Elsegood says that the non-fulfilment of the condition where a conditional order is made setting aside the statutory demand means that the statutory demand will continue to stand. Mr Elsegood cited the approach taken in Asia Pacific Glass Pty Ltd v Sindea Trading Co Pty Ltd (No 2) (2003) 47 ACSR 737; [2003] NSWSC 845, Barrett J at [13] and Asia Pacific Glass Pty Ltd v Sindea Trading Co Pty Ltd [2003] NSWSC 334, Barrett J at [24].
This claim has its statutory counterpart in s 183(1) of the Corporations Act, which states:
A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to:
(a) gain an advantage for themselves or someone else; or
(b) cause detriment to the corporation.
The remedies pressed by PIHA are ones which would have Mr Elsegood account for the profits he has made, either by way of an account of profits for breach of fiduciary duties or compensation under s 1317H of the Corporations Act for breach of s 183(1). As I stated above, the oft-cited principle stated in GM & AM Pearce means that as a plaintiff, PIHA would ultimately have to elect between equitable compensation and an account of profits, but for the moment the claim is pressed only as one for an account of profits.
As stated in Streeter, the fact that Mr Elsegood had resigned as a director of PIHA on 10 March 2023 does not absolve him from liability to account for profits he subsequently made in respect of a claim for breach of fiduciary duties arising from an opportunity which came to his attention while he was a director of PIHA but which he did not act upon until a later time. The fact that PIHA did not take up the opportunity of the Christensen Ridge development land is no answer to a claim for breach of fiduciary duties either, relying on the principle as expressed in Vadori.
Applying the variously expressed tests for a genuine offsetting claim as stated in Grandview, and noting the low threshold imposed by these tests, in my consideration the proposed claim by PIHA is one which:
1. is seriously arguable, not frivolous, vexatious, fictitious or merely colourable;
2. is bona fide and truly existing in fact and the grounds for alleging the existence of the claim are real and not spurious, hypothetical, illusory or misconceived;
3. is asserted with a sufficient particularity to enable the court to determine that the claim is not fanciful;
4. has an existence that is objectively demonstrable independently of the exigencies of the statutory demand; and
5. is a plausible contention requiring investigation.
In relation to the contentions by Mr Elsegood that the claim is not "genuine", in my assessment Mr Elsegood has not made out that case for these reasons.
First, the suggested delay in PIHA raising the claim is adequately explained. Nikenbah Developments did not acquire the Stage I Christensen Ridge development land until about 18 August 2023. PIHA (either itself or through its solicitors) conducted an ASIC search of Nikenbah Developments on 21 August 2023, at which time it became aware that Mr Elsegood had an indirect financial interest in Nikenbah Developments. There is no evidence that PIHA had any idea about the suggested payment of $400,000 to Mr Elsegood for his involvement in Nikenbah Developments until the 26 May emails were produced to PIHA on subpoena by Mr Vorkas on 1 February 2024. Those emails should have been produced by Mr Elsegood in November 2023 but were not. As a result, there is an explanation as to why PIHA did not raise the prospect of a claim against Mr Elsegood until after the statutory demand was served on 4 October 2023, when PIHA's solicitors responded to it in writing on 19 October 2023.
Secondly, while PIHA has not brought the claim against Mr Elsegood, I believe Mr Curran's evidence that PIHA has taken steps to advance the claim and that PIHA has been waiting for the result in the CCD Proceedings before any action is started against Mr Elsegood.
Thirdly, while there have been prevarications by PIHA in relation to the nature of its claim and the quantum of it, I consider that PIHA made plain at the hearing before me the elements of the claim that it intends to bring and the range in the quantum it seeks. PIHA was clear that, at the very least, the quantum of the claim would be the $400,000 suggested in the 26 May emails to have been paid to Mr Elsegood.
Fourthly, I do not consider that the seemingly poor financial position of PIHA is a matter which undermines the genuineness of the offsetting claim. There are a myriad of ways in which a company can bring a claim even though its financial condition may suggest that it does not have the ability to fund that claim. It may have solicitors who are prepared to act on a "no win, no fee" basis. It may obtain third party litigation funding. While PIHA will obviously need to address the means by which it will bring the claim, in light of the undertaking that PIHA has given to the court to bring any claim within 28 days, it will need to be in a position to do that quickly or otherwise risk the statutory demand remaining in place.
I have determined that PIHA has a genuine offsetting claim which exceeds $200,000, which provides the basis stated in s 459H(1)(b) of the Corporations Act for me to make an order under s 459H(3) of the Corporations Act setting aside the statutory demand.
I am, however, persuaded by Mr Elsegood that this is an appropriate case in which I should make an order under s 459M of the Corporations Act that the order under s 459H to set aside the statutory demand should be made on the condition that PIHA commence court proceedings against Mr Elsegood within 28 days. The description used in Asia Pacific Glass v Sindea Trading Co [2003] NSWSC 334, by Barrett J at [24] is apt to apply to this case:
In Jesseron Holdings Pty Ltd v Middle East Trading Consultants (1994) 12 ACLC 490, Young J pointed out that a finding of offsetting claim is not necessarily the end of the matter in a case such as this. The court, in setting aside the statutory demand (as it is directed by statute to do), may impose conditions: s 459M. Palmer J considered it appropriate, in Macleay Nominees (above), to make the order conditional upon the successful plaintiff pursuing the offsetting claim by commencement of proceedings within a specified time. His Honour observed that, at the stage of a s 459G application for an order setting aside a statutory demand, the case shown by a plaintiff relying on the offsetting claim ground under s 459H(1)(b) may fall far short of that which would ultimately be advanced in pursuing the offsetting claim. That is the case here, particularly as to quantum and, like Palmer J in Macleay Nominees (and as submitted by Ms Sofroniou), I consider this to be an instance in which the plaintiff should be required to demonstrate further its commitment to the genuineness and viability of its claim in an amount exceeding that in the statutory demand by initiating the proceedings it has foreshadowed. Mr Johnson indicated that his client would not seek to resist such a condition and would indeed consent to it.
While PIHA indicated that it was prepared to give an undertaking to the court to commence proceedings against Mr Elsegood within 28 days of an order I make setting aside a statutory demand and did not consent to such a condition of that order, I consider that the condition should be imposed. This is particularly so in a case in which PIHA has expressed a significant range for the quantification of the offsetting claim and there are suggested doubts about whether PIHA has the financial capability to bring the proceedings.
Imposing the condition would also have the effect of providing Mr Elsegood with a means by which he could obtain the immediate practical benefit of the statutory demand being effective if PIHA did not meet the condition rather than having to seek to enforce any undertaking by a contempt application.
In Asia Pacific Glass v Sindea Trading Co (No 2) (2003) 47 ACSR 737; [2003] NSWSC 845, Barrett J at [13] and [16] said:
[13] A condition of the kind with which I am presently concerned is not, of itself, a source of obligation. The successful plaintiff is not, by the conditional order, directed to do the things that make up the condition. Failure by the plaintiff to do those things does not entail, in any sense, disobedience: Talbot v Blindell [1908] 2 KB 114. It is just that the plaintiff has not done things the doing of which is, by the terms of the order, necessary to secure for the plaintiff the benefit of the order. The concept underlying a conditional order is that the court, by the condition, specifies what the successful party must do in order to have the benefit of the order; and it is then for that party to decide whether he or she will take the specified steps and secure that benefit or not take them and thereby forego it. ...
…
[16] In the result, therefore, the position now prevailing must be that failure of the plaintiff to comply with the condition subject to which the order of 23 April 2003 was made means that the beneficial effect of that order in favour of the plaintiff has ceased, so that the statutory demand may no longer be regarded as "set aside" and, in the words of Young J in Australian Vineyard Management Ltd v Madden (above), "will continue to stand".
These paragraphs were approved in Re Wabbits Pty Ltd [2018] NSWSC 532, by Gleeson JA at [32]-[33].
I have determined that if PIHA does not meet the terms of the condition I intend to impose, then PIHA will lose the beneficial effect of the order setting aside the statutory demand such that the statutory demand will continue to stand.