Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd

Nature of the application

1. By Originating Process filed on 21 December 2022, Garslev Holdings Pty Ltd ("Garslev") applies to set aside a creditor's statutory demand ("Demand") served upon it by Overdean Developments Pty Ltd ("Overdean"). The Demand was dated 5 December 2022 and claimed an amount of $180,846.76. Garslev relied on several grounds to set aside the Demand, including a claim that the admitted amount of the debt claimed by Garslev was a nil amount, that there were genuine disputes between Garslev and Overdean as to the existence and amount of the debt alleged, and that the total amount of offsetting claims of Garslev exceeded the amount due to Overdean. The originating process also identified a claim under s 459J of the Corporations Act 2001 (Cth) ("Act") that the Demand contained "incurable or impermissible defects" and caused substantial injustice. Happily, Mr Parrish of Counsel, who appeared for Garslev, put its case in a well structured and organised way which has allowed the relevant issues to be determined in an efficient way.
2. The Demand claimed the amount of $180,846.76, described in a schedule to the Demand. That schedule first referred to an amount of $850,000, described as: "amount of the debt conceded to be owed by [Garslev] to [Overdean] in relation to Order 4 of judgment ["Judgment"] made in NSWSC proceeding number 2018/0038419 Overdean Developments Pty Ltd and Anor v Garslev Holdings Pty Ltd and Ors ["Proceedings"]"
3. The schedule then allowed credit for a payment made out of Court to Overdean, to derive the balance claimed of $180,846.76. Mr Parrish identified a question of construction as to whether the amount of the debt claimed was part of the judgment debt or had some other character or, as I will note below, was both part of the judgment debt and also had some other character.
4. The Demand was verified by an affidavit dated 5 December 2022 of Mr Dean, the sole director of Overdean. He referred to the Judgment and to order 4 made in the Proceedings as follows: "Order that Garslev account to Overdean (as trustee of the Dean Super Fund) for the net proceeds of sale of the following land that was the subject of the declaration made by this Court on 23 October 2017 in proceeding 2017/00279755 that Beechworth Land Estates ["BLE"] was authorised to sell the land to BAD Nominees (being an amount of $1,058,579 referred to at [749] of these reasons for judgment)."
5. I note that order 4 made by Williams J in the Proceedings also identified the properties which were the subject of the amount ordered.
6. In his verifying affidavit in respect of the Demand, Mr Dean contended that Garslev had conceded that it owed the amount of $850,000 to Overdean and referred to an extract of written submissions filed on behalf of Garslev and other parties, apparently in an appeal from the decision of Williams J. Mr Parrish made submissions which I will not need to determine as to whether those submissions in fact amounted to an admission of that matter. It appears, as I will note below, that the Demand claimed an amount less than the amount of the judgment debt, so far as Williams J had ordered that Garslev account to Overdean in the amount of $1,058,579, and Overdean relied on the suggested concession in the submissions on appeal in that regard.

Evidence in the application

1. I now turn to the evidence read in respect of the application. Garslev relies on the affidavit dated 21 December 2022 of Mr Mahommed, who identifies himself as an alternate director of Garslev. Mr Mahommed contends that Garslev admits or contends a nil amount under the Demand, apparently contesting that the amount claimed in the Demand was due, notwithstanding the reference in the Demand and the verifying affidavit to the larger amount that was the subject of the order made by Williams J in the Proceedings. Although Mr Mahommed refers to that order, he contends that the "account" had been provided by providing an explanation of events in correspondence and affidavits and submissions rather than by the payment specified in order 4 made in the Proceedings.
2. Mr Mahommed also indicated that he had identified the source of the amount of $850,000 that was claimed in the Demand, a lesser amount than was the subject of order 4 made by Williams J, by reference to Mr Dean's affidavit in support of the Demand and submissions made by Garslev in respect of the appeal. The fact that Mr Mahommed understood the basis of that figure is relevant to one basis on which the Demand is sought to be set aside, which I address below. Mr Mahommed took issue with the proposition that any "concession" had been made that the amount of $850,000 was due to Garslev although it may be that little turns on that where the order made in the Proceedings required that Garslev account for the larger amount of $1,058,579 to Overdean.
3. Mr Mahommed also gave evidence (in the nature of submissions) as to the matters arising at first instance and noted that Garslev sought to set aside all of the orders made in the Proceedings on appeal. He also referred to a claim made against a former trustee of the trust, BAD Nominees Pty Ltd ("BAD Nominees") that had been in issue in the Proceedings, to which I will return below, and identified matters which he contended supported an offsetting claim against Garslev and a significant number of defects in the Demand. Mr Parrish has rightly been more selective in the course of submissions today.
4. Garslev also relied on a second affidavit dated 11 February 2023 of Mr Mahommed which raised several additional criticisms of the Demand. No substantive reference was made to that affidavit in submissions and it is not necessary to determine whether it was open to Garslev to raise those matters, which had not been raised in the original affidavit in support of the application to set aside the Demand filed within the 21-day period specified in the Act.
5. An exhibit to Mr Mahommed's first affidavit included a creditor's statutory demand issued by Garslev to Overdean which is now not pressed, which identified several tax invoices issued by Mr Smits, a solicitor associated with Garslev, to BAD Nominees, on which Garslev now relies to establish an offsetting claim. Mr Mahommed refers to the fact that he approved payment of those invoices by BAD Nominees as its attorney, a matter which was addressed in the Proceedings, and also referred to Mr Smits' subsequent assignment to Garslev of all of his right, title and interest in the debts owed by BAD Nominees to Mr Smits.
6. That exhibit also included those invoices. The first, dated 12 December 2017, contained a one and a half page narrative of work said to have been done by Mr Smits, without reference to the time spent on that work, and claimed an amount of $138,380 inclusive of GST. The second, dated 30 March 2018, in similar form, claimed the amount of $133,509 inclusive of GST. A third, dated 17 March 2018, claimed disbursements in the amount of $6,672. Each of these invoices was directed to BAD Nominees rather than to Garslev. The exhibit also included a schedule which appears to indicate time spent by Mr Smits, on which Garslev relies to support the amounts claimed in the invoices issued by Mr Smits to BAD Nominees. A deed of assignment dated 12 December 2022, made a week after the Demand was issued, records the assignment of the debts claimed against BAD Nominees by Mr Smits to Garslev.
7. An exhibit to Mr Mahommed's second affidavit contains a copy of the Demand and the affidavit of Mr Dean in support of it and the submissions which are relied on for the suggested concession of $850,000 to which the Demand referred.
8. By a short affidavit dated 27 February 2023 Mr Kekatos, who is the solicitor acting for Overdean in the proceedings, gave evidence (largely by way of submission) that Mr Mahommed's second affidavit dated 11 February 2022 raised issues beyond those raised in his first affidavit. I need not address that matter in order to determine this application. Overdean also tendered the Amended Notice of Appeal from the Judgment (Ex D1) and drew attention to the Judgment (MFI 1) to which I have referred above.
9. I should also recognise that, in submissions, Mr Parrish provides a helpful outline of the history of dealings between BAD Nominees, as the former trustee of the Dean Super Fund, and BLE to which BAD Nominees had advanced funds; the circumstances of BLE's voluntary administration; and the subsequent dealings between BAD Nominees, Mr Dean, Mr Mahommed and Mr Smits. He also refers to the Judgment and the orders made in the Proceedings and the appeal from\ those orders.

Whether a genuine dispute is established in respect of the amount claimed in the Demand

1. I turn now to the question whether a genuine dispute is established in respect of the amount claimed in the Demand. The matters necessary to establish a genuine dispute are well known and Mr Parrish draws attention to my summary of the relevant principles in Re Trico Constructions Pty Limited [2017] NSWSC 1831 at [15]ff.
2. The Court has power to set aside a creditor's statutory demand under s 459H(1)(a) of the Act where there is a genuine dispute between the recipient of the demand and its issuer about the existence or amount of the debt to which the demand relates. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464; [1997] FCA 681, the Full Court of the Federal Court observed that a genuine dispute must be bona fide and truly exist in fact and the grounds for the dispute must be real and not spurious, hypothetical, illusory or misconceived. I bear in mind that the threshold to establish a genuine dispute is not high and once a company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow: Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18].
3. I also have regard to the Court of Appeal's decision in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 where the Court of Appeal undertook a comprehensive review of the cases referable to whether a genuine dispute is established and to the subsequent decision of the Court of Appeal in Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 at [8], where Barrett AJA approved my summary of the relevant principles in Re Wollongong Coal Limited (2015) 118 ACSR 134; [2015] NSWSC 1680 at [9]-[22]. Similar approaches have since been adopted by the Court of Appeal in Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212; [2017] NSWCA 300 and in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60.
4. Here, Mr Parrish put the basis on which a genuine dispute is sought to be established in an admirably succinct manner. He contends that the description of the debt claimed in the Demand and the affidavit of Mr Dean which verifies the amount claimed in the Demand has the consequence that the debt claimed by Overdean does not arise from the Judgment or order 4 made in the Proceedings, but instead from the purported admission in the submissions to which reference is made in the Demand and that affidavit. Mr Parrish submits that the debt is not a debt that is the subject of the Judgment but rather an event extraneous to the Judgment, implicitly, the giving of the suggested admission in the submissions on appeal. He also submits that, construed in its context, the relevant passage of the appeal submissions is not an admission of a debt. I accept that there is force in the latter submission where that passage of the appeal submissions relies on arrangements that were set aside by Williams J in the Judgment. It is difficult to see how those submissions could constitute an admission to a liability arising under those arrangements after they were set aside.
5. Mr Parrish submits that it follows that a genuine dispute exists as to whether the debt claimed in the Demand is a debt or at least a debt that is presently due and payable. This submission turns on its premise, namely that the amount claimed in the Demand and verified by Mr Dean's affidavit relies not on the Judgment but only on the purported admission in the appeal submissions. I do not accept that premise, even to the low threshold necessary for a genuine dispute.
6. As I noted above, the Demand expressly referred to the amount of the debt "conceded to be owed" by Garslev to Overdean "in relation to Order 4 of the [J]udgment". It seems to me that, with respect to the ingenuity of Mr Parrish's submission, it disregards the fact that the description of the debt in the Demand expressly refers to "Order 4 of the [J]udgment" and that the amount of the debt claimed is plainly part of the amount due under that order, from which the payment out of Court is then deducted to arrive at the debt claimed in the Demand. To put that another way, what is done in the Demand is to start with the larger amount of the debt arising from order 4 made in the Proceedings, then to reduce it to a lesser amount said to reflect the amount of the debt "conceded" on the appeal, and then to claim the balance that arises after deducting the payment out of Court.
7. It may be that the amount claimed is properly characterised as a claim for both part of the judgment debt and an admitted amount in the submissions on appeal, but it seems to me that it is, at least in part, a claim for part of the judgment debt. Where the claim in the Demand is a claim for part of the judgment debt, it seems to me that there is no room for a genuine dispute about it. The position where part of the judgment debt is claimed can be no different from the position where all of the judgment debt is claimed and the fact that an appeal has been brought against the judgment of Williams J does not establish a genuine dispute as to the amount of the debt that arises from that judgment. That proposition is established by case law including at least Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235; Midas Management Pty Ltd v Equator Communications Pty Ltd (2007) 25 ACLC 1038; [2007] NSWSC 759; and Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 at [11]. I did not understand Mr Parrish to contend to the contrary where, fairly, he focused upon the characterisation of the amount claimed as not being related to or part of the judgment debt as the essential step that needed to be established to establish a genuine dispute. Where I have found that essential step was not established, even to the low threshold necessary for a genuine dispute, then a genuine dispute is also not established.

Whether there is a defect in the Demand

1. In an alternative submission, not raised in his written submissions, Mr Parrish contended that, if the Court did not accept the premise of his submission that there was a genuine dispute as to the debt claimed in the Demand, it should alternatively set aside the Demand on the basis of s459J(1)(a) of the Act. That section provides that the Court may by order set aside a creditor's statutory demand if it is satisfied that, because of a defect in the demand, substantial injustice will be caused unless the demand is set aside. The term "defect" in relation to a statutory demand is defined in s 9 of the Act as including "an irregularity; a misstatement of an amount or total; a misdescription of a debt or other matter; or a misdescription of a person or entity."
2. Mr Parrish submitted that, here, the defect in the Demand is a misdescription of the debt, on the basis that the Demand would have led Garslev to understand that the amount claimed was not part of the judgment debt but instead relied only on the suggested admission made in the appeal submissions. Mr Parrish submitted that substantial injustice will be caused to Garslev unless the demand is set aside by reason of that misunderstanding, because it has not led evidence that it would otherwise have led in respect of the application. With respect, I am unable to accept at least the second of those propositions.
3. Assuming, without deciding, that Mr Parrish were able to establish that the description of the debt in the Demand could have caused confusion (although it is difficult to see how that could arise where if expressly referred to order 4 made in the Proceedings), it does not seem to me that there is any basis to find that Garslev in fact conducted itself in a manner that did not have regard to the claim for the judgment debt in the Demand. To the contrary, Mr Mahommed's first affidavit was at pains to deal with the orders made in the Proceedings at length and to emphasise that Garslev contended that a nil amount was due. He also referred to the appeal that has been brought against the judgment in a manner that suggested that the correctness of the judgment was challenged. There is no evidence that, and no reason to think that, Garslev has not led evidence that would have been led had it not misunderstood the scope of the Demand. It is not apparent what evidence could have been led that was not led where Mr Mahommed's affidavits comprehensively attacking the Demand on every conceivable ground, many of which are now rightly not pressed by Mr Parrish.
4. It is not apparent to me that, here, there is any substantial injustice to Garslev in respect of any misdescription arising from the Demand. The comprehensive character of its attack upon the Judgment, the Demand, and everything connected with the two, leaves no room to think that anything has been omitted because of any misunderstanding of the scope of the Demand.

Whether an offsetting claim is established

1. The third basis upon which the Demand was sought to be set aside was that Garslev had an offsetting claim in respect of the amount claimed in the Demand.
2. Again, the case law is well established and I draw upon my summary of it in Re Savemore Wholesale Pty Ltd [2021] NSWSC 307 ("Savemore") at [34]ff. An offsetting claim for the purposes of s 459H(1)(b) of the Act is the amount of a claim or claims that a company has against a person who served a creditor's statutory demand by way of counterclaim, set-off or cross-demand, whether or not that amount arises out of the same transaction or transactions as the debt to which the demand relates. If the Court is satisfied that a company has an offsetting claim then the Court is required to calculate the substantiated amount of the demand by deducting any offsetting claim from the admitted amount of the debt as defined. An offsetting claim is established if there exists a "serious question to be tried" or an issue deserving of a hearing as to whether the company has such a claim against the creditor and that claim is made in good faith and is arguable and not frivolous or vexatious: Scanhill Pty Ltd v Century 21 Australia Pty Ltd (1993) 12 ACSR 341 at 356-357; [1993] FCA 951; Britten-Norman at [30]; Grandview at [8] and [62]-[66].
3. In order to establish an offsetting claim, Garslev must establish not only a seriously arguable case as to liability but also as to the quantum of the offsetting claim: Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743. In Re Douglas Aerospace Pty Ltd [2015] NSWSC 167 at [40], Brereton J addressed the necessity of establishing the amount of the offsetting claim, by adducing evidence that enables the Court to ascertain the amount of the genuine claim to the extent necessary to establish the formula in s 459H. His Honour noted (at [40]) that: "If the offsetting claim must plainly exceed the amount of the demand, it is unnecessary that it be precisely quantified. But where that is not clear, the court must be able to quantify an offsetting claim, and if the evidence does not permit it to do so, will attribute to it only a nominal value."
4. I followed that approach in Savemore at [36].
5. Mr Parrish submits that Garslev has a liquidated claim against Overdean in the amount of $342,062.44 being the two unpaid solicitor's invoices in respect of time costs claimed by Mr Smits and now assigned by them to Garslev and the third invoice in respect of disbursements in the amount of $6,672 to which I referred above. Mr Parrish also refers to a claim for interest on those three invoices. He refers to the assignment of those debts from Mr Smits to Garslev by the deed of assignment and contends that notice of that assignment was provided to Overdean on 12 December 2022, or alternatively by Mr Mahommed's evidence in this application.
6. Mr Parrish rightly acknowledges a difficulty for this claim, namely that Williams J had rejected Mr Smits' previous claim that BAD Nominees was indebted to Mr Smits for the amounts claimed in the solicitor's invoices on the basis that the evidence led in the Proceedings did not establish that the fees charged reflected the time taken to perform the work. Mr Parrish submits that the Court can be satisfied that at least some work was done by Mr Smits notwithstanding the findings of Williams J and refers to the schedule of work done by Mr Smits and submits that Garslev could bring an application for a costs assessment or a claim in restitution.
7. It seems to me that the offsetting claim on which Garslev relies is also not established. The first difficulty with that claim is that Mr Mahommed's affidavit evidence and Mr Parrish's submissions appeared to turn upon an assumption that, without more, a successor trustee is liable for a debt to which its predecessor as trustee was liable. However, the position at general law is that a predecessor trustee remains liable for the liabilities that it properly incurred in the execution of a trust; although it will have an indemnity and lien over trust assets in respect of those liabilities: Collie v Merlaw Nominees Pty Ltd (in liq) (2001) 37 ACSR 361; [2001] VSC 39 ("Merlaw Nominees"); Lemery Holdings Pty Ltd v Reliance Financial Services (2008) 74 NSWLR 550; [2008] NSWSC 1344. The change of trustee of a trust does not, without more, cause the successor trustee to assume the liabilities of its predecessor. Section 601FS of the Act brings about that result, which does not arise at general law, in respect of rights, obligations and liabilities of a former responsible entity, but that section is not applicable here.
8. In some circumstances, a creditor may be entitled to be subrogated against the rights of a former trustee against the trust fund, as was recognised by Jessel MR in In re Johnson; Shearman v Robinson (1880) 15 Ch D 548 at 552-553 and in Merlaw Nominees at [57]. However, as Mr Parrish fairly accepted in the course of submissions, the evidence led by Garslev does not identify a claim brought by way of subrogation and, perhaps more importantly, makes no attempt to establish the matters necessary for that claim, including at least that the liabilities were properly incurred by the former trustee, BAD Nominees, in the proper exercise of its role as trustee so that it had a right of indemnity against the trust assets in that respect.
9. It seems to me that, at least for this reason, Garslev has not established an offsetting claim in the sense of a genuine claim that Garslev has against Overdean as distinct from BAD Nominees as the former trustee of the trust. Plainly, a further difficulty for Garslev's attempt to rely on an offsetting claim is that Williams J had rejected the claim brought by Mr Smits in the Proceedings, which he has now assigned to Garslev. A real question would arise as to whether it was open to Garslev to reagitate that claim in other proceedings after it had been determined on its merits before Williams J in the Proceedings. However, it is not necessary to address that question for present purposes.
10. The third difficulty with Garslev's offsetting claim is that, recognising the determination made by Williams J in the Proceedings, Mr Parrish now retreats to the possibility that Garslev could recover costs in a potential costs assessment or a claim in restitution. However, a costs assessment or a claim in restitution would necessarily raise the question of what work was reasonably done by Mr Smits and what was reasonably charged by Mr Smits for the work that was reasonably done by him. I recognise that Garslev tenders the schedule which it contends record the time spent by Mr Smits and invoices which record the amount claimed by Mr Smits for the work done. However, assuming that Mr Smits spent the time in work that is recorded in that schedule, it does not follow that he reasonably spent that time nor does the schedule prove that the work done by Mr Smits was reasonably done, still less that the amount charged for it was reasonably charged. Without evidence that addresses those matters, the Court has no basis to determine that the amount which would be recovered on a costs assessment or in a claim for restitution exceeds the amount that is claimed by Overdean, as to which I have held there is no genuine dispute.
11. Adopting the approach which Brereton J adopted in Douglas Aerospace and which I adopted in Savemore, there is no basis for assessing the amount that might be recoverable by Garslev if Garslev (as distinct from BAD Nominees) had any entitlement to recover any amount against Overdean, and the offsetting claim is also not established on that basis.

Orders

1. For these reasons, I order that the application by Garslev Holding Pty Ltd to set aside the statutory demand dated 5 December 2022 issued by Overdean Developments Pty Ltd be dismissed with costs.

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