BBB Constructions Pty Ltd v Frankipile Australia Pty Ltd

The evidence in the application

1. I should briefly refer to the evidence led in respect of the application and then turn to the relevant principles. The Plaintiff relies on an affidavit of Mr Levent Ince dated 12 July 2016.
2. Mr Ince indicates that he is the sole director and shareholder of the Company and refers to the receipt of the Demand. He indicates that, from 5 November 2012 to 3 August 2015, Ates Enterprises provided services to the Company pursuant to a verbal agreement, although what in fact appears to have occurred is that Mr Ates, and subsequently Mr Ates through Ates Enterprises had an arrangement with the Company, the details of which are subject to some dispute, in respect of real estate sales. It is common ground that, on 3 August 2015, Mr Ates or Ates Enterprises or both ceased to provide services to, or have an arrangement with, the Company.
3. Mr Ince refers to his belief that Mr Ates "misappropriated" the Company's client database and a number of client files when that arrangement ceased. Mr Ince refers to the fact that Mr Ates caused a hard drive of the computer allocated to him to be reformatted, which is common ground, although whether that was wrongful or not is disputed, where Mr Ates' evidence is that that was done to return the computer to the form in which it had been provided to him, where it otherwise contained his personal information. Mr Ince's affidavit also refers to an allegation of misuse of confidential information of the Company. That affidavit makes clear that the claim advanced, by way of an offsetting claim, is either a claim for breach of contract, or a claim for breach of fiduciary duty, although Mr Bennett, who appeared for the Company, placed primary weight on the latter. In paragraph 16 of Mr Ince's affidavit, he states that: "By reason of the acts of [Ates Enterprises], and its employee or agent Mr Ates, I believe that the [Company] has suffered loss and damage of at least $119,000, being the commission and other earnings the [Company] would have received had clients not been diverted through the misuse of confidential information ...". I have omitted a reference to another matter which Mr Bennett accepts would not properly constitute an offsetting claim.
4. The Company also relies on Mr Ince's second affidavit dated 20 July 2016, which establishes that the application to set aside the Demand was not only filed, but served, on 12 July 2016. That matter appears to be uncontested, and is significant, because it is relevant to the question of whether the proceedings were commenced within time.
5. Mr Ince subsequently affirmed a further affidavit dated 24 October 2016 which sought to expand on those allegations. The affidavit without its exhibits was served, a little after the date which the Court had ordered should be the date on which the last of the Plaintiff's evidence be served, other than by leave. However, the exhibits to that affidavit were not served upon Ates Enterprises until shortly before the proceedings, notwithstanding several attempts by Ates Enterprises' solicitors to secure service of that material. For reasons which I have set out in an earlier judgment, the Court did not grant leave to rely on that affidavit and in circumstances where service of the affidavit (with its exhibits) had not occurred in accordance with the Court's directions a reasonable time prior to the hearing, and where the detail of the exhibits that were served at a late stage would otherwise have caused prejudice to Ates Enterprises.
6. The Company also relies on an affidavit of Ms McKechnie dated 29 August 2016, who is a receptionist in the employ of the Company's accountants. The Company's registered office is the premises of its accountants, and Ms McKechnie's evidence is that she is responsible for collection of mail at that office and for its distribution to the relevant person. Ms McKechnie's affidavit records, in paragraph 4, in a form that is somewhat unsatisfactory: "I recall that on 21 June 2016 I collected the mail from (please insert whether it was from a PO Box or a mailbox contained within the building) and distributed the mail to the relevant person (PO Box)."
7. The words "PO Box" are inserted in hand, and appear to be Ms McKechnie's answer to the question whether mail was collected from a post office box or a mailbox. Ms McKechnie indicates that, on that date, she received the Demand issued to the Company and she refers to an email which appears to have sent the Demand and supporting affidavit to Mr Ince. While it is perhaps unlikely that Ms McKechnie has any particular recollection of receipt of a particular document on a particular date, it is readily understandable that she would be able to identify the date on which she collected the Demand from the post office box, in circumstances where that email in turn refers to an attached document, described in the heading as a "stat demand"; contains attachments, being the "stat [demand]" and affidavit; and describes those as "received in the mail today".
8. Ates Enterprises in turn relies on Mr Ates' affidavits dated 4 August 2016 and 15 September 2016, which refer respectively to service of the Demand, which Mr Ates served by posting it on 14 June 2016 to the registered office of the Company, at its accountant's premises, and to the dealings between Mr Ates and Mr Ince which are the subject of dispute.

Whether the Court has jurisdiction

1. I have been assisted by helpful submissions of Counsel, Mr Bennett who appeared for the Company and Mr Katsoulas who appeared for Ates Enterprises, which have assisted in isolating the relevant issues. The first question identified by the parties, properly, is whether the Court has jurisdiction to deal with the application, which turns on whether the Originating Process and supporting affidavit which seek to set aside the Demand was served within 21 days after service of the Demand, as required by s 459G of the Corporations Act. Mr Katsoulas refers to my decisions in Re Leasing Holdings Pty Ltd (formerly Charlie Lovett Pty Ltd) [2015] NSWSC 771 and Re Shaolin Temple Foundation (Australia) Ltd [2016] NSWSC 804, which in turn refers to earlier authorities as to the interaction of s 29 of the Acts Interpretation Act 1901 (Cth), s 160 of the Evidence Act 1995 (NSW) and s 109X of the Corporations Act, which provides for service to be effected by posting a document to the registered office of a company. Ates Enterprises relies, first, on s 29 of the Acts Interpretation Act, and upon evidence that Australia Post's estimated time of delivery in the ordinary course of post for a letter, sent between the place of posting and the Company's registered office, would be 2-3 business days. Alternatively, Ates Enterprises relies on s 160 of the Evidence Act for a presumption that the Demand would have been delivered on the fourth day after posting, being 20 June 2016. Ates Enterprises contends that, on either basis, the application to set aside the Demand was filed and served outside the 21 day period, and that appears to be common ground if either presumption applies.
2. The relevant principles, as they emerge from the authorities, permit s 109X of the Corporations Act to operate together with s 29 of the Acts Interpretation Act and s 160 of the Evidence Act to create presumptions as to when a creditor's statutory demand is served by post: Scope Data Systems Pty Ltd v Goman (as representative of the partnership BDO Nelson Parkhill) [2007] NSWSC 278; (2007) 70 NSWLR 176 ("Scope Data Systems"); Re Shaolin Temple Foundation (Australia) Ltd above at [4]ff. I accept that, had the presumptions not been rebutted, the filing of the application to set aside the Demand would have been outside the 21 day period, and the Court would not have jurisdiction to deal with the application. The question arises whether the presumptions are rebutted in the particular circumstances. I have referred above to the affidavit of Ms McKechnie and, notwithstanding Mr Katsoulas' submissions as to the somewhat unsatisfactory form of that affidavit, I read that affidavit as indicating that delivery of the Demand was effected to a post office box maintained by the accountants, to which mail addressed to its street address was diverted in a common fashion, and that the Demand was collected from that post office box by Ms McKechnie on 21 June 2016 as she says. It would not follow from that evidence, if what needed to be determined was the date of delivery to the post office box, that the presumptions were rebutted. In particular, Ms McKechnie's evidence is unclear as to the system for collection of mail adopted by the accountants, and in particular, whether mail was collected on a daily basis, or indeed in the several days before the date on which Ms McKechnie says she collected the Demand. That lack of clarity is exacerbated by the fact that Ates Enterprises had served a notice to produce documents, to which the Company did not trouble to respond, requiring production of relevant documents. It is plain that the failure to respond was not because there were no documents to be produced since the email attached to Ms McKechnie's affidavit would have fallen within the categories specified in the notice to produce. I infer that the documents which might have been, but were not, produced in response to that notice to produce would not have assisted the Company.
3. Nonetheless, a further question arises here, to which I afforded Counsel the opportunity to make further submissions. The Company's registered office is at the premises of its accountants and mail from their street address is in turn diverted to a post office box. That position was considered in Scope Data Systems above, where White J held that the presumption under s 160 of the Evidence Act could apply to establish the date of receipt at the Company's registered office, but was rebutted where there was in that case proof of the date on which a document was collected from the post office box and taken to the company's registered office. His Honour there distinguished the decision of the Court of Appeal in Falgat Constructions Pty Ltd v Equity Australia Corporation Pty Ltd [2006] NSWCA 259; (2007) 23 BCL 292 ("Falgat Constructions"), on the basis that any view that a company could not rely on the distinction between the time of delivery to the post office box and the time of delivery to its registered office was not available where mail was diverted, not by the company itself, but by its accountants. His Honour also expressed his view that the Court that had decided Falgat Constructions above had not been taken to all relevant authorities, and his Honour referred to those authorities in his judgment.
4. The difference in view in Falgat Constructions and Scope Data Systems has been noted in subsequent case law, including my decision in Re Watson Road Moss Vale Developments Pty Ltd [2013] NSWSC 783 and the decision of Robb J in Futre Developments Pty Ltd [2014] NSWSC 1712; (2014) 292 FLR 256 at [60], although I distinguished the position in Scope Data Systems in Re Watson Road Moss Vale Developments Pty Ltd and Robb J did not need to express a concluded view as to the position in Futre Developments Pty Ltd. It seems to me to be sufficient to, and appropriate to, distinguish the decision of the Court of Appeal in Falgat Constructions above on the basis which White J had done in Scope Data Systems above. Whatever the position where a company diverts its own mail from its registered office to a post office box, it does not seem to me that a company would be disabled from relying on the time at which mail was actually received at its registered office, by the fact that its accountant had, as a matter of business practice, adopted a mechanism by which mail was first diverted to a post office box.
5. In the present case, notwithstanding the somewhat unsatisfactory character of Ms McKechnie's evidence, and the Company's failure to comply with the notice to produce to which I have referred above, it has been established that actual receipt of the Demand at the Company's registered office occurred on 21 June 2016, where that is recorded in contemporaneous correspondence, and that seems to me to be sufficient to displace the relevant presumptions that might otherwise arise under the Acts Interpretation Act or the Evidence Act as to the proof of delivery. It is common ground that, in those circumstances, the application to set aside the Demand was served within time, although only just within time, and the Court has jurisdiction to determine the application.

Whether an offsetting claim is established

1. The question then arises as to whether the evidence on which the Company relies, relevantly Mr Ince's first affidavit affirmed 12 July 2016, is sufficient to establish an offsetting claim, for the purposes of s 459H(1)(b) of the Corporations Act. The matters necessary to establish an offsetting claim are well established. An "offsetting claim" for the purposes of s 459H(1)(b) of the Corporations Act is a genuine claim that a company has against the person who served a creditor's statutory demand by way of counterclaim, set-off or cross-demand, whether or not that claim arises out of the same transaction or circumstances as the debt to which the creditor's statutory demand relates: s 459H(5). If the Court is satisfied that a company has an offsetting claim, then it must calculate the "substantiated amount" of the demand by deducting any offsetting claim from the admitted amount of the debt: s 459H(2).
2. An offsetting claim broadly requires that a "serious question to be tried" or "an issue deserving of a hearing" as to whether a company has such a claim against the creditor is established, and that 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; Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 at [18]; BBB Constructions Pty Ltd v Frankipile Australia Pty Ltd [2008] NSWSC 982; (2008) 68 ACSR 1 at [4]; Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601, where the Court of Appeal pointed to the relatively low minimum requirements for demonstrating an offsetting claim.
3. It is important to recognise, however, as Mr Katsoulas points out, that an offsetting claim requires not only that a claim or cause of action is advanced in good faith, but also that it be a claim for an amount claimed in good faith. In Macleay Nominees Pty Ltd v Belle Property East Pty Ltd above, Palmer J noted that this required that the claim be arguable "on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful." In Beauty Health Group Ltd v Scholl [2011] NSWSC 77 at [23], Barrett J (as his Honour then was) in turn emphasised that the concept of offsetting claim required that the court could see that the claim "rises to the level of a serious question to be tried ... is based on a cause of action advanced in good faith for an amount claimed in good faith ... and is not frivolous or vexatious ...". In Royal Premier Pty Ltd v Taleski [2001] WASCA 48 at [57], Ipp J in turn noted that there must be at least some material upon which the court can conclude that some damage has been sustained and which will enable the court to make a reasonable assessment as to the amount thereof. That proposition seems to me to be plainly correct, because the logical structure of s 459H of the Corporations Act requires that the court be able to calculate the substantiated amount of the demand, by deducting the amount of the offsetting claim from the admitted amount of the debt, and that in turn requires that it be able to undertake a proper calculation of the amount of the offsetting claim, being a claim for that amount brought in good faith.
4. The Company, in Mr Bennett's submissions, identifies the offsetting claim as a claim for breach of fiduciary duty. Mr Bennett submits that the categories of fiduciary duties are not closed and that, although the relationship between the Company and Mr Ates is not an established category of fiduciary relationship, an ad hoc fiduciary duty could arise, whether between employer and employee or between a party to which consulting services were being provided and the party providing those services. It is in turn alleged that that offsetting claim takes the form of a claim for breach of fiduciary duty, or an application of the no profit or no conflict rules, so far as it is alleged that Mr Ates took up opportunities in respect of properties which were of interest to the Company, for the benefit of another real estate agent by which he was employed, or with which he was associated, after he ceased an involvement with the Company.
5. A significant amount of factual evidence is led by Mr Ates in responding to that allegation, which is denied. It is also plain that serious issues might exist, at a final hearing, which would involve substantial challenges for the Company in establishing its claims, so far as liability is concerned. Mr Katsoulas draws attention to those matters at some length. However, the Court cannot determine questions of that kind, where they turn on disputed matters of fact, in an application to set aside a creditor's statutory demand, where the question is only whether an offsetting claim arises to the relatively low standard that is necessary to establish such a claim. For those reasons, I will assume, without expressing a final view, that a claim to the low level necessary to establish an offsetting claim could be established as against Mr Ates. I will also assume, without deciding, that that claim could be extended from Mr Ates to Ates Enterprises, although that also seems to involve difficulties for the Company. While it appears to be the case that Mr Ates is the controlling mind of Ates Enterprises, and in some circumstances acts of and knowledge of a director who is the controlling mind of a company can be attributed to that company, it remains that the sales of other properties, to the extent that they were in evidence, were for the benefit of a third party, not Ates Enterprises.
6. It seems to me, however, that the offsetting claim which is asserted by the Company in this case faces a more fundamental obstacle than those to which I have already referred. I have noted above that the structure of s 459H of the Corporations Act, and the authorities, requires not only that a claim, by way of a cause of action, be identified as raising a serious question to be tried, or an issue deserving of a hearing, but that that claim be made for an amount that has the same characteristics, and is asserted with sufficient particularity that the Court may determine that a claim to that amount is not fanciful. Mr Ince's affidavit, so far as it is directed both to the claim for breach of fiduciary duty, and a further claim for use of confidential information which appears to depend on essentially the same conduct, involves a bare assertion of loss or damage of at least $119,000, which is described as the commission and other earnings the Company would have received had clients not been diverted or had confidential information not been misused. That affidavit does not disclose the basis of the causative mechanism by which the Company claims to have suffered such loss and damage, or that Ates Enterprises made such profit for which an account of profits could be claimed, or how it is that such loss or damage was suffered by reason of misuse of confidential information. There is no attempt, at least in this affidavit, to disclose any factual basis for the amount of the loss and damage, by reference to particular properties or the like, although there is some limited evidence of property listings which had subsequently been undertaken by Mr Ates. That has the difficulty, however, to which Mr Katsoulas refers, that no attempt was made to link those listings with properties in which the Company at any point had an interest. The proposition that Mr Ates, after severing his ties with the Company, sold other properties, which had no connection with the Company, plainly cannot establish a claim for either an account of profits or a claim for compensation by the Company, without some attempt to establish that that had a nexus with either the conflict of interest, or the taking of a corporate opportunity, or the use of confidential information on which the Company might rely.
7. Mr Ince leads evidence that Mr Ates had performed, albeit at earlier times, market appraisals for a small number of properties in which the Company had an interest. However, the evidence led in these proceedings appears to suggest that two of those properties were not subsequently sold, and the two of those properties that were sold were sold for an amount which, on any conceivable percentage by way of commission, would not have supported the amount of compensation which the Company claims. It is not necessary, as Mr Katsoulas at one point suggested, to take judicial notice of the rates of commission applicable to real estate agents, and I do not do so, where I accept that such rates of commission may vary, albeit likely within a band, and there is no evidence about them. It is, however, possible to work back from the amount of compensation claimed to recognise that that amount has no rational link that is disclosed with the basis of the claim as disclosed by Mr Ince.
8. In summary, it seems to me that the Court does have jurisdiction to set aside the Demand, if an offsetting claim were established, and I consider that I should assume, without deciding, that a serious question to be tried is established as to the basis on which liability might be established, by way of a claim for breach of fiduciary duty arising from a conflict of interest. However, I am satisfied that an essential element of an offsetting claim, involving a claim to a particular amount, or some amount that can be substantiated, that is made in good faith and has sufficient basis to be described as giving rise to a serious question to be tried or a reason for further investigation, is not established, at least to any level that would bring the amount of the Demand by Ates Enterprises, founded on a judgment debt, below the statutory minimum. For these reasons, the Company's application to set aside the creditor's statutory demand dated 12 July 2016 should be dismissed with costs. 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: 30 December 2016