By Originating Process filed on 16 November 2018, the Plaintiff, Skylane Worldwide Enterprises Pty Ltd ("Skylane") seeks to set aside a creditor's statutory demand dated 29 October 2018 ("Demand") issued by 37 Powell Road Pty Limited ("37PR"). The Demand identified the amount claimed as $92,200 which was calculated by taking a 10% deposit said to be payable under a contract for sale of a property situated at Homebush, then deducting certain amounts paid by Skylane to an estate agent, CBRE, then adding extension fee instalments paid by Skylane under cl 59 of the contract, to determine the balance of the deposit which was outstanding. The Demand was verified by an affidavit of Mr Benjamin Doyle dated 26 October 2018, who stated that he was a director of 37PR and confirmed that the total amount of the debt owed by Skylane to 37PR was $92,200 and that he believed there was no genuine dispute about the existence or amount of the debt claimed.
The application to set aside the Demand is in turn supported by the affidavits dated 7 November 2018 and 20 March 2019 of Mr Kang, who is the director of Skylane. Mr Kang's first affidavit indicates (in evidence admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) as submission and identification of Skylane's claim) that another entity, Goldman Pintex Management Pty Ltd ("Goldman"), which has now been deregistered, nominated Skylane as purchaser of the property under the relevant contract. That proposition does not appear to be disputed. He also indicates that Skylane and Goldman (I interpolate, putting aside the fact that it presently has no legal existence) dispute the assertions of 37PR that the relevant contracts for the sale of the land had been validly terminated. I admitted that evidence with a limiting order under s 136 of the Evidence Act, as identification of Skylane's claim, but it does not identify why that matter is disputed. Third, Mr Kang advanced a proposition that a creditor's statutory demand could not validly be issued both to Skylane and Goldman. That submission was not put by Mr Levet, who appeared for Skylane in closing submissions and is inconsistent with the case law noted, for example, in F Assaf, Statutory Demands and Winding Up in Insolvency (2012, 2nd ed, LexisNexis Butterworths) [2.21]. As events have developed, I need not address any issue concerning Goldman which, as I noted above, has been deregistered.
Mr Kang also asserted (in evidence admitted with a limiting order under s 136 of the Evidence Act, to identify Skylane's claim) that the purchaser had paid amounts in excess of contractual entitlements of the amount of $10,000. If that were established by evidence, it might well establish a genuine dispute as to any termination of the contract and as to any consequential claim for the deposit. I will return to the relevant evidence below. Mr Kang also referred (again in evidence admitted with a limiting order under s 136 of the Evidence Act as identifying the claim) to the fact of communications between the parties said to constitute a compounding of the alleged debts and agreement by the vendors or their solicitors to timetables, the content of which he did not identify. Finally, Mr Kang referred (in evidence also admitted with a limiting order under s 136 of the Evidence Act as a submission only) to an amount held in the trust account of the agents, CBRE Pty Ltd ("CBRE") and to the fact that Skylane had not agreed to the release of the relevant deposit. The primary relevance of that matter is that that amount has not been paid to discharge any amount that is properly due to 37PR for payment of the deposit under the contract.
Mr Kang's further affidavit dated 20 March 2019 dealt with the relevant events, in a matter that will be significant for the chronology of those events. I will refer to those events in dealing with that chronology below. 37PR in turn relied on the affidavit of Mr Benjamin Doyle dated 14 December 2018, which in turn set out a chronology of events, which overlapped with and extended beyond the events referred to in Mr Kang's second affidavit.
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Chronology
I now turn to the chronology of events, as it emerges from Mr Kang's second affidavit and Mr Doyle's affidavit. On 8 August 2017, Goldman entered a contract to purchase a property situated at Homebush in New South Wales. An amount was then paid to CBRE, as the agent, representing partial payment of the contractual deposit and the terms of the contract dealt with how the balance of that amount would be paid. The initial date for completion of the contract was eight months after the date of the contract which would have required completion in the first half of 2018.
On or about 21 January 2018, Goldman nominated Skylane as purchaser under that contract. On 30 April 2018, a deed of variation of contract was executed which extended the completion date of the contract to 14 months after the contract date, in early October 2018. That variation required payment of an additional deposit amount of $75,000 in instalments on a monthly basis and an extension fee, also payable on a monthly basis, and confirmed the position previously arising under the nomination of Skylane, that both Goldman and Skylane were jointly and severally liable for the relevant obligations under the contract. That variation also provided for payment of 37PR's legal costs, although those costs are not claimed by Demand. Importantly, the variation confirmed that the contract could be terminated on a default in payment of the instalments of the additional deposit or the extension fee after fourteen days' written notice of demand for payment.
Other correspondence followed between the parties to which reference is made in Mr Kang's second affidavit. By a notice of demand dated 1 August 2018, addressed by 37PR to Goldman and Skylane, 37PR recited that Goldman and Skylane had failed to pay to 37PR a deposit instalment of $8,000 payable by 31 July 2018 and gave fourteen days' notice as contemplated by special condition 57 of the contract that it required payment of that amount in accordance with the contract within fourteen days.
By an email dated 13 September 2018, the solicitor acting for Goldman advised 37PR's solicitor that:
"We are instructed that [Goldman] does not accept that the relevant contract has been validly terminated as it has more than arguably in our submission been the subject of appropriate compromise and compound [sic] as to monies due. In this regard please refer to the attached instructed screenshot evidencing same."
The relevant screenshot is not in evidence. That email also referred to Goldman's requirement that the deposit monies paid by Goldman be retained by CBRE in its trust account and a similar instruction was given to CBRE. That email also stated that that Goldman had agreed to "settle this transaction as soon as possible", although settlement did not thereafter take place.
Mr Levet, who appears for Skylane, relies on that email as indicating that there was then dispute as to termination of the contract. I accept that that email evidences the existence of a contention by Goldman, which may well have been adopted by Skylane, that the contract had not been terminated. However, what is necessary to establish a basis to set aside a creditor's statutory demand is not merely the existence of a dispute as to a relevant debt, but that that dispute constitutes a genuine dispute in the sense to which I refer below. That email did not identify, and the evidence does not establish, the matters that are said to have given rise to the compromise and compounding of the debt which was asserted in that email. In any event, as will emerge below, 37PR relies on a termination of the contract subsequent to that which this correspondence relates.
It appears to be common ground that, by September 2018, Skylane or Goldman had made at least some payments to 37PR's trust account and to CBRE as agent. On 21 September 2018, the solicitors for 37PR served a notice of demand on Skylane and Goldman which alleged a failure to pay instalment amounts in respect of the deposit and extension fee due on 15 August 2018, 15 September 2018 and 31 August 2018, respectively.
By a further email dated 20 September 2018, 37PR's solicitor denied Goldman or possibly Skylane's assertions of waiver or compromise of 37PR's rights and reasserted that it had validly terminated the contract which was now at an end. 37PR nonetheless made a proposal which would have allowed the completion of the contract on terms that the deposit be released, less certain legal costs and stated that:
"We are further instructed that without prejudice to [37PR's] rights, [37PR] will allow [Goldman] or [Skylane] to complete purchase of the property in accordance with the Contract (including allowing the deposit paid to date as a credit less all of [37PR's] legal costs payable by [Goldman] and [Skylane] under the Contract. Please advise us whether this without prejudice offer is accepted."
By email dated 20 September 2018, the solicitor acting for Goldman and possibly Skylane, responded rejecting that proposition and asserting that the parties:
"accepted a change of terms and conditions and received further payments corollary thereto on the basis of previous will know [sic] discussions and communications between the parties as we are instructed.
As such our client regards the contract as still being on foot; with respect a party cannot declare a contract as terminated and at the same time agree to settlement of the same subject matter."
So far as the first part of that email asserted previous acceptance of particular arrangements, those arrangements are not the subject of evidence in the application, beyond the assertion of them in this email. So far as the email asserted that a party cannot declare a contract to be terminated and at the same time agree to settlement of the subject matter, it appears that 37PR had asserted that the contract was terminated, and made a without prejudice offer to resolve the position, and there is no legal impediment to that course.
By email dated 21 September 2018, the solicitors for 37PR noted that Goldman or possibly Skylane intended to complete the purchase and 37PR withdrew its prior termination of the contract. For that reason, the prior dispute as to the prior termination of the contract appears to have little continuing relevance to the matters in issue in this application, notwithstanding the extent of attention that has been given to it in the evidence. By that email, 37PR's solicitor also noted that Goldman and Skylane remained in default under the contract and served a further notice of demand in respect of deposit and extension instalments due under the contract, gave fourteen days' written notice in accordance with the contractual provisions dealing with termination of the contract and indicated that 37PR required strict compliance with the notice and reserved all of its rights under the contract.
Mr Kang, in his second affidavit, does not refer to any of the events that subsequently took place, which are addressed in Mr Doyle's affidavit. On 4 October 2018, 37PR's solicitors reminded the solicitors acting for Skylane of the date for payment due under the notice of demand, being 5 October 2018, and also noted that the contract provided for completion by 8 October 2019, being the first business day after the completion date specified in the contract. On 10 October 2018, the solicitors for 37PR advised the solicitors for Skylane that, by reason of Goldman and Skylane's failure to comply with 37PR's notice of demand dated 21 September 2018, 37PR terminated the contract for sale and required Goldman and Skylane to release the deposit paid to CBRE under the contract and otherwise reserved all of 37PR's rights under the contract. It appears that the deposit was not subsequently released by CBRE, absent Skylane's consent to its doing so, and the Demand to which I have referred was issued on 29 October 2018.
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Whether a genuine dispute exists
I now turn to the question whether there is genuine dispute as to the obligation of Skylane to pay the amount claimed in the Demand. The Court has power to set aside a creditor's statutory demand under s 459H(1)(a) of the Corporations Act 2001 (Cth) where there is a genuine dispute between a company, relevantly, Skylane and the issuer of the creditor's statutory demand, relevantly, 37PR, 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) FCA 681; [1997] 76 FCR 452 at 464, the Full Court of the Federal Court observed that a genuine dispute, must be bona fide and truly exists in fact, and the ground for the dispute must be real and not spurious, hypothetical, illusory or misconceived. In Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18], Barrett J formulated that proposition as follows, which has been frequently applied in subsequent cases:
"Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of a genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger."
In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67 at [71], Dodds-Streeton JA in turn observed that a genuine dispute required that a claim have a sufficient objective existence and prima facie, plausibility to distinguish it from a merely spurious claim, bluster or assertion and sufficient factual particularity to exclude the merely fanciful or futile. These principles were reviewed by the Court of Appeal in Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601, although that case was directed to the question whether an offsetting claim was established, and I also summarised those principles in Re Wollongong Coal Pty Ltd [2015] NSWSC 1680; (2015) 110 ACSR 134 at [9]-[22] and in Re Erma Properties Pty Ltd [2017] NSWSC 1748 on which I have drawn for the summary which appears above.
With those legal principles in mind, I turn now to the parties' submissions. Mr Levet refers to Mr Kang's first affidavit dated 7 November 2018, and to his further affidavit dated 20 March 2019 and submits that a genuine dispute exists and at all relevant times existed, because Mr Kang asserts, in his first affidavit, that Goldman or possibly Skylane paid monies in excess of the contractual requirement of about the sum of $10,000 or that there was a compounding of the debts and agreed variations to the timetable. The first difficulty with that proposition is that the evidence to which Mr Levet refers has been admitted with a limiting order as to identification of the relevant claim, but does not establish its factual or legal basis. The second difficulty is, even apart from that limiting order, the evidence is silent as to the proof of payment of that amount, or why that amount is said to have satisfied contractual requirements which, on their face, required substantially larger payments, or what the communications that are said to have given rise to the relevant compromise were. The emails sent by Goldman's (or Skylane's) solicitor to which I have referred assert that compromise, but do not identify any factual basis for that assertion.
Mr Levet in turn refers to Mr Kang's second affidavit, and submits that the inescapable conclusion from that second affidavit is that a genuine dispute existed as to the existence or amount of the debt alleged in the Demand. It may be that that affidavit establishes at least the fact that Skylane, through Mr Kang, denies that the amount claimed in the Demand is payable. That affidavit annexes correspondence between the parties and their solicitors, but does not address the primary facts giving rise to the asserted dispute to identify, by reference to those primary facts, that that dispute has an objective existence or is prima facie plausible or is more than merely spurious or assertion. In submissions, Mr Levet was not able to identify any contractual basis for a dispute as to 37PR's right to payment of unpaid instalment amounts and unpaid extension fees or as to its right to terminate the contract, if payment was not made; any factual basis for a claim that all such payments were made; any contractual basis for the proposition that non-payment did not support termination; or any primary evidence of the correspondence or communications that gave rise to the compromise, waiver or other arrangements which were asserted in correspondence from Skylane's (or Goldman's) solicitors.
Mr Paterson, who appears for 37PR, in turn refers to the chronology of events, the relevant contractual provisions and 37PR's termination of the contract in relying on contractual provisions. Mr Paterson submits that the correspondence to which Mr Kang has drawn attention, in his affidavit evidence, amounts to a mere assertion of a dispute, which does not identify the basis of the dispute, and makes the significant point, to which I have referred above, that the asserted "genuine dispute" in respect of events prior to September 2018 did not relate to the notice of termination which was issued on behalf of 37PR on 10 October 2018. My attention has not been drawn to any correspondence in which Skylane asserted a dispute as to that subsequent notice of termination, still less identified any basis for such a dispute. Mr Paterson also contended that the contract was interdependent on a related contract which it appears has also been terminated and that, even if the contract had not been terminated, there is no evidence displacing Mr Doyle's evidence that the payment obligations arising under it have not been met.
I accept that there has been, from time to time, and at least prior to the most recent termination of the contract, a dispute between the parties as to its status. However, Skylane has not established a genuine dispute, involving more than mere bluster or assertion, being a dispute that has sufficient objective existence or prima facie plausibility to warrant further investigation and to require 37PR to proceed by way of contested proceedings, rather than by the issue of a creditor's statutory demand which, if not complied with, will give rise to a presumption of insolvency. For these reasons, the proceedings brought by Skylane to set aside the Demand are dismissed with costs.
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Decision last updated: 24 June 2019