- CGI Information Systems & Management Consultants Pty Ltd v APRA Consulting Pty Ltd

Supreme Court of NSW|2016-12-15|Before: Black J

Solicitors: Russells (Plaintiff) Mahony Law (Defendant) File Number(s): 2016/227909

Judgment

By Originating Process filed on 28 July 2016 the Plaintiff, Tetbury Pty Limited ("Tetbury") applies under ss 459H and 459J of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand dated 6 July 2016 ("Demand") served by the Defendant, Mr John Mahony trading as Mahony Law.
The Demand identifies the relevant debt as being the amount of $270,810.32, being the total of debts described in a schedule, and states that it attaches an affidavit of Mr Mahony dated 6 July 2016 verifying that the amount is due and payable by Tetbury. That schedule in turn describes the debt as: "Amount due and payable by [Tetbury] to [Mahony Law] for the below mentioned invoiced amounts for professional fees and disbursements for professional services rendered and outlays incurred by [Mahony Law], at [Tetbury's] request, as set out in [specified invoices]." There follows reference to several invoices, including three invoices rendered by Mahony Law and several invoices rendered by Counsel in respect of litigation.

The affidavit evidence

Tetbury relies, in support of the application to set aside the Demand, on Mr Aris Evanian's affidavit dated 28 July 2016. As I noted above, Mr Aris Evanian was one of Tetbury's two directors at relevant times. Mr Aris Evanian refers to the fact that Tresedar is presently subject to a deed of company arrangement. Mr Aris Evanian's evidence is that he did not receive a letter of engagement dated 23 April 2013 from Mahony Law ("engagement letter") which he states was "purportedly in respect of work to be conducted by [Mahony Law] on behalf of Tresedar." That engagement letter was addressed to each of Tresedar, Tetbury, Mr Aris Evanian and Mr Hovig Evanian and referred to three specified proceedings in its heading. Paragraph 1 referred to "your instructions" for Mahony Law to represent the interests of Tresedar in two matters and also to advise in respect of the prospects of success for Tresedar and/or Tetbury in a proposed action against another firm of solicitors. On the face of that letter, Mahony Law was engaged by each of the four parties to whom that letter was directed, although the work to be done appears to have primarily related to the interests of Tresedar and it also extended to advising Tetbury in respect of the proposed action. That letter included a fee estimate, provided for a payment of $5,000 in advance, and also recorded that the parties had agreed to pay $5,000 per month on the first day of each month commencing 1 February 2013, with those monies to be held by Mahony Law and applied on account of costs and disbursements to be incurred by that firm. Paragraph 27 of the engagement letter provided that it may be accepted by signing and returning a copy of it or by the parties continuing to instruct Mahony Law (in writing or orally) to perform the work specified in the letter. The letter contained provision for signature by the two individuals and two companies, consistent with its four addressees.
Clause 1.1 of Mahony Law's standard terms of engagement, which were attached to the engagement letter, provided for reimbursement of disbursements, which would include Counsel fees, as follows: "1.1 You agree to pay or to reimburse the following disbursements and service charges billed in each matter: (i) those incurred with your prior authority; … 1.2 We may ask you in advance for payment on account of large disbursement [sic] such as stamp duty, registration fees, court fees and conveyancing enquiry fees. 1.3 Our bills provide you with an itemised breakdown of disbursements and service charges and will constitute a tax invoice for GST purposes." There is no suggestion in the present case that Counsels' fees incurred by Mahony Law were not incurred with the requisite prior authority. Clause 3.1 of Mahony Law's standard terms of engagement, attached to the engagement letter, in turn provided that: "3.3 Unless other payment terms are agreed, bills are payable when rendered. If our bills are not paid 30 days after you have been provided with a bill we reserve the right to charge interest on the amount overdue. The rate of interest will not exceed the maximum amount permitted under the [Legal Profession Act]." [emphasis in original]
Mr Aris Evanian's affidavit also refers to the invoices issued by Mahony Law and by Counsel to which reference is made in the Demand. Those invoices are addressed to Tresedar and refer, in their titles, to proceedings involving Tresedar and two other parties. Those invoices gave notification of the right to have Mahony Law's bills of costs assessed and some of those invoices included, as disbursements, Counsels' fees. The invoices issued by Counsel that are in evidence were addressed to Mahony Law and related to the same proceedings.
Mr Aris Evanian's affidavit evidence is that the engagement letter was not signed on behalf of Tetbury or Tresedar and that invoices issued by Mahony Law, which he also says he did not receive, were purportedly issued to Tresedar or in respect of work conducted on behalf of Tresedar. It is generally not appropriate for the Court to reach findings of credit in an application of this kind. It is not necessary to do so here since, if accepted, this evidence would not establish that Tetbury (as distinct from Mr Aris Evanian personally) did not receive the engagement letter or invoices where Mr Aris Evanian was only one of the two directors of Tetbury at relevant times and Tetbury leads no evidence that its other director did not receive that engagement letter or those invoices. Mr Evanian's evidence that the engagement letter was not signed on behalf of Tetbury or Tresedar also does not assist Tetbury, because that engagement letter provided for its acceptance by continuing to instruct Mahony Law in the manner noted above, and no evidentiary basis was established for any serious question that it was not accepted in that manner. I will refer below to a further affidavit of Mr Hovig Evanian dated 1 September 2016 in dealing with Tetbury's contention that it is solvent.
Mr Mahony in turn relies on his affidavit dated 4 October 2016 which takes issue with aspects of Mr Aris Evanian's affidavit, including his contention that he did not receive the engagement letter. Mr Mahony gives evidence as to the scope of that letter which was partly admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) as submission only. Mr Mahony's evidence, admitted with a limiting order under s 136 of the Evidence Act as evidence of his understanding only, was that the references to "Tresedar" and to Tresedar Pty Ltd in the engagement letter were not intended as references only to Tresedar, to the exclusion of Tetbury and the Messrs Evanian, but were a "short-form method of describing all four clients by that definitional term". Mr Mahony's evidence, also admitted with a limiting order under s 136 of the Evidence Act as submission only, was that Tetbury paid all monies for costs and disbursements rendered by Mahony Law for acting in matters undertaken by that firm from February 2013 on behalf of Tetbury, Tresedar and the Messrs Evanian, and Mr Mahony refers to bank account records which he contends show payments made by Tetbury to Mahony Law. Mr Aris Evanian in turn contests that one of those accounts belongs to Tetbury.
Mr Mahony's evidence, also admitted with a limiting order under s 136 of the Evidence Act, was that he was aware that Tresedar had no assets and no income prior to the date of the engagement letter, with the implication that the payment of legal fees would need to be made by another entity. Mr Mahony also sets out, at some length, in evidence partly admitted subject to a limiting order under s 136 of the Evidence Act, other matters on which he relies to submit that Mahony Law's engagement was with Tetbury and that the invoices issued by his firm were intended to be issued to Tetbury and not only to Tresedar to which they were addressed.
Mr Mahony also refers to an email dated 23 April 2013 from him to Mr Aris Evanian and Mr Hovig Evanian which enclosed the engagement letter and costs agreement for their approval, execution and return and indicated that the documents should be signed by the Messrs Evanian and the two companies. Mr Mahony also relies on a deed between the liquidators of Property Builders (Constructions) Pty Ltd, Tresedar, Tetbury and Mr Aris Evanian, in settlement of the relevant proceedings which adopted the term "Tresedar Parties" to refer to Tresedar, Tetbury and Mr Evanian. It seems to me that the fact that that usage was adopted in that deed provides little assistance as to the usage of the term "Tresedar" in the invoices issued by Mahony Law.
Mr Mahony also refers to a letter dated 18 September 2015 sent by him to Mr Aris Evanian, which attached a schedule addressed to Tetbury of current fees, costs and disbursements owing to Mahony Law as at 18 September 2015. That schedule referred to amounts owing to several barristers which correspond to the amounts claimed in the Demand, with one exception, where the amount of $13,306 claimed in that schedule in respect of fees owing to Mr Notley is less than the amount of $16,896 claimed in the Demand in that respect. The letter stated that: "It is of course now time to sit down and determine how you are going to pay those fees, particularly as a large part of the fees for the current two barristers … will need to be paid shortly, as those barristers are going to be very important in arguing the costs issue re the Supreme Court proceedings … It would appear that the most obvious way in which to pay the outstanding fees and get ready for the costs argument is to finally sell your home."
A further affidavit of Mr Aris Evanian dated 14 October 2016 takes issue with some aspects of Mr Mahony's affidavit and advances some evidence which was admitted, with limiting orders under s 136 of the Evidence Act, as submission only.

Tetbury's attack on the form of the affidavit accompanying the Demand

Mr Assaf, who appears for Tetbury, submits that Mr Mahony's affidavit verifying the Demand contains two defects which, individually or together, have the result that the Demand should be set aside. Section 459J(1)(a) of the Corporations Act provides that the court may set aside a creditor's statutory demand if it is satisfied that, because of a defect in that demand, substantial injustice will be caused unless it is set aside. A statutory demand can also be set aside for some other reason under s 459J(1)(b) of the Corporations Act.
First, Mr Assaf relies on the fact that Mr Mahoney's affidavit verifying the Demand is undated. Mr Assaf submits that that matter requires that the Demand be set aside because the Court cannot be satisfied that the debt claimed in the Demand has been properly verified: Re W D Gelle Insurance & Finance Brokers Pty Ltd [2014] NSWSC 602. Mr Maroya, who appears for Mr Mahony, accepts that the verifying affidavit is undated in the jurat but submits that there can be no doubt that it was made on 6 July 2016, the date of the Demand, since paragraph 2 of the Demand refers to "the affidavit of John Mahony, dated 6 July 2016, verifying that the amount is due and payable by the Company". I recognise that the case for determining the date of the affidavit here is less direct than that in Re W D Gelle Insurance & Finance Brokers Pty Ltd above, where that date was recorded in an annexure note to the affidavit. However, it seems to me that, as Mr Maroya submits, it is nonetheless "plainly ascertainable" (to use the language of Brereton J in Re W D Gelle Insurance & Finance Brokers Pty Ltd above at [21]-[23]) from the reference in the Demand to an accompanying affidavit dated 6 July 2016, that Mr Mahony's verifying affidavit was sworn on that date, and the position in that respect is no different than if the affidavit had itself borne that date. I note, for completeness, that Mr Maroya also submits that UCPR r 35.1 permits an affidavit containing a formal defect to be used despite any irregularity in form, with leave of the Court. It does not seem to me that that proposition assists Mr Mahony, since the question here is not whether that affidavit can be used in the sense of being read in proceedings, but whether its form gives rise to either a defect in the Demand or some other reason to set aside the Demand. It is not necessary to address that matter further where I have held that Mr Assaf's first submission should not be accepted for the reasons noted above.
Second, Mr Assaf submits that the affidavit accompanying the Demand refers only to the singular in verifying the relevant debt, in contradistinction to the several debts (referable to the several invoices and Counsel fee memoranda) claimed in the Demand. Mr Assaf points to the importance of verification that the debt claimed in a creditor's statutory demand is both due and payable, required by s 459E(3)(a) of the Corporations Act and by the prescribed form, and recognised by Barrett J in Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd [2002] NSWSC 219; (2002) 20 ACLC 726 at [22]ff. Mr Assaf also submits that Mr Mahony has failed to depose that there is no genuine dispute about any of the debts and relies on Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262 for the importance of such a confirmation. Mr Maroya responds that the "debt" claimed in the Demand is the aggregate of the amounts of the tax invoices specified in the schedule to the Demand and that that amount is sufficiently verified by the statement in the verifying affidavit that: "From the records mentioned in paragraph 2 above, I know that a debt of $270,810.32 mentioned in the statutory demand is due and payable by the Debtor Company." Mr Maroya also submits that Mr Mahony's affidavit should be construed as a verification of the total debt and that it complies with s 459E of the Corporations Act and displaces any question of non-compliance with the principle in Kisimul Holdings Pty Ltd v Clear Position Pty Ltd above.
I accept that the absence of a verification that a debt claimed in a demand is due and payable, or the absence of a confirmation that there is no genuine dispute about the amount claimed in the Demand, will ordinarily give rise to some other reason to set aside the Demand. However, it seems to me that Mr Mahony's verification of the total amount claimed in the Demand, being the sum of the individual debts referred to in it, sufficiently complies with that requirement. For completeness, I note that Mr Assaf also initially raised but rightly did not press a further issue as to the form of verification that the debt was due and payable in Mr Mahony's affidavit. The abandonment of the point reflected the decision of Young CJ in Eq in Grace Consulting Pty Ltd v Bourke Constructions Pty Ltd [2005] NSWSC 836; (2005) 54 ACSR 677, to which Mr Assaf fairly drew attention.

Tetbury's claim to a genuine dispute arising under the Legal Profession Act

Section 459H(1)(a) of the Corporations Act provides that a creditor's statutory demand may be set aside when the Court is satisfied that there is a genuine dispute about the existence or amount of a debt to which that demand relates. That test has been variously formulated as requiring that the dispute is not "plainly vexatious or frivolous" or "may have some substance" or involves "a plausible contention requiring investigation" and is similar to that which would apply in an application for an interlocutory injunction or a summary judgment: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787; Re UGL Process Solutions Pty Ltd [2012] NSWSC 1256 at [6]. 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 held that a "genuine dispute" must be bona fide and truly exist in fact, and the grounds for that dispute must be real and not spurious, hypothetical, illusory or misconceived. In CGI Information Systems & Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100 at [16], Barrett J summarised the principle as follows: "[T]he task faced by the company challenging a statutory demand on the genuine dispute grounds is by no means at all a difficult or demanding one. The company will fail in that task only if it is found, upon the hearing of its s 459G application, that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of 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 Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd [2012] NSWCA 365; (2012) 92 ACSR 27 at [44], Young AJA (with whom Hoeben JA and Ward J agreed) similarly noted that the question for a primary judge, in determining an application to set aside a statutory demand under s 459H(1)(a), is: "[t]o determine whether there was a genuine dispute, that is one in which a plausible contention has been raised by the company on which the statutory demand was served."
Mr Assaf also refers to the Court of Appeal's summary of the relevant principles in Ligon 158 Pty Ltd v Huber [2016] NSWCA 330 at [8], where Barrett AJA (with whom McColl and Meagher JJA agreed) referred to Re Wollongong Coal Ltd [2015] NSWSC 1680; (2015) 110 ACSR 134 at [9]-[22] and summarised the relevant principles as follows: "(1) A dispute is "genuine" if it is not "plainly vexatious or frivolous" or "may have some substance" or "involves a plausible contention requiring investigation". A genuine dispute requires that it be bona fide and, to that effect, be premised on sufficiently particularised grounds that are "real and not spurious, hypothetical, illusory or misconceived" and which demonstrate the dispute's "objective existence" and "prima facie plausibility". (2) The test is governed by principles analogous to those which underpin an application for an interlocutory injunction or summary judgment. The court must, however, guard against setting the threshold too low for that is liable to defeat the legislative purpose of the section. (3) The task faced by a company challenging a statutory demand on the genuine dispute ground is by no means at all a difficult or demanding one. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow and the demand will be set aside. A finding to the contrary could only be arrived at if the contentions advanced are so devoid of substance that no further investigation is warranted. (4) The function of the court is merely to determine the existence of a genuine dispute. While this neither requires nor invites it to weigh or assess the merits of the dispute, the court will not exceed its legitimate function by having regard to evidence which bears upon whether the asserted dispute is genuine." [citations omitted]
Mr Assaf submits, and I accept, that the Court's function in an application to set aside a creditor's statutory demand is to determine whether a genuine dispute exists and the Court may have regard to evidence which bears upon whether the asserted dispute is genuine but should not seek to weigh or assess the merits of the dispute, once a genuine dispute is established.
In order to establish a genuine dispute in respect of the Demand, Tetbury relies on Part 3.2 of the Legal Profession Act 2004 (NSW) which was in force at the relevant time. Mr Assaf refers to s 301 of the Legal Profession Act which sets out the purpose of Part 3.2 of the Legal Profession Act, including to provide for law practices to make disclosures to clients regarding legal costs, to regulate the making of costs agreements, to regulate the billing of costs for legal services and to provide a mechanism for the assessment of legal costs. Mr Assaf also refers to s 309 of the Legal Profession Act which sets out several matters that a law practice must disclose to clients.
Mr Assaf also refers to s 317 of the Legal Profession Act which relevantly provides that: "Effect of failure to disclose (1) Postponement of payment of legal costs until assessed If a law practice does not disclose to a client or an associated third party payer anything required by this Division to be disclosed, the client or associated third party payer (as the case may be) need not pay the legal costs unless they have been assessed under Division 11. Note Under section 369, the costs of an assessment in these circumstances are generally payable by the law practice. (2) Bar on recovering proceedings until legal costs assessed A law practice that does not disclose to a client or an associated third party payer anything required by this Division to be disclosed may not maintain proceedings against the client or associated third party payer (as the case may be) for the recovery of legal costs unless the costs have been assessed under Division 11. (3) Setting costs agreement aside If a law practice does not disclose to a client or an associated third party payer anything required by this Division to be disclosed and the client or associated third party payer has entered into a costs agreement with the law practice, the client or associated third party payer may also apply under section 328 for the costs agreement to be set aside. (4) Reduction of legal costs on assessment If a law practice does not disclose to a client or an associated third party payer anything required by this Division to be disclosed, then, on an assessment of the relevant legal costs, the amount of the costs may be reduced by an amount considered by the costs assessor to be proportionate to the seriousness of the failure to disclose. (5) Effect on legal costs where law practice retains another law practice that fails to disclose If a law practice retains another law practice on behalf of a client and the first law practice fails to disclose something to the client solely because the retained law practice failed to disclose relevant information to the first law practice as required by section 310 (2), then subsections (1)-(4): (a) do not apply to the legal costs owing to the first law practice on account of legal services provided by it, to the extent that the non-disclosure by the first law practice was caused by the failure of the retained law practice to disclose the relevant information, and (b) do apply to the legal costs owing to the retained law practice. (6) Circumstances where associated third party payer involved In a matter involving both a client and an associated third party payer where disclosure has been made to one of them but not the other: (a) subsection (1) does not affect the liability of the one to whom disclosure was made to pay the legal costs, and (b) subsection (2) does not prevent proceedings being maintained against the one to whom the disclosure was made for the recovery of those legal costs. (7) Non-disclosure capable of constituting unsatisfactory professional conduct or professional misconduct Failure by a law practice to comply with this Division is capable of being unsatisfactory professional conduct or professional misconduct on the part of any Australian legal practitioner or Australian-registered foreign lawyer involved in the failure."
The parties did not express any view as to whether Tetbury was a client or a third party payer for the purposes of the Legal Profession Act, although the former appears likely so far as the engagement letter contemplated that at least some services would be provided to Tetbury. It appears that nothing turns on that matter for present purposes.
Mr Assaf also relies on s 331 of the Legal Profession Act, which provides that legal costs cannot be recovered by a law practice unless a bill has been served, as follows: "Legal costs cannot be recovered unless bill has been served (1) Subject to section 332A (Person may request itemised bill), a law practice must not commence legal proceedings to recover legal costs from a person until at least 30 days after the law practice has given a bill to the person in accordance with sections 332 (Bills) and 333 (Notification of client's rights). (2) The Supreme Court may make an order authorising a law practice to commence legal proceedings against a person sooner if satisfied that: (a) the law practice has given a bill to the person in accordance with sections 332 and 333, and (b) the person is about to leave this jurisdiction. (3) A court or tribunal before which any proceedings are brought in contravention of subsection (1) must stay those proceedings on the application of a party, or on its own initiative. (4) This section applies whether or not the legal costs are the subject of a costs agreement."
Mr Assaf submits that Mahony Law has not rendered any bills to Tetbury in conformity with s 331 of the Legal Profession Act and that all relevant invoices in the matter have been rendered to Tresedar. That proposition depends on the fact that the invoices rendered by Mahony Law itself were addressed to Tresedar rather than Tetbury, although I will address the different position in respect of invoices rendered by Counsel below. Mr Assaf also submits that Mr Mahony has provided no evidence to satisfy the Court that the sum total of the work claimed in the various tax invoices related solely to Tetbury. It seems to me that submission has the difficulty that Mr Mahony need not establish that matter, unless Tetbury first raises an arguable claim that it is only liable, under the engagement letter addressed, inter alia, to it, for that part of the work that relates only to it, and not for any part of the work that, for example, relates partly to it and partly to Tresedar, or was for the benefit of all of the addressees of the engagement letter.
In response, Mr Maroya relies on Mr Mahony's evidence (Mahony [6]-[7], [23], [26]-[30]) that his firm was engaged to act for four parties, including Tetbury, consistent with the terms of the engagement letter; that the reference to "Tresedar" on the tax invoices was not intended to represent that those tax invoices were issued to Tresedar alone, or solely for work carried out solely for Tresedar, to the exclusion of Tetbury; and that the reference to "Tresedar Pty Limited" in those invoices was used as an abbreviation for all of the four clients. Mr Maroya also submits that the schedule of fees, costs and disbursements sent to Tetbury on 18 September 2015, to which I referred above, is "incontrovertible evidence" that Mahony Law was engaged to act for the four parties including Tetbury.
I accept that Mr Mahony's evidence as to these matters (although admitted on a limited basis under s 136 of the Evidence Act as noted above), and more fundamentally the terms of the engagement letter and the evidence of payments by Tetbury, provide considerable support for Mr Maroya's submission, such that it might well be accepted at a final hearing of a claim for debt by Mahony Law against Tetbury on the merits. That, however, is not sufficient to exclude the availability of a genuine question requiring further investigation, at such a hearing, in respect of that matter. It seems to me that it is arguable that Tresedar and not Tetbury was given invoices 67083, 67156 and 67188 issued by Mahony Law and referred to in the Demand, where those invoices were addressed to Tresedar and not Tetbury, and that s 331 of the Legal Profession Act presently prevents recovery of the amount claimed in those invoices against Tetbury. Whether or not that contention has any real commercial merit, it seems to me that it has sufficient legal basis to establish a genuine dispute in respect of that part of the debt claimed by Mahony Law that relates to those three invoices.

Other matters raised by Tetbury in respect of the Demand

Mr Assaf also submits that there is some other reason to set aside the Demand, on the basis that it relates to a debt that is not due and payable, by reason that the engagement letter was only directed to Tresedar and not Tetbury; where a solicitor does not comply with its disclosure obligations, then the effect of s 317 of the Legal Profession Act is that the client need not pay the legal costs unless they have been assessed under Division 11; and any debt which may have arisen would not be due and payable by Tetbury for that reason: Re Elgar Heights Pty Ltd [1985] VR 657 at 663; (1985) 3 ACLC 683; Phoenician Holdings Pty Ltd t/as Cadmus Lawyers v Rahme [2015] NSWSC 587 at [140]. Mr Maroya responds that a proposition that the engagement letter was directed only to Tresedar cannot give rise to a genuine dispute (or, by extension, some other reason to set aside the Demand) on the basis that Mahony Law had failed to make disclosure to Tetbury in accordance with s 317 of the Legal Profession Act.
I recognise that, if the statutory prohibition under the Legal Profession Act on the commencement of proceedings to recover a debt by a law practice remains in place, then a debt is not "due and payable" and a demand for a debt that is not due and payable may be liable to be set aside for some other reason under s 459J of the Corporations Act: Re Elgar Heights Pty Ltd above at 669, 671; Re Chameleon Mining NL; Chameleon Mining NL v Atanaskovic Hartnell [2009] NSWSC 602 at [35]: Re Tuffrock Pty Ltd [2015] NSWSC 738. However, it does not seem to me that the premise of Tetbury's submission in this respect is genuinely arguable. The engagement letter is in terms directed to four parties, including Tetbury, and its execution page provided for execution by those four parties, consistent with Mr Mahony's advice to Mr Evanian in his email dated 23 April 2013 as to how it should be executed. It seems to me that no genuine case is raised that the engagement letter made disclosure to, or created rights against, only one of those four parties, although that engagement primarily related to proceedings involving Tresedar as well as extending to advice involving Tetbury.
Mr Maroya also submits, and I accept, that the fact that Mr Aris Evanian gives evidence that he did not receive the engagement letter does not establish a genuine dispute as to whether Tetbury received the engagement letter. As Mr Maroya points out the email attaching the engagement letter was also sent to Mr Hovig Evanian, who was Mr Aris Evanian's son and also a director of Tetbury, and he has not deposed that he did not receive the engagement letter. It seems to me that that is sufficient to have the result that the question whether Mr Aris Evanian personally received that letter does not establish a genuine dispute as to Tetbury's receipt of that letter, and it is not necessary to deal with any application of any presumption of regularity which Mr Maroya also seeks to invoke. The premise of Mr Assaf's submission that Mahony Law had not made proper disclosure under s 317 of the Legal Profession Act is therefore neither established nor, it seems to me, genuinely arguable and there is therefore no other reason to set aside the Demand on that basis.
In oral submissions, Mr Assaf also submitted that it was inappropriate for the Demand to have been issued and that Tetbury was solvent in any event (T12). I accept that it may be easier to conclude that a dispute about a debt is genuine when it is raised by a solvent company: Leda Developments Pty Ltd v Orion Consolidated Pty Ltd [2001] QSC 400 at [3]; Reavill Farm Management Pty Ltd v Ashford Properties Pty Ltd [2010] NSWSC 1128 at [27]. Mr Assaf relied on Mr Aris Evanian's affidavit dated 28 July 2016 which refers to Tetbury's financial statements for the year ended 30 June 2015 in support of a contention that Tetbury is solvent. Those financial statements are unaudited and well out of date and do not, in my view, provide any support of substance for that contention. Tetbury also relies on an affidavit of Mr Hovig Evanian, who states that he is a former director of Tetbury and the son of its current directors, and attaches a copy of Tetbury's profit and loss statement for the 2016 financial year which he says is obtained from its MYOB accounting software. That profit and loss statement is unaudited and no attempt is made in Mr Hovig Evanian's affidavit to prove the accuracy of the information contained in it. That evidence also provides no real support for the assertion made by Mr Evanian, in that affidavit, that Tetbury is solvent. In my view, the affidavit evidence on which Tetbury relies to establish its solvency does not have sufficient weight to support the setting aside of the Demand.

Position as to Counsels' fees claimed in the Demand

Contrary to the basis on which Mr Assaf's submissions at the hearing largely proceeded, the bulk of the invoices relied on in the Demand were not invoices addressed to Tresedar issued by Mahony Law, but were invoices issued by Counsel to Mahony Law, in its capacity as the legal representative for the relevant clients including Tetbury, and were drawn to Tetbury's attention by the schedule dated 18 September 2015 addressed to it. After I reserved judgment, I requested further submissions as to whether invoices for Counsels' fees referred to in the Demand had been given by Counsel to Mahony Law, and by Mahony Law to Tetbury, for the purposes of s 331 of the Legal Profession Act, such that no genuine dispute arose in respect of those fees, and as to whether, if the application to set aside the Demand neither succeeded nor failed in its entirety, the amount of the Demand should be reduced to the amount of Counsels' fees, or the amount of those fees included in the schedule attached to the letter dated 18 September 2015 pursuant to s 459H(2) of the Corporations Act.
Mr Assaf accepted that the Court could properly infer that Mr Mahony had received Counsels' invoices referred to in the Demand but submitted that the evidence established, on the balance of probabilities, that Counsels' invoices had not been provided to Mahony Law in conformity with s 331 of the Legal Profession Act and accordingly the amounts claimed in those invoices were not due and payable by Mahony Law to Counsel or by Tetbury to Mahony Law.
First, Mr Assaf submitted that the invoices were not signed by the respective barristers as required by s 332(2) of the Legal Profession Act. The evidentiary basis for that submission is not established to the extent necessary to raise a serious question to be tried. As Mr Maroya points out, with the exception of Mr Faulkner SC's unsigned letter dated 19 March 2015 (which provided a summary of outstanding fees totalling $119,247), each of Counsels' tax invoices was signed (Ex P1, pp 68ff). There is also no evidence that Mr Faulkner's original fee memoranda, referred to in his letter dated 19 March 2015, were not signed, and the onus of establishing that matter rested on Tetbury to the extent that it sought to establish a genuine dispute or some other reason to set aside the Demand on that basis.
Second, Mr Assaf submitted that Counsels' bills did not contain the notification of rights required by s 333 of the Legal Profession Act, which had the result that Counsels' fees were not due and payable by reason of s 331 of the Legal Profession Act. I also do not accept that submission. As Mr Maroya points out, that submission has the difficulty that s 331(1) of the Legal Profession Act permits a bill to be accompanied by a written statement setting out those matters. There is no evidence that the bills submitted by Counsel were not accompanied by such a statement, and the onus of establishing the evidentiary basis for any genuine dispute as to that matter rests on Tetbury.
Third, Mr Assaf submitted that there is no evidence to establish that Mahony Law is liable to Counsel for the payment of Counsels' fees. It seems to me that that submission fails to recognise that the onus of establishing a genuine dispute as to the Demand rests on Tetbury, which has led no evidence raising any question that Mahony Law is not liable to Counsel in respect of those fees, subject to his rights against Tetbury in that respect.
Mr Assaf also submitted that the evidence established that the invoices for Counsels' fees referred to in the Demand had not been given by Mahony Law to Tetbury and referred to Mr Aris Evanian's evidence that he did not receive the invoices. I have noted above that that evidence did not establish the evidentiary basis for any serious question that Tetbury (as distinct from Mr Aris Evanian personally) did not receive the invoices, and I am not persuaded by Mr Assaf's attempt to support that proposition in further submissions on the additional basis that Mr Evanian claimed to be authorised to swear his affidavit on Tetbury's behalf. In any event, there is no genuine dispute as to the fact that Tetbury was informed of the fees due to Counsel no later than the letter dated 18 September 2015 attaching the schedule of those fees addressed to it.
Mr Assaf also submits that there was no disclosure to Tetbury of the matters required to be disclosed under s 310 of the Legal Profession Act in respect of Counsels' fees, because the engagement letter was addressed to Tresedar, Mr Evanian claims not to have received it, and there would have been no disclosure of the matters required by s 310 of the Legal Profession Act even if Tetbury had received it. I have not accepted the first two submissions above, and Tetbury has not raised a serious question as to the third of those submissions, because it has led no evidence that it was not provided with information as to the basis on which Counsel would calculate their fees. Mr Assaf's submission that there is no evidence that these matters were disclosed by Counsel to Mr Mahony or by Mr Mahony to Tetbury again neglects the fact that it is Tetbury which bears the onus of establishing the evidentiary basis of a genuine dispute or some other reason to set aside the Demand.
Mr Assaf makes the further submission that there is no evidence that the engagement letter was sent to Tetbury by the email to the Messrs Evanian, because there is no evidence that the email addresses referred to were utilised by Tetbury for its purposes. The first difficulty with that submission is that it again fails to recognise that the onus of establishing the evidentiary basis of a genuine dispute as to that question rests upon Tetbury, and there is no evidence that they did not use that email address to raise such a dispute. Second, as Mr Maroya points out, there is evidence of the use of the email addresses to which that letter was emailed by both Mr Aris Evanian and Mr Hovig Evanian, the directors of Tetbury at the relevant time, which is sufficient to support an inference that those email addresses were in fact used by the directors of Tetbury for business communications.
Accordingly, Tetbury has established that there is a genuine dispute as to three invoices issued by Mahony Law to Tetbury and as to the amount by which Counsel's fees due to Mr Notley claimed in the Demand exceeded the amount of those fees specified in the schedule dated 18 September 2015 sent to Tetbury. Tetbury has otherwise not established a genuine dispute in respect of Counsels' fees as notified by Counsel to Mahony Law and by Mahony Law to Tetbury, or any other reason to set aside the Demand in that respect.
Where the Court is satisfied that there is a genuine dispute as to the existence or amount of a debt to which a demand relates (as I am in respect of that part of the debt claimed in the Demand that relates to Mahoney Law's fees as distinct from Counsels' fees), the Court is required to calculate the "substantiated amount" of the Demand by deducting any disputed amounts from the admitted amount of the debt, being that part of the debt as to which no genuine dispute exists: s 459H(2). The Court must set aside a statutory demand if the substantiated amount is less than the statutory minimum: s 459H(3). If the substantiated amount is at least as great as the statutory minimum, the Court can make an order varying the demand as specified in the order and declaring the demand to have had effect, as so varied, as from when the demand was served on the company: s 459H(4). In Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605; 11 ACLC 919, Thomas J observed that the intention of these provisions is that: "[A] company should pay the undisputed part of a demanded debt even if the demand may have been excessive, but that it should not be placed under pressure of being wound up with respect to any part of the debt that is genuinely disputed, or where there is any genuine contra-claim, whether or not it arises out of the same transaction as the debt to which the demand relates."
If the substantiated amount exceeds the statutory minimum, the Court would generally vary the demand pursuant to s 459H(4), unless the demand was so grossly inflated, or comprised matters which were so obviously in dispute, that the service of the demand amounted to an abuse of the regime under Pt 5.4 of the Corporations Act and should be set aside for some other reason under s 459J of the Act: First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939; Re UGL Process Solutions Pty Ltd above at [12], [43]; Tekno Autosports Pty Ltd v Jenkins [2014] FCA 774 at [24]. Where no other genuine dispute and no other reason to set aside the Demand is established for the reasons noted above, the proper course is for the Court to reduce the amount of the Demand to the "substantiated amount" for the purposes of s 459H of the Corporations Act, being the amount of the invoices rendered by Counsel, after adjusting for the lesser amount of the invoice to Mr Notley contained in the schedule dated 18 September 2015 as compared to the amount in the Demand.
Mr Assaf also submits that, if Counsels' fees are properly due and payable by Tetbury, the Demand nonetheless overstated the amount due by 34% or thereabouts and that comprises some other reason to set aside the Demand under s 459J of the Corporations Act. I do not accept that submission. It does not seem to me that the claim to Mr Mahony's fees could properly be characterised as grossly inflating the amount of the Demand, by reference to matters that it should have been obvious from the outset were genuinely disputed or as an abuse of the statutory demand regime, since it was by no means obvious that Mahony Law's fees could not properly have been claimed.

Conclusion and orders under s 459H of the Corporations Act

After excluding invoices issued by Mahony Law in the amount of $92,472.32, and reducing the amount of fees in respect of Mr Notley to the lower amount of $13,306 stated in the schedule from the amount of $16,896 stated in the Demand, I calculate the substantiated amount that is properly the subject of the Demand as $174,748. That amount differs from Mr Maroya's calculation of $177,993 and that difference should be addressed by the parties in formulating agreed orders to give effect to the judgment. The Demand should be varied accordingly under s 459H(4) of the Corporations Act. Tetbury has had limited success in reducing the amount of, but not setting aside, the Demand and my tentative view is that it must pay the large part of Mr Mahony's costs of the application as agreed or as assessed.
I direct that the parties bring in agreed short minutes of order, including as to costs within 7 days and, if there is no agreement between them, submissions not exceeding five A4 pages in length, in one and a half spacing, as to the differences between them.

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: 09 February 2017

Legal Profession Act 2004(NSW)

Corporations Act 2001(Cth)ss 459H, s 459H(4)

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