CGI Information Systems v APRA Consulting Pty Limited [2021] NSWSC 532 | Case summary

CGI Information Systems v APRA Consulting Pty Limited [2021] NSWSC 532 | Case summary | Zoe

Background and affidavit evidence

By Amending Originating Process dated 23 March 2021, the Plaintiff, Parkroyal Investments Pty Ltd ("Parkroyal") applies under s 459H and 459J of the Corporations Act 2001 (Cth) to set aside a creditor's statutory demand dated 15 February 2021 ("Demand") served by the Defendant, Globe Capital Administration Pty Ltd ("Globe").
The Demand claimed the amount of $3,966,788.11, being an amount described in a schedule. The schedule in turn described the debt as an amount due and payable by Parkroyal to Globe "pursuant to a judgment/order dated 4 September 2020 by the Supreme Court of New South Wales proceedings Number 2019/00346617", and then deducted an amount apparently received by a garnishee order to derive the total amount of the debt. The order made by the Court was not, in terms, an order in respect of a judgment debt, but instead a consent order requiring "that [Parkroyal] in specific performance of clause 3.3 of the Agreement for Subscription and Redemption of units between the parties to these (000358647) proceedings (excluding the Second Plaintiff) dated 26 May 2017 (as amended from time to time) pay the amount of $3,968,952" to a specified bank account, being an account held at Macquarie Bank in the name of the Madison Marcus Law Firm Pty Ltd Trust Account, and having specified account details ("Madison Marcus Trust Account").
The Demand was in turn supported by an affidavit dated 15 February 2021 of Mr Tony Merhi, a director of Globe, although a creditor's statutory demand in respect of a judgment debt need not be supported by affidavit, and that affidavit addressed matters stretching well beyond the alleged judgment debt. In particular, that affidavit referred to an Agreement for Subscription and Redemption of Units ("Subscription Agreement") on or about 26 May 2017; a Deed of Variation to that agreement; a Deed of Release dated 1 August 2018, in respect of a dispute in relation to that agreement; an asserted obligation to make payment to the Madison Marcus Account under cl 3.3 of the Subscription Agreement; an entitlement to final consent orders with the Supreme Court of New South Wales pursuant to the deed of release, although the consent orders there referred to were not filed in the proceedings to which that entitlement related; a failure by Parkroyal to pay the amount of the asserted debt within the requisite time, resulting in the filing of consent orders; the making of the orders on which the Demand relied, on 4 September 2020; a subsequent garnishee order; and further steps which resulted in the amount claimed in the Demand, following the recovery of an amount pursuant to the garnishee order.
That affidavit then asserted, anticipating an issue which has loomed large in this application that: "[Globe's] entitlement to issue the proposed [sic] statutory demand to which this affidavit is annexed is derived from clause 9.2(a) of the Subscription Agreement as varied, confirming that upon completion of the Subscription Agreement as varied, Wesco [Ventures Pty Ltd ("Wesco")] must cause the Debt Amount that was to be held in the trust account of Madison Marcus to be applied toward the service payment payable by [Parkroyal] to [Globe]. In this respect, [Globe] is therefore deemed to contain the requisite standing to issue this demand in circumstances where the Debt Amount was to be set-off from a payment owed to [Globe] by [Parkroyal] pursuant to the Subscription Agreement as varied".
I note that Mr Merhi's affidavit expressly relied on an obligation upon a third party, Wesco, in order to give rise to Globe's claim to standing to issue that Demand. The parties led voluminous evidence, and made voluminous submissions, the large part of which it will not be necessary to address to determine what is ultimately a straightforward application. Parkroyal relies on the affidavit dated 7 March 2021 of Mr Zhu, a further affidavit dated 8 April 2021 of Mr Zhu, and an affidavit dated 3 May 2021 of its solicitor, Mr Chard. Globe tendered affidavits of Mr Dakhoul dated 25 February 2021, Mr Merhi dated 25 February 2021 and Mr Bayssari dated 25 February 2021 which were filed in other proceedings ("Expedition List Proceedings") that are listed for hearing in the Expedition List shortly, which were admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) that they were not proof of the asserted facts. Those documents were tendered, and that limitation order made, because Globe had not taken the steps necessary under the Uniform Civil Procedure Rules to permit affidavits filed in other proceedings to be read in these proceedings. Globe also relied on an affidavit dated 26 April 2021 of Mr Merhi filed in these proceedings.
Among the voluminous exhibits to those affidavits were the Subscription Agreement, to which reference was made in Mr Merhi's affidavit in support of the Demand, the Deed of Variation, and the subsequent Deed of Release to which I have referred above. Turning first to the Subscription Agreement, cl 3.3 provided that, on the date on which a trust completed the acquisition of a parcel of land, Parkroyal must pay an amount equivalent to the value of Duty (as defined) attributable to that parcel of land to the Madison Marcus Trust Account, in addition to the duty payable by the trust to the Office of State Revenue in respect of the trust's acquisition of that parcel of land. Clause 9.2 imposed an obligation upon another company, Wesco, on the satisfaction of certain conditions precedent, to cause the funds held in the Madison Marcus Trust Account deposited in accordance with that clause to be refunded to Parkroyal or applied towards the Service Payment (provided the Service Payment was payable) if requested by Parkroyal. Mr Reynolds, who has appeared for Globe in this application, has made clear that Globe does not seek to establish, in this application, that the Service Payment is presently payable in order to support the Demand. That concession was appropriate, where that is in issue in the Expedition Proceedings, and an attempt by Globe to have that issue determined in these proceedings, in respect of the Demand, would have raised significant questions as to abuse of process. It is also important to note that that clause contemplated two possibilities, namely that the Funds held in the trust account be repaid to Parkroyal, or that they be applied towards the Service Payment.
The term "Service Payment" was in turn defined in the Subscription Agreement as an amount of $38 million, and cl 5.3 of the Subscription Agreement provided for the circumstances on which that payment would be made, by Parkroyal to Globe in consideration of Globe procuring the issue of the Gazettal (as defined). The parties made extensive submissions as to the scope of that clause, but is ultimately not necessary to address that clause, which will also be in issue in the Expedition List Proceedings, where Globe does not rely on that claim on the Service Payment to support the Demand, and the submissions made by Mr Ogborne for Parkroyal in respect of that issue were in anticipation of Globe relying on that clause.
The Deed of Variation of the Subscription Agreement dated 1 August 2019 in turn inserted a new definition, including as to the date on which Duty would be payable and replaced cl 3.3, in a manner which appears to affect the timing of the relevant payment. That clause, as amended, maintained a provision that Parkroyal must pay an amount referable to Duty in respect of each parcel of land to the Madison Marcus Trust Account. Clause 5.4, inserted by that Deed of Variation into the Subscription Agreement, in turn provided that if Gazettal (as defined) was not procured by 26 August 2020, the Service Payment would not be payable and completion would occur on 29 August 2020. That raised a possibility that the Service Payment would not be payable, a position for which Parkroyal contends in the Expedition List Proceedings.
I noted above that Globe also relied on the terms of the Deed of Release in order to enter the consent order, although I also noted above that, oddly, it does not appear to have entered that consent order in the proceedings in which the Deed of Release authorised that to be done. Little turns upon that matter for the purposes of this application.

[3]

The parties' submissions and determination

With that complex background, it seems to me that the determination of this proceeding is straightforward, on two alternative basis. First, as Mr Reynolds rightly recognises, s 459E of the Corporations Act provides that a person may serve on a company a demand relating to a debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum. Assuming without deciding that an order for specific performance of an amount is capable of giving rise to a debt, Global has not established that that debt was due and payable to it, to permit it to serve the Demand relating to that debt. I referred above to the elaborate explanation in Mr Merhi's affidavit in support of the Demand as to how Globe's entitlement to issue the Demand was said to arise. It seems to me plain enough, and I did not understand Mr Reynolds to contest, that Globe is not owed a debt in law, as a result of the judgment made by the Court by consent on 4 September 2020 in proceedings 2019/346617 on which the Demand relied. That appears to be plain enough, because the obligation under that order is to pay the relevant amount to the Madison Marcus Trust Account rather than to Globe, and the creditor in respect of any such debt is Madison Marcus Law, pursuant to the order of the Court, not Globe.
Mr Reynolds contended that, notwithstanding that the order provided for payment to Madison Marcus, Globe was a creditor of Parkroyal in equity, and that that was sufficient to support the Demand for the purposes of s 459E of the Act. He drew attention to the decision of Palmer J in Rohan Trading Company Pty Ltd v Glengor Pastoral Company Pty Ltd [2003] NSWSC 1265 at [14], where his Honour observed that, at least in the context of a winding up application, a creditor includes both a creditor at law and a creditor in equity, and expressed the view that "creditor" must have the same meaning in s 459E for the purposes of a statutory demand, "at least where the equitable creditor is the assignee in equity of the whole, rather than a part, of the company's debt". His Honour went on to observe that: "It follows that, where there is an equitable assignment of a debt, either the creditor at law or the creditor in equity may make a statutory demand on the debtor and may apply to have the debtor wound up in default of compliance; it is of no consequence that the creditor at law, if paid by the debtor, will have to account to the creditor in equity".
The proceedings are, of course, far from the situation where there has been an equitable assignment of a debt, or the equitable assignment of the whole of the debt, to which his Honour referred. It is also important to note that here, if Parkroyal made payment to the creditor at law, Madison Marcus, it has not been established that Madison Marcus would have to account to Globe, on the basis that Globe was a creditor in equity.
The fundamental difficulty with Mr Reynolds' reliance on this proposition, it seems to me, is that it has not been established that Madison Marcus, if paid the amount into its trust account in accordance with the Court order, would hold it in equity for Globe. I have referred to the relevant provisions of the Subscription Agreement and the Deed of Variation above, and they appear to have the consequence that the distribution of the monies in the Madison Marcus Trust Account will depend on whether a Service Payment is due to Globe, which depends upon matters which are in dispute between the parties in the Expedition List Proceedings. In particular, that depends on whether Wesco is obliged to cause the relevant funds to be paid out of the Madison Marcus Trust Account in the terms contemplated by the Subscription Agreement and the Deed of Variation, and the circumstances in which a Service Fee becomes payable. However, Globe has not established, nor did it seek to establish, that a Service Payment was presently due payable to it, so as to give rise to any entitlement to have Wesco cause the amount to be paid out of the Madison Marcus Trust Account to it.
Mr Reynolds also sought to establish an alternative proposition that Globe was an equitable creditor of Parkroyal, because it was, as best I could understand the proposition, a party to the proceedings in which the order was made for specific performance of the obligation to payment to the Madison Marcus Trust Account. It can readily be accepted, as Mr Reynolds put on several occasions, that that order is binding upon the parties, and that was not contested by Parkroyal. It can also readily be accepted that Globe has such remedies as are available for any non-compliance with a Court order, if in fact the order has not been complied with, including the ability to bring an action for contempt. I am unable to see how the fact that Globe is party to the proceedings, and might or might not benefit from a payment into the Madison Marcus Trust Account, depending on whether it was entitled to the receipt of a payment out of the trust account, which is uncertain as I have noted above, allows it any equitable interest in the amount which would be paid into the Madison Marcus Trust Account. Mr Reynolds drew attention to no authority that supported the proposition that a party that has a Court order in its favour has, in some way, an equitable interest in monies which might be applied to the compliance with that order or which might be received by a third party on compliance with that order. It does not seem to me that that alternative basis gives rise to any equitable interest in the amount which would be paid into the Madison Marcus Trust Account, on compliance with the order. For these reasons, it seems to me that the Demand must be set aside, first, on the basis that Globe did not have standing to issue it for the purposes of s 459E of the Act.
It also seems to me that the Demand must be set aside, second, on the basis that there is plainly a genuine dispute as to the existence of the debt to which the demand refers. I have noted above that the Demand claims the amount of $3,966,788.11 being the amount which was the subject of the Court's order, less the amount received from the garnishee order, and is in substance referable to the judgment/order made by the Court, notwithstanding the much more complex explanation of the circumstances in which it arose given in Mr Merhi's affidavit in support of it.
The requirements to establish a creditor's statutory dispute are well established and were not in dispute between the parties. I observed in my ex tempore oral judgment that it is, of course, well established that that 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. I will, however, expand on the observations in my ex tempore oral judgment by briefly referring to the relevant case law, and I have drawn on the summary of those principles in my judgment in Re Commonwealth Bank of Australia [2021] NSWSC 401 at [14]-[15] in this respect.
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 the demand relates. That test has been formulated as requiring that the dispute is not "plainly vexatious or frivolous" or "may have some substance", or involves a "plausible connection requiring an 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 Limited (1994) 12 ACSR 785 at 787. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464; [1997] FCA 681, 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 v APRA Consulting Pty Limited (2003) 47 ACSR 100; [2003] NSWSC 728 at [16] Barrett J noted that the task faced by a company challenging a creditor's statutory demand on the genuine dispute ground "is by no means at all a difficult or demanding one", and it will fail in that task "… only if it is found, upon the hearing of its 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 significant 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 serves stronger".
I also referred to these principles in my decision in Re Wollongong Coal Ltd (2015) 110 ACSR 134; [2015] NSWSC 1680 at [9]ff which was in turn noted by the Court of Appeal in Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 and, in Re AMP Life Ltd [2018] NSWSC 855 at [35], Gleeson JA noted that the bar for establishing a genuine dispute is not high.
It seems to me that, given the matters to which I have referred above, there is plainly a genuine dispute that there is an amount due and payable by Parkroyal to Globe pursuant to the judgment or order dated 4 September 2020, although that order does require Parkroyal to take steps which would involve the payment of that amount into the Madison Marcus Trust Account from there to be distributed in accordance with the terms of the Subscription Agreement to which I have referred above. That genuine dispute arises, first, because the terms of the order require the payment to the Madison Marcus Trust Account rather than to Globe and, second, because it is plain that there is a dispute as to how monies then paid to that trust account would be disbursed, which is in issue in the Expedition List Proceedings, and which involves substantial complexities as to the extent to which the service fee has been earned by Globe. There is no suggestion that the matters which are the subject of the Expedition List Proceedings are not genuinely arguable, and no attempt has been made to strike those proceedings out. It seems to me that, in those circumstances, the existence of the Expedition List Proceedings, the complexity of the agreements to which they relate, the volume of the evidence led by the parties in them, and the absence of any application to strike out Parkroyal's claim in those proceedings, all support a conclusion that there is a genuine dispute as to whether the Court order has the consequence that there is an amount payable by Parkroyal to Globe, although it plainly has the consequence that there is an order for an amount to be paid by Parkroyal to the Madison Marcus Trust Account.
For these reasons, it is not necessary to address the further question, to which the parties devoted voluminous evidence and some time in submissions, as to whether an offsetting claim is established, and the matters to which that claim relates can be left for consideration, in respect of a merits determination, to the Expedition List Proceedings.
It seems to me that, given the manner in which Mr Reynolds put Globe's claim, without relying on any entitlement to the Service Payment, it did not give rise to an abuse of process by reason of duplication of the matters to be addressed in the Expedition List Proceedings, of the kind to which I referred in Re Modern Wholesale Jewellery Pty Ltd [2017] NSWSC 236, and I would not have set aside the Demand on that basis. The position might have differed had that Demand raised consideration of whether the Service Payment was payable, creating an overlap in the issues between those considered in these proceedings and those that are to be considered in the Expedition List Proceedings.

CGI Information Systems v APRA Consulting Pty Limited

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Cases Cited (9)