Plaintiff v Defendant

2 On 31 May 2019, the defendant's application for leave pursuant to s 459S of the Act seeking leave to rely on a genuine dispute to set aside the statutory demand was dismissed.

3 The defendant opposes the plaintiff's application to wind up the defendant on the following grounds:

- the purported statutory demand is so defective that no presumption of insolvency has been created;

- the plaintiff's application is an abuse of process;

- the defendant has a claim against the plaintiff; and

- the defendant is solvent.

4 The plaintiff is a licensed real estate agent in Victoria and the defendant is a property development company. In April 2013, the defendant was formed for the purposes of developing 283 Harbour Esplanade, Docklands ('the Docklands Property').

5 The parties entered into an Agency Agreement on 3 September 2013 ('the Agency Agreement'), where the plaintiff was appointed as the defendant's agent to market and procure sales of residential and commercial units at the Docklands Property. The parties also entered into other agreements, being a full commission incentive agreement, a deed of variation and a purported amended agency agreement.

6 On 6 December 2017, the parties entered into a Deed of Acknowledgement for commission which was owing to the plaintiff under the Agency Agreement.

7 On or about 9 May 2018, the defendant received from the plaintiff an amended agency agreement dated 3 September 2013 ('the Purported Amended Agency Agreement'). The defendant's directors deny having ever discussed an amended agreement with the plaintiff, or having signed it. The directors deny providing Anthony Gilbert, a previous director of the defendant, the agency to sign it.

8 On 6 August 2018, pursuant to the Purported Amended Agency Agreement, the plaintiff issued Tax Invoice No 1245 to the defendant for the amount of $8 million. On 14 August 2018 the plaintiff issued a statutory demand on the defendant for the payment of that debt, which was served on the defendant on 15 August 2018. The statutory demand claims the defendant owes the plaintiff $8,962,456.62.

9 The defendant submits that the statutory demand upon which the presumed insolvency is based is so defective that non‑compliance with it by the defendant does not create the presumption of a solvency required under s 459C of the Act.

10 In Topfelt Pty Ltd v State Bank of New South Wales,[1] Lockhart J commented that there may be cases in which a statutory demand may contain defects so fundamental that the statutory demand is denied the status of a statutory demand within the meaning of the Act.

The new Pt 5.4 of the Corporations Law does not recognise two regimes: one dealing with documents that suffer from major defects such that they cannot be described as statutory demands for the purposes of Pt 5.4 of the Corporations Law; and another dealing with documents that suffer only from minor defects and are capable of being saved from invalidity by the operation of s 459J(2). This is a distinction which the Parliament has sought to avoid and which for many years bedevilled the law and practice relating to bankruptcy notices.

There may, however, be cases where deficiencies in the form of demands are so fundamental that the demands are incapable of assuming the description of statutory demands within the meaning of the Corporations Law. This is a question to be decided in future cases. The demand in the present case is not, for reasons mentioned later, a demand of this kind.

The regime which Act No 210 of 1992 has put in place permits objections to defects in statutory demands to be taken by debtor companies; but the time to do this is primarily before any application to wind up the company is made by a creditor. Application should be made under s 459g within 21 days after service of the statutory demand. Points as to the validity of such demands may be raised at the hearing of that application by the court; but the court must not set aside statutory demands unless substantial injustice will be caused if it does not do so, or there is some other reason why the demands should be set aside: s 459j(1). If a debtor company, having been validly served with a statutory demand which tells it, as the prescribed form does, of its right to apply to set aside a demand, but the company fails to so apply, it may challenge the demand on the ground of some defect in it upon the hearing of the application to wind it up, but only with the leave of the court; and that leave cannot be given unless the court is satisfied that the ground is material to proving that the company is solvent: s 459s.[2]

12 In Crema Pty Ltd v Land Mark Property Developments Pty Ltd,[3] Dodds‑Streeton J was of the view that only deficiencies of a gross and exceptional character would deny a document the status of a statutory demand. However, a more lenient approach has been adopted in cases such as Townview Holdings Pty Ltd v Sunstate Design and Construct Pty Ltd,[4] and Re Beralt Pty Ltd,[5] where a failure to include warnings as to the consequences of failing to comply with a statutory demand contained in Form 509H (the prescribed form for a statutory demand) was such that a document was held not to come within the description of a statutory demand for the purposes of the Act.

13 McKerracher J in Inter Mining v Lake Johnston,[6] and Rangiah J in Poolrite Australia Pty Ltd (in liq) v Structural Pools Aust Pty Ltd,[7] did not follow Townview. McKerracher J stated:

[40] Having regard to Lockhart J's observation as to the nature of a defect, I am also unable to accept that "essentiality" referred to by Lake Johnston assists its arguments. Where a statutory demand lacks something essential for completeness that circumstance, even if major, is a mere defect. As noted in Topfelt, a demand will be a "statutory demand" as long as it meets the s 9 definition even if it contains one or more defects. A defect in a statutory demand only amounts to a ground to set it aside where it causes substantial injustice: s 459J(1)(a).

[41] In Kalamunda, Hill J also concluded (at FCR 452; ALR 155; ACSR 531) that the demand was a statutory demand as, on its face, the document professed to be a statutory demand made under the then Corporations Law. The omission of notes which constituted part of the prescribed form did not alter that conclusion.

[42] All of this is not to say that a demand could never be a nullity. Although the issue is not presently relevant, it is to be noted that courts have alluded to the possibility that a demand may be so fundamentally defective that it would not be treated as a statutory demand and, therefore, it will be a nullity: see, for example, Topfelt at FCR 238 ; ALR 166 ; ACSR 392 ; Kalamunda at FCR 452; ALR 155; ACSR 531; 2020 Construction Systems Pty Ltd v Dryka & Associates Pty Ltd [2010] WASC 22 at [39] and [40]-[43] . However, that can only occur in the "very rare" case where the demand falls outside anything that could be a purported demand for the purpose of the s 9 definition of statutory demand: Dromore Fresh Produce Pty Ltd v W Paton (Fertilizers) Pty Ltd (1997) 23 ACSR 230 at 234; 137 FLR 307 at 311 per Young J. The deficiencies would have to be of a "gross and exceptional character": Crema Pty Ltd v Land Mark Property Developments Pty Ltd (2006) 58 ACSR 631; [2006] VSC 338 at [110] per Dodds-Streeton J. Since Kalamunda it has been accepted that if a demand professes or claims to be a demand served under s 459E, then it is a statutory demand notwithstanding any defects.

[43] In the present case, no one receiving the document could have been in any doubt that it was, or purported to be, a demand under s 459E of the CA. That is very clear from the text of the document.

[44] In short, Inter Mining's demand was not a nullity. Rather, it was a statutory demand as it is a document that purports to be served under s 459E of the CA. The omission of the boxed warning was a mere defect. As a defect it provides no basis for the summary dismissal of the winding-up application in the absence of substantial injustice: s 467A.[8]

14 A good example of where a document was held not to constitute a statutory demand is found in Sheslow v Diamond Rose NL.[9] In that case, the statutory demand showed a gross deficient in form because it did not, on its face, claim to be based on s 459E or any other provisions of the Act. It demanded payment for securing or compounding the debt in terms similar to those of paragraph 3(a) of Form 509H, but it did not specify any time for payment securing or compounding the debt, and did not specify the 21 days appearing in paragraph 3 of that form, which according to Barrett J was central and fundamental to the operation of Division 2 of Part 5.4 of the Act.

15 The defendant claims that the purported statutory demand is misleading because:

- in the invoice attached to the statutory demand the debt is claimed due under an agreement dated 3 September 2018 and that post-dates the date the demand was issued (14 August 2018);

- the invoice describes the basis of the debt as an 'agency agreement' or an 'agreement agreement';

- the invoice states that the debt is due and payable on 13 August 2018 which is prior to the date of the purported agreement on which the demand is said to be based, and prior to both the demand and the expiry of the 21 day period given by s 459E(2)(c) of the Act;

- the affidavit in support of the demand states that the deponent believes that there is no 'genuine dispute' about the existence or amount of the debt, when the deponent knew that that was not true;

- the debt specified in the statutory demand purports to be owing on the basis of several different contracts or versions of the contract, with different descriptions and dates varying from 2013 to 2018, the basis of none of which is clearly specified; and

- the defendant must show that the deficiencies in the demand are so fundamental that the demand is incapable of assuming the description of a statutory demand within the meaning of the Act.

16 I accept that the statutory demand contains defects, but most of the defects are contained in the invoice. The statutory demand, unlike the document in Sheslow, has attempted to follow Form 509H. The defects are not of a serious nature and are not misleading. They are definitely not of a gross and exceptional character. What is before the Court is a misdescription of a debt which will not warrant the dismissal of the application to wind up the defendant.

17 Tax Invoice No. 1245 clearly mistakenly records the agreement under which the debt arises, having been dated 3-9-2018 when the agreement had in fact been dated 3-9-2013 by the directors of the defendant when it was expected. I agree with the plaintiff's submission that Tax Invoice No. 1245, which was dated 6 August 2018, ought to have made it readily apparent to any reasonable reader that the 3-9-2018 date recorded for the agreement was a typographical error.

18 The other defects are also not serious. For example, that the description that the debt was 'due and payable on or before 13 August 2018' was not in the body of the statutory demand. The plaintiff notes that Tax Invoice No. 1245 states that it is due and payable. No injustice is caused to the defendant because the description of due and payable was in the attached invoice and not the body of the statutory demand.

19 If the defendant was successful under s 459S and made submissions that the statutory demand was defective, it would have failed because it would have had to show that there was substantial injustice pursuant to s 459J(1)(a) of the Act. Section 459J(1)(a) provides:

S 459J Setting aside demand on other grounds

(1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:

(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside;

20 The defendant cannot demonstrate substantial injustice here because there was only one project that the plaintiff was providing services to the defendant. The invoice attached to the demand identified units sold and the date of sale which provided further clarification as to the particular services. I also note that by 27 August 2018, which was within the 21 day period after which the demand was served, the defendant had determined that the debt was not properly owed. It authorised its solicitors to write to the plaintiff's solicitors on that date to assert the statutory demand had been made without any proper basis, and indicated an application would be made to the Court to have the demand set aside if it was not voluntarily withdrawn. The defendant knew what the plaintiff alleged was owed and how it was calculated.

21 The defendant argues that Mr Spyriadis, the director of the plaintiff, falsely stated in the affidavit accompanying the statutory demand that he was of the belief that there is no genuine dispute about the existence of the amount of the debt. I note that Mr Spyriadis was cross‑examined at length regarding this issue. On the basis of his evidence I accept that when Mr Spyriadis swore that affidavit he was of the belief that the debt was due. He was in my view an honest witness.

22 A series of emails were put to Mr Spyriadis when he was cross‑examined. Regarding this issue he gave the following evidence:

MR GRONOW: And you said in your affidavit on 14 August that there was no genuine dispute, didn't you?---I could have, yes.

And that was some - - -

HIS HONOUR: I don't think he said that, but in fairness said I believed that there was no genuine dispute.

MR GRONOW: Yes. I accept - sorry, I'll accept that.

HIS HONOUR: Not that there was no - I believe that there was no genuine dispute.

MR GRONOW: Yes. But, in fact, you didn't believe that, did you?---No, I didn't, because I responded fully to Mr Zhou.

But your response is dated 31 August which is 17 days later ?---Yes, but I still had knowledge of the fact that Mr Zhou was not fully informed, so I always believed that there was no genuine dispute because he, um, he wasn't aware of Mr Gilbert's and Mr Yip's acknowledgment of the agreement.

But he'd sent you more than one email saying he disputed it, hadn't he?---Correct, but my final email to him, um, in August I believe put to rest all his misconceptions about, you know, the validity - - -

But that was more than two weeks later, was it not, your final email?---Um, ah, I believe so, yes, that was

- - -

So on 14 August you couldn't have had the belief you say you had, could you?---Ah, I guess I did because I still knew that Mr Zhou had no idea. Um, it was apparent from his emails he was still not informed of the fact that Mr Gilbert and Mr Yip had agreed to these amendments.[10]

23 In my view, the statutory demand does contain defects, but those defects are not such that the demand would not have the status of a statutory demand for the purpose of an application to wind up the defendant.

24 The defendant asserts that the application should be dismissed because there has been an abuse of process. The defendant relies on two grounds in support of its submission that there has been an abuse of process. The first is that there has been an abuse of process because the wind up is based on a genuinely disputed debt. The defendant submits that the plaintiff has known that the debt was disputed since 9 May 2018 when the defendant's director, Mr Li Shao, emailed Mr Spyriadis pointing out that the Purported Agency Agreement relied upon as the basis of the debt had never been previously seen by the defendant or its directors.

25 The second ground is that it is an abuse of process because the plaintiff has no standing as a creditor to bring the application as the debt was not owing.

26 In relation to the first ground, the plaintiff has admitted that there is a genuine dispute. The defendant relies on Owen-Pearse v Lander Land Company Pty Ltd,[11] where Banks‑Smith J stated:

[76] The authorities also support the view that a winding up application may be an abuse of process within the 'second branch' identified in Fortuna Holdings Pty Ltd v Deputy Cmr of Taxation [1978] VicRp 9; [1978] VR 83 (McGarvie J) and approved by the Court of Appeal in Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd [2007] NSWCA 57; (2007) 69 NSWLR 374 (Beazley, Hodgson and Santow JJA), where a more suitable alternative remedy was available: RH Mortgage Corporation at [27]-[28]; Re Huizhong Investment Group Pty Ltd [2018] NSWSC 390 at [27]- [33] (Black J).

[77] There are other categories of abuse of process, and the categories are not closed: 2020 Construction Systems at [60]. [12]

27 In Fortuna Holdings Pty Ltd v Deputy Commissioner of Taxation,[13] McGarvie J referred to two branches of the principle under which the presentation of a creditor's petition to wind up a company may be restrained as an abuse of process. In relation to the second branch referred to in Owen‑Pearse and accepted by the New South Wales Court of Appeal in Australian Beverage Distributors Pty Ltd,[14] the presentation of a petition may be restrained where the existence of a genuine cross‑claim by the company based on substantial grounds makes it likely that the petition, if presented, would either be dismissed or adjourned to await determination on a cross‑claim.

28 In AG Coombes Pty Ltd v M&V Consultants Pty Ltd (in liq),[15] Sloss J considered the second branch of the principle referred to by McGarvie J in Fortuna. After citing the High Court decision of ASIC v Lanepoint Enterprises Pty Ltd,[16] her Honour said:

It is clear that the regime established by Part 5.4 of the Corporations Act does not preclude allegations of an abuse of process where the abuse is alleged to be the institution of proceedings for an improper purpose. There is, however, some uncertainty as to the extent to which the abuse of process principles decided under the previous winding up regime continue to apply today, particularly in the context where a winding up application is brought based on non-compliance with a statutory demand. When the decision of the High Court in ASIC v Lanepoint is viewed against the background of the Court's rejection of the approach taken by the majority in the Full Federal Court below, it seems unlikely that any scope remains for the continued application of the 'second branch' of Fortuna Holdings type of abuse of process, particularly in a case where an application for winding up is pursued on the basis of presumed insolvency.[17]

29 Her Honour, in rejecting that there was an abuse of process, said:

[83] Insofar as the debts the subject of the statutory demands are concerned, the defendant has embarked on the Part 5.4 process in a manner consistent with the statutory scheme. The liquidator has given sworn evidence that there was a proper basis for serving the statutory demands (in his earlier role as administrator), there was opportunity for the plaintiffs to dispute the debts, and upon their failure to do so, the statutory presumption of insolvency was enlivened. As the High Court observed in ASIC v Lanepoint, '[t]he evident policy of Pt 5.4 is that there be a speedy resolution of applications to wind up in insolvency'. In my view, it would be contrary to that policy to deviate from the statutory process so as to enable the plaintiffs to dispute the debts in satellite litigation, simply for the reason that they may well be solvent. In Australian Beverage Distributors, Beazley JA described the second branch of Fortuna Holdings as applying to cases where there is 'a more suitable alternative means of resolving a disputed claim against the company sought to be wound up'. In the present case, if the solvency of the plaintiffs is as clear - cut as they contend, it will remain open to them to dispute the debts underlying the statutory demands at a later point. It is only if they are unable to demonstrate their solvency to the requisite standard that they will be foreclosed from disputing the debts any further, and while that outcome may seem harsh, it is one envisaged by the statutory regime. As such, I do not consider that the plaintiffs have established that there is a more suitable alternative means of resolving the dispute as to the debts pursued by the defendant by way of the statutory demands.

[84] In circumstances where counsel for the defendant has indicated that the defendant will be relying upon the alleged additional indebtedness of $7.5 million when issues as to the plaintiffs' solvency fall to be determined on s 459P applications, in my view it seems likely that this factor will be a material one in the assessment of the solvency of one or both of the plaintiff companies. I do not accept that it is an 'ambit claim', as the plaintiffs submitted. As the claim is one which the liquidator believes has a proper basis, having been identified with the assistance of a quantity surveyor, it is appropriate that it is tested and weighed in the balance on the assessment of issues as to solvency on any s 459P applications. On the limited and untested evidence as to the plaintiffs' solvency before me, I am not prepared to conclude that the plaintiffs are so obviously solvent that the assessment exercise envisaged by the statutory regime should not be permitted to proceed.

[85] Accordingly, even if the 'second branch' of Fortuna Holdings remains available, I am not satisfied that the plaintiffs have made out a prima facie case of abuse of process.[18]

30 Senior Counsel for the defendant submits that Fortuna remains good law and that the decision in Lanepoint can be distinguished because the applicant was ASIC and it was not a case involving a statutory demand. He asserts that the application was made under a different regime and the applicant had a different standing.

31 In my view, after considering Lanepoint and AG Coombes, Lanepoint cannot be distinguished on that basis. It is a decision that I am bound to follow. It is not an abuse for the plaintiff to bring an application to wind up the defendant even though a debt was disputed because the defendant was presumed insolvent as it had not satisfied the statutory demand.

32 The second ground relied upon by the defendant is that there is an abuse of process because the debt is not due and the plaintiff has brought an application to wind up a company on a debt that is not due. In support of its submissions, the defendant asserts that:

- the Purported Amended Agency Agreement was not executed or agreed by the defendant;

- there are anomalies in the Agency Agreement and the Purported Amended Agency Agreement; and

- there was non‑compliance with the Estate Agents Act 1980 ('the EAA').

33 The defendant submits that the Purported Amended Agency Agreement produced in May 2018 does not appear to have been validly or at all executed by the defendant. Mr Kwong Yip, the defendant's director, has deposed that while he executed the original version of the agency agreement in 2013, he did not execute and had not seen prior to May 2018 the Purported Amended Agency Agreement with handwritten amendments. The defendant says that the agency agreement which was signed by a former director, Mr Gilbert, cannot validly have been executed on behalf of the defendant in the absence of actual, ostensible and implied authority of Mr Gilbert to do so. That is disputed by the plaintiff.

34 The defendant submits that no explanation has been given by the plaintiff for the apparent anomalies with the Purported Amended Agency Agreement. It concluded that it was not executed on the date it bears in 2013 and was not executed in its amended form by Mr Yip, even though his name appears as executing it on the execution date. Further, the plaintiff has in its different versions of Tax Invoice No. 1245 described its date variously as 2013 and 2018, not 2016 or 2017 which is when the plaintiff now says the Purported Amended Agency Agreement was executed. Nor is any explanation given by Mr Spyriadis for the absence of any estimates of sale commissions, as required by the EAA, in any versions of Schedule 3 of the Agency Agreement provided by the plaintiff prior to the point being raised by the defendant in the course of the present proceeding.

35 The defendant submits that there has been non‑compliance with the EAA because it says the plaintiff would not be entitled to charge or retain any commission as neither the original or purported amended versions of the Agency Agreement complies with ss 47A, 47AF and 50 of the EAA. It relies on the omission from Schedule 3 in either version of the Agency Agreement of a price list of the apartments in the Docklands Property to be sold, or the dollar amount of commission to be charged.

36 The plaintiff has conceded that there is a genuine dispute, but it does not concede that there is no debt owing. It states it would be successful if this dispute was litigated before a Court of competent jurisdiction.

37 It is not possible on the material before me, nor is it appropriate, that I determine this dispute between the parties. The defendant was unsuccessful in obtaining leave under s 459S because it could not show that the debt was material to proving that it was solvent. Not only could it not prove that the debt was material to proving that it was solvent, but it could not rebut the presumption of insolvency. All of the issues raised under this ground are matters that could only be raised if leave was given under s 459S of the Act. There has been no abuse of process here.

38 The defendant asserts that it has a good claim against the plaintiff for the return of $4.49 million in commissions it has already paid, which are liable to be refunded due to the compliance of both versions of the Agency Agreement produced by the plaintiff, with ss 47A and 50 of the EAA. This is an offsetting claim which could only have been raised if leave was given under s 459S.

39 The defendant asserts that it is solvent. It cannot rely on this ground as a defence because the presumption of insolvency was not rebutted during the hearing relating to s 459S.

40 The defendant will be wound up pursuant to s 459P of the Act.

[1] [1993] FCA 589; (1993) 120 ALR 155.

[3] [2006] VSC 338; (2006) 58 ACSR 631.

[4] (2012) 30 ACLC 12-061.

[5] (1999) 1 Qd R 232.

[6] [2013] FCA 915; (2013) 95 ACSR 632.

[7] [2013] FCA 1100; [2013] 217 FCR 50.

[8] Inter Mining v Lake Johnston [2013] FCA 915; (2013) 95 ACSR 632, [40]-[44].

[9] [2005] NSWSC 492.

[11] [2018] FCA 2077.

[13] [1978] VicRp 9; [1978] VR 83.

[14] [2007] NSWCA 57.

[15] [2018] VSC 468.

[16] [2011] HCA 18; (2011) 244 CLR 1.

[17] AG Coombes Pty Ltd v M&V Consultants Pty Ltd (in liq) [2018] VSC 468, [46].