Plaintiff v Defendant

1 This is an application by O'Brien Real Estate Pty Ltd ('O'Brien' or 'the plaintiff') pursuant to s 459G of the Corporations Act 2001 (Cth) ('the Corporations Act') to set aside a statutory demand issued by Mr Dmitri Vorontsov ('the defendant') on 25 May 2020 for the sum of $56,942. O'Brien's originating process was filed on 4 August 2020 and is principally supported by the affidavit of Mr Michael Holmes, solicitor, sworn on 5 August 2020. The plaintiff's application was amended by leave of the Court on 21 August 2020 to include s 459J as an alternative ground for setting aside the statutory demand. The plaintiff also relies on the affidavits of Mr Holmes sworn on 3 September 2020, 17 September 2020 and a further supplementary affidavit of Mr Holmes provided to the Court this afternoon.[1]

2 There are two salient features of this case. Firstly, the defendant's statutory demand was predicated upon a default judgment obtained by the defendant against the plaintiff in circumstances where the plaintiff had a pending application for summary judgment against the defendant in the same proceeding. That default judgment was later set aside and summary judgment granted in favour of the plaintiff against the defendant. Secondly, in non-conformity with the prescribed form, the statutory demand specifies the defendant's address for service as being an address in Delaware, United States of America.

3 The matter was first returnable before the Court on 19 August 2020. There was no appearance by the defendant. In addition to granting the plaintiff leave to file an amended originating process, the Court also made provision for the filing of material in support of an application for substituted service upon Mr Vorontsov and adjourned the further hearing of the proceeding until today.

4 Although s 459G(2) previously provided that an application to set aside a statutory demand may be made within 21 days after the demand is served, by operation of the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) ('the Coronavirus Legislation'), the statutory period for compliance was extended to 6 months.[2] Accordingly, it was possible for the plaintiff to make an application for substituted service against Mr Vorontsov outside the usual 21 day period for filing and serving an application to set aside the statutory demand.

5 On 9 September 2020, the Court made orders for substituted service of the originating process and supporting affidavit material on the defendant. Orders for substituted service were necessary for a number of reasons. Paragraph 1 of the statutory demand listed the defendant's address as 4/247 Dromana Parade, Safety Beach, Victoria. However, evidence suggested that previous correspondence sent by the plaintiff to that address had been returned unopened. In addition, paragraph 6 of the statutory demand specified the address for service of any application to set the statutory demand aside, as being 1201 N Orange Street, Suite 7160, Wilmington, Delaware, 19801, United States of America. Further, the affidavit in support of the statutory demand was affirmed by the defendant in the Czech Republic. The defendant had, however, previously provided a number of email addresses in other court proceedings but did not nominate those email addresses as being an appropriate mechanism for service in paragraph 6 of the statutory demand. Whilst the evidence before the Court suggested that the defendant was and remained overseas, his exact whereabouts were unknown. The Court was satisfied that it was impractical to effect personal service on the defendant or in accordance with the process for service abroad as set out in order 7 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) ('the Rules') or order 80 of the Rules which relates to service outside of Australia under the Hague Service Convention. Having regard to the material relied upon by the plaintiff in support of the application for substituted service and the relevant authorities, including Carter Holt Harvey v David[3] and ACCC v Kokos International Pty Ltd,[4] the Court considered an order for substituted service should be made. The orders contemplated service at each of the addresses referred to above, together with the sending of the documents electronically to the various email addresses used by Mr Vorontsov.

6 The affidavit of Mr Holmes sworn 17 September 2020 and its exhibit confirm that the requirements of the 9 September 2020 orders for substituted service have been met by the plaintiff. Accordingly, by operation of those orders, the defendant is deemed to have been served with the originating process and supporting material on 2 October 2020.

7 Due to the COVID-19 pandemic, today's hearing is being conducted by video conference pursuant to s 42E of the Evidence (Miscellaneous Provisions) Act 1958 (Vic). On 12 October 2020, my Associate emailed the parties instructions about how to participate in today's videoconference hearing. The matter is also listed today in the Court's Daily List as being heard 'in Chambers'. The Daily List contains a link with instructions for persons who may wish to access remote hearings. Participation can be facilitated by a party using an internet connection or telephone, following contact with the Associate to the relevant judicial officer to obtain details of the hearing. The defendant has not contacted my Associate seeking to participate in today's hearing and has not appeared today. Nor has he filed any appearance in the proceeding to date. There is no evidence before the Court to suggest the defendant has sought to participate in this litigation. As a consequence, the plaintiff's application has proceeded today undefended.

8 Mr Vorontsov was the registered proprietor of the property located at Unit 11, 40-46 Green Island Avenue, Mount Martha, Victoria, being the property described in Certificate of Title Volume 11591 Folio 889 ('the property'). On 27 March 2018, Mr Vorontsov entered into an exclusive sale authority with Jamelissa Pty Ltd t/as Conley Luff Real Estate Services ('Conley Luff'). Conley Luff identified a purchaser for the property who ultimately entered into a contract for sale on or around 21 July 2018. Under the terms of the contract, the purchaser paid a deposit of $56,200 which was held by Conley Luff.

9 In the event, settlement of the sale fell through. Another party had lodged a caveat on the title of the property which resulted in the settlement date being postponed on a number of occasions. The purchaser ultimately served a default notice under the contract of sale on Mr Vorontsov which was not remedied within the time provided. Accordingly, the purchaser terminated the contract of sale on 24 October 2019.

10 On 25 October 2019, Mr Vorontsov commenced a proceeding against the purchaser, O'Brien and other parties in this Court in relation to the contract of sale ('the property proceeding').[5] In essence, Mr Vorontsov alleged that the purchaser had wrongfully terminated the contract and that O'Brien had released the deposit without prior notice to him. Various other allegations were made against the other parties which are not relevant for present purposes. However, Mr Vorontsov's statement of claim did not explain the role of O'Brien in the sale transaction. Further, it appears that Mr Vorontsov was under the mistaken belief that O'Brien was the relevant real estate agent instead of Conley Luff.

11 On 3 April 2020, O'Brien entered an appearance in the property proceeding. Orders were made by Matthews JR on 6 April 2020 which, among other things, granted O'Brien leave to file and serve any application for summary judgment against Mr Vorontsov and/or to strike out his statement of claim by 9 April 2020. A summons was issued by O'Brien seeking such relief on 7 April 2020. The 6 April 2020 orders confirmed that the Judicial Registrar would consider O'Brien's application 'on the papers'. Notwithstanding the plaintiff's summary judgment application, on 20 May 2020, Mr Vorontsov entered judgment against O'Brien in the property proceeding on account of it not filing a defence. As previously noted, Mr Vorontsov issued his statutory demand on 25 May 2020 on the basis of this default judgment.

12 The plaintiff responded by issuing a summons on 27 May 2020 to have the default judgment set-aside. By orders and accompanying reasons dated 26 June 2020, Matthews JR set aside the default judgment entered against O'Brien and granted it leave to file and serve a defence.[6] The Judicial Registrar observed that at the time the default judgment against the plaintiff was entered by the defendant, the plaintiff's summary judgment application was effectively reserved before her.[7] She went on to say:

To have entered the Default Judgment when an application for dismissal of Mr Vorontsov's claims against [O'Brien] had been made and the decision in respect of it effectively reserved is sharp at the least and an abuse of process at the worst.[8]

13 In reliance upon a purported failure by the plaintiff to comply with the statutory demand within 21 days, on 18 June 2020 the defendant took the additional step of filing an application in the Federal Court of Australia to wind up the plaintiff in insolvency.[9] According to his affidavit filed on 26 June 2020 in the property proceeding, Mr Vorontsov alleged that the plaintiff had failed to serve a 'correct' originating process to set aside the statutory demand within time.[10] The Federal Court winding up proceeding was ultimately dismissed by Luxton JR on 31 July 2020.[11]

14 In addition to setting aside the default judgment upon which the statutory demand is based, on 28 June 2020, Matthews JR granted O'Brien and other parties in the property proceeding summary judgment against Mr Vorontsov, thereby dismissing his claim against them.[12] In doing so, the Judicial Registrar found that Mr Vorontsov's claims against O'Brien had no real prospect of success as there was no evidence that O'Brien had ever held the deposit for the sale of the property, let alone released or transferred it to any party.[13] Judicial Registrar Matthews also observed that Mr Vorontsov had failed to correctly identify the entity that was his real estate agent in the transaction.[14] She found there was unrefuted evidence that O'Brien is the franchisor for a number of real estate agents trading under the O'Brien Real Estate name, but that it never acted for Mr Vorontsov.[15] Rather, the uncontradicted evidence was that Conley Luff was the agent engaged by the defendant.[16] In addition, Matthews JR found that even if O'Brien had been the real estate agent engaged by Mr Vorontsov, the defendant did not have a claim that was capable of success against that party and that O'Brien had not caused him any loss or damage.[17]

15 Section 459G of the Corporations Act relevantly provides that:

(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.

(2) An application may only be made within the statutory period[18] after the demand is so served.

(3) An application is made in accordance with this section only if, within that period:

(a) an affidavit supporting the application is filed with the Court; and

(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.

16 Section 459H(1) of the Corporations Act relevantly states:

1. This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:

(a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;

(b) that the company has an offsetting claim.

17 The principles concerning what constitutes a genuine dispute for the purpose of s 459H(1) of the Corporations Act are well-established and need not be set out extensively here. However, it is useful to note the following propositions which emerge from the authorities concerning the requirements of a genuine dispute:

(a) the dispute must be 'bona fide and truly exist in fact';[19]

(b) 'the grounds for alleging the existence of a dispute must be real and not spurious, hypothetical, illusory or misconceived';[20]

(c) the dispute must have a 'sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile';[21]

(d) the Court should not uncritically accept statements about an alleged genuine dispute which are 'equivocal, lacking in precision, inconsistent with undisputed contemporary documents...or inherently improbable...';[22] and

(e) whilst the underlying nature of the dispute about the existence of a debt 'must be exposed', the court will not deal with the merits and nothing of substance will be decided.[23]

18 The principal affidavit in support of O'Brien's application was sworn by Mr Michael Holmes on 5 August 2020. Mr Holmes recounts the history of the property proceeding and the various decisions of Matthews JR setting aside the default judgment against O'Brien and later granting O'Brien summary judgment against the defendant. He deposes to O'Brien 'not at any stage [having] any relationship or dealings with [Mr] Vorontsov, or the transaction involving the [contract of sale and]...never [receiving] the Deposit.'[24] On 1 July 2020, Mr Holmes forwarded an email to Mr Vorontsov requesting that he agree to set aside the statutory demand by consent. No response was forthcoming.

19 In my view, having regard to the decisions made by Matthews JR in the property proceeding and the evidence relied upon in this proceeding, it is abundantly clear that there is a genuine dispute in relation to the existence of the debt the subject of Mr Vorontsov's statutory demand. The dispute is not only bona fide, it also has a sufficient objective basis and factual particularity to distinguish it from the fanciful or the improbable. There is no longer a default judgment to support the debt the subject of the statutory demand. Further, O'Brien has obtained summary judgment against Mr Vorontsov on his claims in the property proceeding. There is nothing equivocal in what the plaintiff says about the dispute. The statutory demand cannot stand and will be set aside on the genuine dispute ground.

Section 459J ground

20 As previously noted, the plaintiff also relies upon s 459J as an alternative ground to set aside the statutory demand. That provision is in the following terms:

(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; or

(b) there is some other reason why the demand should be set aside.

(2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.

21 It is apparent that paragraphs (a) and (b) of s 459J(1) are mutually exclusive.[25]

22 Section 459E(2) of the Corporations Act requires that a statutory demand must be in the prescribed form. That form is contained in Schedule 2 of the Corporations Regulations 2001 (Cth) and is Form 509H. Paragraph 6 of Form 509H requires a creditor to provide an address for service of copies of any application and affidavit. The form makes clear that the address for service of the application and affidavit, must be an address in a State or Territory in which the demand is served on the debtor company. The purpose of specifying such an address for service is to facilitate service of an application to set aside the statutory demand, not to impede service or make service of such an application more difficult.[26] This is because the policy underlying the regime contained in Part 5.4 of the Corporations Act, is to ensure disputes relating to statutory demands are dealt with expeditiously and applications to wind up companies in insolvency are determined without delay.[27]

23 Mr Voronstov served the plaintiff with the statutory demand by registered post at the plaintiff's registered office located at Level 15, 390 St Kilda Road, Melbourne, Victoria, on 26 May 2020.[28]

24 In specifying in paragraph 6 of the statutory demand an address for service in Delaware, United States of America, Mr Vorontsov has not complied with the form of a statutory demand required by the legislative regime found in Part 5.4 of the Corporations Act.

25 However, given the plaintiff has filed and now served (pursuant to the Court's orders for substituted service) its application to set aside the statutory demand within the enlarged statutory period for compliance set by the Coronavirus Legislation, there is some doubt as to whether there has been a substantial injustice to the plaintiff within the meaning of s 459J(1)(a) of the Corporations Act.[29] I accept, however, that the plaintiff has been put to unnecessary costs in responding to the winding up proceeding, in commencing this application and in making an application for substituted service.

26 Turning then to the second and more relevant limb of s 459J(1), the question arises as to whether the statutory demand should be set aside for 'some other reason'. In Arcade Badge Embroidery Co Pty Ltd v DCT[30], the Court of Appeal of the Australian Capital Territory found that the other reasons envisaged by s 459J(1)(b) include 'conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice'.[31] Whilst the discretion conferred by the provision is broad, a judge should not set aside a statutory demand under s 459J(1)(b) simply because she or he subjectively considers it fair to do so.[32] The Court's power under the sub-section exists to maintain the integrity of the statutory demand procedure in Part 5.4 of the Corporations Act and to counter its subversion.[33]

27 In the present case, Mr Vorontsov precipitously obtained a default judgment against O'Brien in the property proceeding in circumstances where he was aware that O'Brien had a pending summary judgment application which was effectively reserved before Matthews JR. He used that default judgment application to found the statutory demand which claimed the same amount as the resulting default judgment. More importantly, however, Mr Vorontsov nominated an address for service in paragraph 6 of the statutory demand which is not only outside the state or territory in which the demand was served upon the debtor company, but also outside of Australia. It is not apparent what connection Mr Vorontsov has with the Delaware address referred to in the statutory demand. As already noted, the affidavit in support of the statutory demand was affirmed by Mr Vorontsov in the Czech Republic. Given the difficulties associated with locating Mr Vorontsov and effecting service overseas, orders for substituted service were ultimately necessary to enable O'Brien to facilitate service of its application.

28 Notably, paragraphs 3 and 5 of the statutory demand erroneously suggest compliance must take place within the previous 21 day period and not the 6 month period for compliance set by the Coronavirus Legislation. It would appear Mr Vorontsov proceeded on the mistaken assumption that the old statutory period of 21 days continued to apply. Nevertheless, the statutory demand purported to require service of any application to set aside the statutory demand at an address overseas within 21 days. It is difficult to see how the plaintiff could have practically achieved this. Mr Vorontsov then took the further step of seeking to wind up O'Brien by reason of its alleged non-compliance with the statutory demand.

29 In the absence of any evidence to the contrary from Mr Vorontsov, I am prepared to infer on the basis of the evidence before the Court, that the nomination of an address for service in Delaware was designed to hinder the ability of O'Brien to serve an application to set aside the statutory demand. It was certainly not done to facilitate service of such an application. Moreover, it was contrary to the policy contained in Part 5.4 of the Corporations Act that challenges to statutory demands be dealt with promptly.

30 Having regard to the above matters, it is apparent that Mr Vorontsov has behaved unconscionably and/or engaged in an abuse of the statutory demand process contained in Part 5.4 of the Corporations Act. To protect the integrity of the statutory demand regime, the demand should also be set aside on this alternative basis under s 459J(1)(b).

31 In addition to the above, there is a further basis to set aside the statutory demand under s 459J(1)(b). In Scope Data Systems Pty Ltd v BDO Nelson Parkhill,[34] Barrett J held that a stay of execution of orders in the Local Court constituted 'some other reason' to set a demand aside. The position is even more compelling where the judgment forming the basis of a statutory demand is itself set aside.[35]

32 Because the default judgment obtained by Mr Vorontsov no longer has effect, the underlying basis of his statutory demand has fallen away. Further, O'Brien has successfully obtained summary judgment against Mr Vorontsov in respect of his claim. It is clear that Mr Vorontsov has no viable claim against O'Brien. In my view, each of those matters constitute 'some other reason' to set aside the statutory demand under s 459J(1)(b).

33 Although not argued before the Court, it may well be that the statutory demand is also liable to be set aside under either limb of s 459J(1) given it incorrectly refers to a 21 day period for compliance, and not the 6 month period for compliance set by the Coronavirus Legislation. However, given that the statutory demand will be set aside on the genuine dispute ground under s 459H and, alternatively, for the other reasons identified in respect of s 459J(1)(b), it is unnecessary for me to consider that question further.

34 The plaintiff seeks its costs of the proceeding on a standard basis.

35 In her decision to set aside the default judgment on 26 June 2020, Matthews JR observed that 'it is difficult to conceive how it could be said that there is no genuine dispute as to the debt claimed in the [s]tatutory [d]emand'.[36] Mr Vorontsov was squarely on notice of the real possibility that his statutory demand may be set aside. He was also invited by the plaintiff's solicitor in an email dated 1 July 2020, to set aside the statutory demand by consent, failing which, an application to set aside the statutory demand would be made and an order for costs sought against him. He did not provide the plaintiff with a response. Moreover, I have found that Mr Vorontsov has acted unconscionably and/or engaged in an abuse of the statutory demand procedure. Whilst an order for indemnity costs may well be warranted in this case, such an order is not sought.

36 The plaintiff has succeeded in its application both on the genuine dispute ground under s 459H and on the alternative ground under s 459J of the Corporations Act. I will therefore order that the defendant pay the plaintiff's costs of the proceeding on a standard basis, such costs to be taxed in default of agreement.

[1] The plaintiff relied upon the unsworn affidavit of Mr Michael Holmes provided to the Court on 13 October 2020 in accordance with s 49F of the Oaths and Affirmations Act 2018 (Vic). The deponent undertook to formally swear and file the affidavit when circumstances allowed. A sworn version of the affidavit was then filed on 14 October 2020 ('Holmes affidavit of 14 October 2020').

[2] See Part 2 of Schedule 12 of the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) which replaced, by way of temporary relief, the reference to 21 days for compliance with a statutory demand found throughout Part 5.4 of the Corporations Act with a new 'statutory period'. The 'statutory period' is, in turn, relevantly defined in s 9 of the Corporations Act to be the 'prescribed period'. The prescribed period has been set by a new regulation 5.4.01AA of the Corporations Regulations 2001 (Cth) to be 6 months. This change applied in respect of statutory demands served on or after 25 March 2020 and was set to be repealed 6 months after commencement.

[3] [2015] VSC 393.

[4] [2007] FCA 2035.

[5] Dmitri Mikhailovich Vorontsov & Anor v Le Roy Fong & Ors - S ECI 2019 05464.

[6] Vorontsov &Anor v Fong & Ors [2020] VSC 381 ('Vorontsov').

[9] Ibid [37]; affidavit in support of the application for substituted service of Michael John Holmes sworn 3 September 2020 and filed on 4 September 2020, and Holmes affidavit of 14 October 2020.

[10] Vorontsov [2020] VSC 381, [37].

[11] Holmes affidavit of 14 October 2020 and exhibit MJH-1 to that affidavit.

[12] See Vorontsov &Anor v Fong & Ors (No 2) [2020] VSC 458.

[18] As previously explained, the statutory period is relevantly 6 months.

[19] Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452, 464 (Northrop, Merkel and Goldberg JJ), cited with approval by the Victorian Supreme Court of Appeal in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in Liq) [2015] VSCA 330 ('Malec').

[21] TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67, 79 [71] (Dodds-Streeton JA) ('TR Administration').

[22] Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787 (McClelland CJ). Cited with approval by the Victorian Supreme Court of Appeal in TR Administration [2008] VSCA 70; (2008) 66 ACSR 67 and Malec [2015] VSCA 330.

[23] Quadrant Constructions Pty Ltd v HSBC Bank Australia Ltd [2004] FCA 111 (18 February 2004) [4] (Finkelstein J).

[24] Affidavit of Michael John Holmes sworn 5 August 2020 and filed on 4 August 2020 [16] ('Holmes affidavit of 5 August 2020').

[25] See Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd [1994] FCA 1059; (1994) 13 ACSR 525; Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452.

[26] Farid Assaf, Statutory Demands and Winding Up in Insolvency (Lexis Nexis, 2nd ed, 2012) [4.56] citing Players Pty Ltd v Interior Projects (1996) 20 ACSR 189, 193 (Lander J).

[27] David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265; Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corp Ltd [2008] HCA 9; (2008) 232 CLR 314, 323-4; Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (recs and mgrs apptd) [2011] HCA 18; (2011) 244 CLR 1, 13 [27].

[28] Holmes affidavit of 14 October 2020. See also exhibit MJH-8 to the Holmes affidavit of 5 August 2020.

[29] See Daewoo Australia Pty Ltd v Suncorp Metway Ltd [2000] NSWSC 35; (2000) 48 NSWLR 692; RH Mortgage Corporation Ltd v Kerry Ann Properties Pty Ltd [2011] NSWSC 298.

[30] [2005] ACTCA 3; (2005) 157 ACTR 22.

[31] Ibid 26 [27] (Crispin P, Gray and Marshall JJ). See also Hoare Bros Pty Ltd v DCT (1996) 19 ACSR 125 and Neutral Bay Pty Ltd v DCT [2007] QCA 312; (2007) 25 ACLC 1341.

[32] Meehan v Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229, 240 [60]-[61].

[33] Rinfort Pty Ltd v Arianna Holdings Pty Ltd [2016] NSWSC 251; (2016) 111 ACSR 607, 633 [84] (Black J).

[34] [2003] NSWSC 137; (2003) 199 ALR 56.

[35] TQM Design & Construct Pty Ltd v M I Kitchen Design Pty Ltd [2011] NSWSC 800, [7] (Hammerschlag J); Re AAP Investments (Aust) Pty Ltd [2015] NSWSC 1049, [16] (Black J).

[36] Vorontsov [2020] VSC 381 [40].