FEDERAL COURT OF AUSTRALIA

Gusdote Pty Limited v Ashley; In the Matter of Gusdote Pty Limited [2011] FCA 250

IN THE MATTER OF GUSDOTE PTY LIMITED (ACN 089 937 253)

THE COURT:

1.    Pursuant to s 459H(4)(a) of the Corporations Act 2001 (Cth) (the Act), ORDERS that the Creditor’s Statutory Demand dated 23 December 2009 served by the defendant upon the plaintiff be varied by deleting the amount of $678,500 specified therein and substituting therefor the amount of $303,500.

2.    Pursuant to s 459H(4)(b) of the Act, DECLARES that the said demand has had effect, as so varied, as and from the date when the demand was served upon the plaintiff.

3.    ORDERS that the proceeding be dismissed.

4.    MAKES no orders as to the costs of the proceeding.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE MATTER OF MADEAS PTY LTD (ACN 108 819 316)

THE COURT:

1.    ORDERS that the Interlocutory Process filed by Donald John Matheson on 6 May 2010 be dismissed.

2.    ORDERS that the said Donald John Matheson pay the costs of and incidental to the said Interlocutory Process.

3.    ORDERS that the proceeding be dismissed.

4.    ORDERS that the partners of RNM Lawyers of Level 1, 111 Charters Towers Road, Townsville, QLD, being Phillip Askin, Tim McKee, Rohan Armstrong, Trevor Cowling, Kerrie Dixon, Malcolm Fisher and Donnie Harris pay the defendant’s costs of and incidental to this proceeding.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE MATTER OF GUSDOTE PTY LIMITED (ACN 089 937 253)

THE COURT:

1.    ORDERS that the proceeding be dismissed.

2.    MAKES no orders as to the costs of the proceeding.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

THE COURT:

1.    ORDERS that the Interlocutory Process filed by Donald John Matheson on 4 May 2010 be dismissed.

2.    ORDERS that the said Donald John Matheson pay the costs of and incidental to the said Interlocutory Process.

3.    ORDERS that the proceeding be dismissed.

4.    ORDERS that the partners of RNM Lawyers of Level 1, 111 Charters Towers Road, Townsville, QLD, being Phillip Askin, Tim McKee, Rohan Armstrong, Trevor Cowling, Kerrie Dixon, Malcolm Fisher and Donnie Harris pay the defendant’s costs of and incidental to this proceeding.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE MATTER OF GUSDOTE PTY LIMITED (ACN 089 937 253)

IN THE MATTER OF GUSDOTE PTY LIMITED (ACN 089 937 253)

REASONS FOR JUDGMENT

1    In December 2009, after attempting for almost three years to retrieve investments made by their families in Gusdote Pty Limited (Gusdote) and in a unit trust of which Madeas Pty Ltd (Madeas) is the trustee, Janette Ashley and Emilios and Georgina Demetriou served Creditor’s Statutory Demands for Payment of Debt upon each of Gusdote and Madeas pursuant to s 459E of the Corporations Act 2001 (Cth) (the Act). The creditor named in each Statutory Demand claims to be a creditor of Gusdote and/or Madeas (as the case may be) for an amount which exceeds the statutory minimum ($2,000.00).

2    Mrs Ashley is the widow and legal personal representative of Robert Paul Ashley who died on 23 December 2005. The Supreme Court of New South Wales granted Probate of Mr Ashley’s Will to her on 29 June 2006. Mr Ashley was the person who actually made the relevant payments to Gusdote in the interests of the Ashley family and who had the dealings in 2003 and 2004 in relation to Gusdote and Madeas which are at the heart of the claims which Mrs Ashley now makes. Mrs Ashley is entitled to seek to enforce Mr Ashley’s rights in her capacity as his legal personal representative. Emilios and Georgina Demetriou are husband and wife. Emilios Demetriou was the person who made most of the relevant payments to Gusdote in the interests of the Demetriou family.

3    The service of the four Statutory Demands referred to at [1] above provoked the four Applications which these Reasons for Judgment determine.

4    Each of Gusdote and Madeas has brought an application pursuant to s 459G(1) of the Act for orders setting aside those Statutory Demands. In each of the matters, the plaintiff alleges that there is a genuine dispute between it and the defendant about the existence of the debt to which the Demand relates and that, for reasons which I will explain, the service of the Statutory Demand in each case was an abuse of process.

5    I heard the four sets of proceedings together with evidence in each proceeding being evidence in all of the others.

6    The litigation with which I am dealing is part of a much larger dispute involving the Matheson family, the Ashley family and the Demetriou family. It will be necessary to provide some detail of that dispute in order to address the bases upon which Gusdote and Madeas claim the relief which they seek and I shall do so shortly.

7    After the four sets of proceedings were commenced, by an Interlocutory Process filed in each of the proceedings commenced by Madeas, the defendant in each of those proceedings challenged the retainer of Madeas’ solicitors. In all four matters, the plaintiff was represented by the same firm of solicitors (Roberts Nehmer McKee Lawyers of Townsville, QLD) (RNM Lawyers) and by the same Counsel. When the challenge to the retainer of Madeas’ solicitors was mounted, Donald John Matheson, who is a director of Madeas, filed an Interlocutory Process in which he sought relief pursuant to s 1322(4)(a) of the Act in each of the Madeas matters in order to legitimise the appointment of RNM Lawyers as the lawyers for Madeas. At the time he made those applications, Mr Matheson was one of two directors of Madeas. At that time, the other director was Mr Demetriou. Those two men are still the only directors of Madeas.

8    These Reasons for Judgment also determine the defendants’ challenge to the retainer of RNM Lawyers by Madeas and the s 1322(4)(a) applications made by Mr Matheson in respect of that challenge.

9    After judgment was reserved, I became aware that an administrator and subsequently a liquidator had been appointed to Gusdote.

10    The facts concerning these appointments are not in dispute. They are:

(a)    On 22 September 2010, Gusdote appointed Trajan John Kukulovski, a registered liquidator, as its administrator.

(b)    By resolution of the creditors of Gusdote passed on 30 December 2010, those creditors resolved that Gusdote be wound up and that Mr Kukulovski be appointed liquidator of Gusdote. The effect of these resolutions was that:

(i)    Gusdote is taken to have passed a special resolution under s 491 of the Act that it be wound up voluntarily (s 446A(1) and s 446A(2)); and

(ii)    Section 497 of the Act is taken to have been complied with in relation to the winding up.

11    Having learned that Gusdote was in liquidation, I directed the parties in the proceedings before me to file and serve Written Submissions in which they addressed the impact (if any) of the winding up of Gusdote on the four sets of proceedings with which I am presently dealing. The parties complied with this request. In summary, all parties submitted that the winding up of Gusdote had no impact on any of the proceedings before me. It will be necessary in due course to consider whether these submissions are correct. I did not seek submissions from the liquidator of Gusdote.

The Creditor’s Statutory Demands

12    Each of the Statutory Demands is dated 23 December 2009. Each of those Demands is in the prescribed form. Each Demand was verified by an affidavit sworn by the creditor in each case. In each of those affidavits, after providing particulars of the debt claimed in the Demand, the deponent stated the capacity in which the claim was made and swore that, in the belief of the deponent, there was no genuine dispute about the existence or amount of the debt or debts claimed.

13    The debts claimed from Gusdote were described as follows:

(i)    In the case of Mrs Ashley:

(ii)    In the case of Emilios Demetriou:

14    The debts claimed from Madeas were described as follows:

(i)    In the case of Georgina Demetriou:

(ii)    In the case of Mrs Ashley:

15    Mrs Ashley claimed the amounts which she described in each of the creditor’s Statutory Demands served by her in her capacity as the legal personal representative of Mr Ashley.

An Outline of the Wider Dispute

16    Mr Matheson is an entrepreneur. In about 2000, Mr Matheson became involved in the development of a golf resort in Townsville which is now known as the Willows Golf Resort (the resort).

17    Mr Ashley and Mr Demetriou had been friends since about 1993. Mr Ashley, through a company owned by him, was involved in the design and installation of irrigation systems at golf courses. He came to know Mr Matheson in about 2001. In about July 2003, Mr Ashley discussed with Mr Demetriou the possibility of the Ashleys and the Demetrious taking a financial interest in the resort. He told Mr Demetriou that he had already had some discussions with Mr Matheson about this. Mr Ashley also told Mr Demetriou that Mr Matheson was having financial difficulties at the time.

18    The facts concerning many of the dealings amongst Mr Ashley, Mr Demetriou and Mr Matheson were found by Cowdroy J in a separate proceeding in this Court (proceeding NSD 935 of 2009) (the contract proceedings) which his Honour heard in May 2010 and determined in June of 2010. His Honour’s judgment is reported as Demetriou and Ors v Gusdote Pty Limited and Ors (2010) 78 ACSR 566. There has been no appeal from his Honour’s judgment. In the contract proceedings, the applicants were Mrs Ashley, Mr Demetriou and Mrs Demetriou and the respondents were Gusdote, Madeas, North Queensland Land Development Pty Limited (North Queensland Land Development), Don Matheson Golf Course Construction Pty Limited, Mr Matheson and Susan Rose Matheson, who is Mr Matheson’s wife.

19    At the time I heard the Applications with which I am dealing, it was known that the contract proceedings had been fixed for final hearing before Cowdroy J on 24 May 2010.

20    The hearing before Cowdroy J commenced on 24 May 2010 but soon collapsed. Shortly after the hearing was commenced, his Honour was informed that the relief sought by the applicants against all of the respondents except North Queensland Land Development would not be opposed. At all times up to the hearing, the respondents in the contract proceedings had defended those proceedings and had put in issue the claims made by the applicants in those proceedings. After the respondents declared their position, the affidavits which had been filed and served by the applicants were read. Upon the basis of the applicants’ evidence (which evidence was not challenged by any of the respondents), his Honour granted most of the relief claimed by the applicants. That evidence was not tested in any way before his Honour and the findings which his Honour made were intended to be a summary of the evidence set out in the applicants’ affidavits.

21    In the contract proceedings, Cowdroy J made the following declarations and orders:

THE COURT DECLARES THAT:

1.    The late Robert Ashley (‘Mr Ashley’) was appointed a director of Gusdote Pty Limited with effect from 29 August 2003.

2.    The First Applicant (‘Mr Demetriou’) was appointed a director of Gusdote Pty Limited with effect from 29 August 2003.

3.    The Second Applicant (‘Mrs Ashley’) held one share (being 25% of the issued capital) in the capital of Gusdote Pty Limited with effect from 29 August 2003 until 31 December 2004.

4.    The Third Applicant (‘Mrs Demetriou’) held one share (being 25% of the issued capital) in the capital of Gusdote Pty Limited with effect from 29 August 2003 until 31 December 2004.

5.    With effect from 1 January 2005 Mrs Ashley held and continues to hold one third of the issued shares in the capital of Gusdote Pty Limited.

6.    With effect from 1 January 2005 Mrs Demetriou held and continues to hold one third of the issued shares in the capital of Gusdote Pty Limited.

7.    After 31 December 2004 no meetings of directors of Gusdote Pty Limited were convened.

8.    After 31 December 2004 no resolutions were passed by the directors of Gusdote Pty Limited.

9.    After 31 December 2004 no meetings of members of Gusdote Pty Limited were convened.

10.     North Queensland Land Development Pty Limited (administrators appointed) holds legal title to that part of the Willows Golf Course transferred on 17 May 2007 by Gusdote Pty Limited to North Queensland Land Development Pty Limited described as Lot 400 on SP 185400 upon a constructive trust for Gusdote Pty Limited.

THE COURT ORDERS THAT:

1.    Within 28 days of the date of this order Gusdote Pty Limited correct its register of members in accordance with declarations 3, 4, 5 and 6.

2.    Pursuant to s 1322(4)(b) of the Corporations Act 2001 (Cth) within 60 days of the date of this order the registers kept by the Australian Securities and Investments Commission under the Corporations Act 2001 (Cth) in relation to Gusdote Pty Limited be rectified to reflect declarations 1, 2, 3, 4, 5 and 6.

3.    North Queensland Land Development Pty Limited (administrators appointed) within 28 days account to Gusdote Pty Limited (in accordance with Division 6 of Part 5.6 of the Corporations Act 2001 (Cth)) for all benefits and moneys received by North Queensland Land Development Pty Limited (administrators appointed) as a consequence of the transfer by Gusdote Pty Limited to North Queensland Land Development Pty Limited on 17 May 2007 of legal title to the land comprising the Willows Golf Course described as Lot 400 on SP 184500.

22    The contract proceedings were dismissed as against Madeas because the applicants had not sought relief against it which his Honour considered would have any utility. The applicants had only claimed declarations against Madeas. At [65] (p 577), his Honour held that, even if the evidence supported the making of the declarations claimed, there would be no utility in the Court making them.

23    At [2]–[23] (pp 568–570) of his Reasons, his Honour said:

The Facts

2    The relevant facts are set out below. They are contained in the affidavits of Emilios Demetriou sworn 25 January 2010, Janette Linda Ashley sworn 22 January 2010 and Stephen Brian Swaine sworn on 11 February 2010.

3    Prior to 2003 Gusdote was the registered proprietor of land located at Townsville. Such land was primarily used for the purpose of a golf course, known as ‘Willows Golf Course’ with the remainder being a portion of land which was undeveloped (‘the 5.02 hectares’).

4    Prior to August 2003, the sole Director of Gusdote was Mr Matheson. The sole shareholder of Gusdote was the sixth respondent, namely Susan Rose Matheson (‘Mrs Matheson’) to whom one share was allocated.

5    A meeting took place in Townsville on 29 August 2003 at the offices of Mr Jeffrey Dickens (‘Mr Dickens’), the solicitor of Mr Matheson. It was attended by the first applicant (‘Mr Demetriou’), the second applicant (‘Mrs Ashley’), her husband the late Robert Ashley (‘Mr Ashley’), Mr Matheson, Mr Dickens and Mr Stephen Swaine, accountant to Mr Demetriou. At such meeting an agreement was concluded by Messrs Ashley and Demetriou with Mr Matheson (‘the initial agreement’). The initial agreement was intended to provide Gusdote with sufficient capital to subdivide and develop the 5.02 hectares of land.

6    Pursuant to the initial agreement, Mr Demetriou and Mr Ashley were to pay an amount of $250,000 each to Gusdote by way of loan. In addition, they were to guarantee an outstanding debt of Gusdote to the National Australia Bank (‘the NAB’) of approximately $960,000.

7    In consideration of such payments and guarantee, Mr Matheson was to arrange for the appointment of Mr Ashley and Mr Demetriou as directors of Gusdote. Further, Mr Matheson was to arrange for the share capital of Gusdote to be increased by the issue of one share each to Mrs Demetriou, Mrs Ashley and Mrs Matheson. By virtue of this share allocation Mrs Ashley and Mrs Demetriou would each hold 25% of the issued capital of Gusdote with Mrs Matheson holding the remaining 50%.

8    It was also a term of the initial agreement that Mr Matheson would attend to the lodgement of all documentation with the Australian Securities and Investments Commission (‘ASIC’) necessary to record the change in directors, the increase in the share capital of Gusdote and the allocation of shares to Mrs Ashley, Mrs Demetriou and Mrs Matheson. The initial agreement was not recorded in writing.

9    Pursuant to this agreement, on 29 August 2003 Messrs Ashley and Demetriou each signed consents to act as directors of Gusdote. Further Messrs Ashley and Demetriou each paid the amount of $250,000 to Gusdote and on 1 September 2003 Messrs Ashley and Demetriou signed the guarantee to the NAB in respect of Gusdote’s debt. Accordingly, Messrs Ashley and Demetriou fulfilled their part of the initial agreement.

10    Despite the signing by Messrs Ashley and Demtriou of their consents to act as directors, no documents were ever lodged by Mr Matheson with ASIC recording their appointment as directors of Gusdote. As a consequence, neither Mr Demetriou nor the late Mr Ashley have ever been recorded as directors of the company.

11    On 29 August 2003 Mr Matheson caused Gusdote under its common seal to issue share certificates to Mrs Ashley and Mrs Demetriou, signed by Mr Matheson. However, ASIC was never notified by Mr Matheson of the increased shareholding.

12    In or about April 2004 another agreement was made in Townsville between Messrs Ashley, Demetriou and Matheson (‘the Madeas agreement’). Pursuant to the Madeas agreement, a new company was to be formed known as Madeas Pty Limited (‘Madeas’), the purpose of which was to develop the 5.02 hectares of undeveloped land owned by Gusdote. Under the terms of this agreement, the shareholding of Madeas was to be allocated as to 50% to third parties who were acting as trustees for the Matheson interests and the remaining shares were to be held as to 25% by Mrs Ashley and 25% by Mrs Demetriou. Further, Messrs Matheson, Demetriou and Ashley were to be appointed as directors of Madeas. Simultaneously a trust known as the Willows Unit Trust was to be established which created an interest of one third each for Mrs Ashley, Mrs Demetriou and the trustees of the Matheson interests.

13    Madeas was duly incorporated, Messrs Ashley, Demetriou and Matheson were appointed directors and all shares were issued as proposed by the Madeas agreement.

14    After the meeting which gave rise to the Madeas agreement, no meetings either of Gusdote or of Madeas were attended by Mr Ashley or Mr Demetriou. The 5.02 hectares of the undeveloped land owned by Gusdote was transferred by Gusdote to Madeas. The land was subdivided and all lots were sold. As a result a recorded profit of $387,000 nett became payable to each of the shareholders in Madeas in 2006. In fact, no payment representing such shareholder profit has ever been received by either Mrs Ashley or by Mrs Demetriou.

15    A further agreement (‘the further agreement’) was entered into by Messrs Ashley and Demetriou with Mr Matheson by telephone in or around May 2004. The actual sequence of the Madeas agreement and the further agreement was not established at the hearing. Nevertheless, it is common ground that pursuant to this agreement both Mr Ashley and Mr Demetriou agreed to invest an additional $75,000 each in Gusdote. In consideration for such payment Mrs Demetriou’s and Mrs Ashley’s shareholding in Gusdote was to be increased from 25% to a one third share each.

16    Mr Demetriou and Mr Ashley duly paid $75,000 as provided by the further agreement. Mr Matheson however again neglected to notify ASIC of such variation in the shareholding of Gusdote.

17    Mr Ashley died on 23 December 2005 and Mrs Ashley duly became the legal personal representative of the late Mr Ashley’s estate.

18    On 17 May 2007 Gusdote executed a transfer of its remaining land (‘the golf course land’) to NQLD. Neither Mr Demetriou nor Mr Ashley (or his representative) had been consulted in respect of such transfer. The transfer was signed by Mr Matheson on behalf of Gusdote. The mortgage to the NAB over the land had by that time been discharged on a date not disclosed by the evidence and accordingly Gusdote was able to provide an unencumbered title to NQLD as the purchaser.

19    The sale of the golf course land was expressed to be for a consideration of $3,000,000, of which $200,000 was stated to have been paid in cash while the balance of the purchase price ($2,800,000) was identified in the memorandum of transfer as ‘Assumption of Liabilities’. The ‘Assumption of Liabilities’ consisted of a mortgage given by NQLD to Gusdote over the golf course land. Such mortgage provided for repayment of the principal sum to Gusdote on 17 May 2009. During the term of the mortgage an interest rate of 8% per annum was to be paid calendar monthly on the first day of each preceding calendar month during the continuance of the mortgage.

20    The sole director of NQLD was Mr Matheson. Mr and Mrs Matheson held (and continue to hold) a 50% interest each in NQLD.

21    Neither Mr Ashley during his lifetime nor Mrs Ashley, nor Mr and Mrs Demetriou had any knowledge of the transfer of the golf course land by Gusdote to NQLD. There has been no account to the applicants of any monies received from the operation of the golf course which was managed initially by Mr Matheson then apparently sub-let under some form of licence agreement. Nor has there been any accounting relating to the repayment of the principal secured nor of the interest payable to Gusdote in respect of the $2,800,000 secured by the mortgage granted by NQLD over the golf course land. Neither has there been any account to the applicants of the $200,000 which was paid to Gusdote by NQLD at the date of the transfer of the land from Gusdote to NQLD.

22    On 1 April 2010 NQLD was placed in administration. Ian David Jessup and Moira Kathleen Carter were appointed voluntary administrators on that date. On 7 April 2010 the applicants sent an email to the administrators enquiring as to the position that the administrators would take in these proceedings. Correspondence received from Ms Carter dated 13 April 2010 established that the administrators held no funds and would not be in a position to pay for any legal advice or representation for NQLD in these proceedings.

23    On 11 May 2010 the applicants filed a Notice of Motion seeking leave to proceed against NQLD. By order of the Court made on 17 May 2010, leave was granted pursuant to s 440D(1) of the Corporations Act 2001 (Cth) (‘the Corporations Act’) for the applicants to proceed against NQLD.

24    At [6] (p 568), his Honour described the initial payments of $250,000 made to Gusdote by each of Mr Ashley and Mr Demetriou as loans to Gusdote. As I read the Statement of Claim filed in the contract proceedings and the affidavits sworn by Mrs Ashley and Mr Demetriou and filed in those proceedings, the case sought to be made by Mrs Ashley and the Demetrious in those proceedings was that the initial payments of $250,000 made by Mr Ashley and Mr Demetriou to Gusdote were intended to be part of the consideration payable by each of Mr Ashley and Mr Demetriou for a stake in the venture and for the appointment of a representative from each of the Ashley and Demetriou families as a director of Gusdote. The remaining consideration was provided by Messrs Ashley and Demetriou guaranteeing Gusdote’s debt to National Australia Bank Limited. His Honour appears to have accepted that this was the correct characterisation of those payments because, when it came to the question of relief, his Honour made declarations and orders giving effect to what his Honour called “the initial agreement”.

25    His Honour held that the Ashleys and the Demetrious had fulfilled their side of the bargain and were entitled to the relief which they claimed.

26    His Honour also found that Mr Ashley and Mr Demetriou had each made a further payment of $75,000 to Gusdote. These additional payments of $75,000 were made in return for the allotment of further shares in Gusdote in favour of each of Mrs Ashley and Mrs Demetriou. As had been the case with the earlier transactions, Mr Matheson failed to implement the new agreements reached with Mr Ashley and Mr Demetriou with the consequence that his Honour found it necessary to compel Gusdote to do so.

27    The applicants in the contract proceedings did not claim repayment of the two initial payments of $250,000 or of the subsequent payments of $75,000 and expressly disavowed before me that these amounts would be included in their damages claims. His Honour made no award of damages, in any event.

28    Ultimately, his Honour ordered that the share register of Gusdote be rectified so that the issued capital of Gusdote be held as to one-third each by Mrs Ashley, Mrs Demetriou and Mrs Matheson. This order gave effect to the most recent agreements reached among Mr Ashley, Mr Demetriou and Mr Matheson.

29    The evidence led before Cowdroy J by the applicants in the contract proceedings established that all of the payments made by the Ashleys and the Demetrious to Gusdote to which I have referred at [24], [26] and [27] above were intended to be part of the consideration provided by them for the allotment of shares and the appointment of a nominee from each of the Ashley and Demetriou families as directors of Gusdote. The relief which his Honour granted was based upon the allegations and evidence tendered by the applicants in the contract proceedings to the effect that this was the true construction of all the arrangements reached among Mr Ashley, Mr Demetriou and Mr Matheson in 2003 and 2004. His Honour did not treat these payments as loans.

30    The findings which his Honour made at [12]–[14] (p 569) of his Reasons concerning Madeas and the Willows Unit Trust are also relevant to the proceedings before me. The evidence before me makes clear that the profit of $387,000 to which his Honour referred at [14] (p 569) was a profit made by the Willows Unit Trust, not a profit made by Madeas in its own right. It was to be distributed to the unitholders of that Trust as beneficiaries of that Trust and not to those persons in their capacity as shareholders in Madeas.

31    Subject to the observations which I have made by way of clarification of one or two of his Honour’s findings, the findings which his Honour made in the contract proceedings bind the parties in the proceedings before me.

Issues for Determination

The Gusdote Proceedings

32    Gusdote contended that there is a genuine dispute between it and Mrs Ashley and also between it and Mr Demetriou in relation to the existence of the debt to which each of the Statutory Demands served by those persons relates (as to which see s 459H(1)(a) of the Act). It also relied upon s 459J(1)(b) of the Act in support of a contention that it was an abuse of process for Mrs Ashley and Mr Demetriou to serve and rely upon a Statutory Demand in which each of them claimed that moneys were due by way of debt to each of them when, in the contract proceedings, they had made and, at the time of the hearing before me, continued to press, allegations as to the true nature of the payments made by Mr Ashley and Mr Demetriou to Gusdote which were fundamentally different from and inconsistent with the proposition that the payments which had been made by the two families were loans to Gusdote. Gusdote contended that, in the contract proceedings, Mrs Ashley and the Demetrious were asserting that the payments in question had been made as consideration for the issue of shares and for the appointment of a representative of each of the Ashley and Demetriou families as a director of Gusdote and had never been loans made by them to Gusdote.

33    In support of the abuse of process ground for which Gusdote contended, Gusdote tendered the Statement of Claim in the contract proceedings and two of the affidavits filed in that proceeding (one sworn by Mrs Ashley and one sworn by Mr Demetriou). These documents were admitted in evidence before me upon the basis that they were not to be regarded as proof of the truth of the representations made in them but rather were to be limited to proving the fact that assertions and statements in the terms set out in the documents had been made and, as at May 2010, were being maintained by Mrs Ashley and the Demetrious in the contract proceedings.

34    The ultimate submission made by Gusdote was that, in reality, there was no debtor/creditor relationship between it and either Mrs Ashley or Mr Demetriou and that it was an abuse of process for those persons to contend that there was such a relationship when, in the contract proceedings, they were contending otherwise.

35    Mrs Ashley and Mr Demetriou submitted that, even if the first two payments made by each family (namely, the amounts of $250,000 and $75,000) did have the character for which Gusdote contended, there remained sums of money due to each family from Gusdote in respect of other payments by way of loan made by them to Gusdote over time. This meant that, even if Gusdote’s primary contention were correct, sums of money in excess of the statutory minimum were nonetheless still due to each of Mrs Ashley and to Mr Demetriou as at 23 December 2009. They also argued that the initial payments totalling $325,000 were, in fact, loans to Gusdote.

36    In addition, Mr Demetriou contended that the Statutory Demand served by him upon Gusdote had been delivered to the street letterbox of Hunter Partners, Accountants, at 569 Ross River Road, Kirwan, QLD (a suburb of Townsville QLD) (which address was the address of Gusdote’s registered office at that time) by no later than 31 December 2009 (and was probably delivered to that letterbox by the close of business on 30 December 2009) so that, because Gusdote had not commenced its proceeding against him until 22 January 2010, its application was out of time since it was made more than 21 days after the Statutory Demand was served upon Gusdote (as to which see s 459G(2) of the Act).

37    In addition, Mrs Ashley and Mr Demetriou both argued that no-one on behalf of Gusdote had sworn that any of the moneys claimed by Mrs Ashley and Mr Demetriou were not due and owing and that I should regard that omission as fatal to Gusdote’s case.

The Madeas Proceedings

38    Madeas submitted that there was no debtor/creditor relationship between it and either Mrs Ashley or Mrs Demetriou. It also relied upon s 459H(1)(a) of the Act and s 459J(1)(b) of the Act. In the case of Madeas, the basis of the claim made by each of Mrs Ashley and Mrs Demetriou was the same. Each of those persons contended that, during the course of the income tax year ended 30 June 2006, the directors of Madeas, in its capacity as the trustee of the Willows Unit Trust, had resolved to distribute one third of the profits of that Trust to each of Mrs Ashley, Mrs Demetriou and the two persons acting as trustees of the Matheson Family Trust. Those three groups each held one-third of the units issued in the Willows Unit Trust. The amount involved in each case was $370,079. Mrs Ashley and Mrs Demetriou also contended that, by late 2008, as a result of further distributions of the profits of the Willows Unit Trust made in subsequent years, $588,223.34 and $587,943.34 was due to each of them respectively.

39    In the Financial Statements of the Willows Unit Trust for each of the years ended 30 June 2006, 30 June 2007 and 30 June 2008, amounts are shown as due to each of Mrs Ashley and Mrs Demetriou. These amounts are shown in those Financial Statements as “Unpaid Trust Distributions”. They are characterised in those accounts as “Current Liabilities”.

40    It was Madeas’ contention that, notwithstanding that the profits of the Willows Unit Trust had been allocated in the manner which I have described and that the unpaid Trust distributions were shown in the Financial Statements of the Trust as current liabilities of the Trust, nonetheless the relationship of debtor/creditor did not exist as between Mrs Ashley and Madeas and as between Mrs Demetriou and Madeas as at 23 December 2009. Madeas argued that the claims of Mrs Ashley and Mrs Demetriou to the total amount of the unpaid Trust distributions made to them could only be enforced against Madeas in equity and could not properly be characterised as a debt which was capable of being made the subject of a Creditor’s Statutory Demand under s 459E of the Act. Madeas also submitted that there was no evidence that, during the 2005–2006 Financial Year, the directors of Madeas had resolved to distribute the profits of the Willows Unit Trust equally amongst Mrs Ashley, Mrs Demetriou and the Matheson Family Trust.

41    Mrs Demetriou also argued that the proceeding commenced by Madeas against her was out of time for the same reasons that her husband argued that the proceeding commenced by Gusdote against him was out of time.

42    In respect of Madeas, there was also the challenge to RNM Lawyers’ retainer and the defensive reliance by Mr Matheson on s 1322(4) of the Act.

Generally

43    The Demetrious did not suggest, as a separate and independent reason for denying relief to Gusdote and Madeas, that Gusdote and Madeas had not “served” their Applications to set aside the Demetrious’ Statutory Demands and supporting affidavits upon the Demetrious within 21 days after the Statutory Demands were served (as to which see s 459G(3)). The Demetrious did argue that both Gusdote and Madeas had failed to establish that their Applications had been brought within that 21 day period so that, if that contention is upheld, it would follow that those applications will not have been served within that 21 day period. But no separate or additional point was taken. Although there was no evidence before me which established when service of those documents was effected, I am satisfied that, in the circumstances of the present case and subject to the resolution of the Demetrious’ argument directed to the date of service of their Statutory Demands, service was effected as required. No doubt, if this additional point had been available to be taken, the Demetrious would have taken it.

Consideration

When Were the Demetrious’ Statutory Demands Served?

44    Mrs Ashley and the Demetrious submitted that the Statutory Demands had all been served at the registered office of Gusdote and Madeas by no later than 30 December 2009. They submitted that I should find that this was so as a matter of fact or, alternatively, that I should make this finding by reason of the combined presumptive and deeming effect of s 160 of the Evidence Act 1995 (Cth) (the Evidence Act) and s 29 of the Acts Interpretation Act 1901 (Cth) (the Acts Interpretation Act). They accepted that the proceedings commenced by each of Gusdote and Madeas against Mrs Ashley (both of which were commenced on 19 January 2010) had been commenced within time. However, as I have already mentioned at [36] and [41] above, Mr and Mrs Demetriou argued that the proceedings commenced by Gusdote against Mr Demetriou and by Madeas against Mrs Demetriou were both out of time. Those proceedings were not commenced until 22 January 2010. If, as the Demetrious contended, their Statutory Demands were served by no later than 30 December 2009, the proceedings against them were commenced outside the time limited by s 459G(2) of the Act. The Demetrious would still succeed in their argument if I were to find that the Demands were served by no later than 31 December 2009. In order for the time requirement laid down in s 459G(2) of the Act to be met in the present case, the Court would have to be satisfied that the Demetriou Statutory Demands had not been served any earlier than 1 January 2010 (see s 105 of the Act and semble s 36 of the Acts Interpretation Act). It was, of course, the case of both Gusdote and Madeas that the Demands were all served on 1 January 2010 (and not before).

45    Uncontested evidence was led on behalf of Mr and Mrs Demetriou that all four Statutory Demands were posted into the Australia Post street post box located on Chapel Road Bankstown at or about 5.00 pm on Wednesday 23 December 2009. Each Statutory Demand was in a separate envelope. A 55c postage stamp was affixed to each envelope. That was the correct postage. The items were, therefore, prepaid. Each envelope was addressed, as appropriate, either to Gusdote or Madeas at 569 Ross River Road, Kirwan, QLD 4817. That address was the address of the registered office of both Gusdote and Madeas as at 23 December 2009 as disclosed in the records of the Australian Securities and Investments Commission. That address is the business address of Hunter Partners, who are the accountants for both Gusdote and Madeas. There were no covering letters sent with the Statutory Demands.

46    Posting the Statutory Demands in this way was a permitted mode of service under the Act (see s 109X(1) of the Act). Section 109X(1) of the Act specifies the manner by which service of documents may be effected on a corporation but does not address the question of when service is effected or deemed to be effected in the event that one of the statutorily endorsed methods of service is adopted. The time at which service is effected in any particular case is a question of fact.

47    In determining the date or time when a Creditor’s Statutory Demand sent to a corporation by post is served, the relevant fact which needs to be established is: When was the Demand delivered to the registered office of the corporation by or on behalf of the postal service (ie by or on behalf of Australia Post)? This fact can be established by direct evidence. For example, the relevant delivery officer employed or retained by Australia Post can be called to testify as to the date when the item was actually delivered to the registered office. It may be established by less direct evidence and also by proving circumstances from which appropriate inferences might be drawn.

48    Proof of the ultimate fact is also assisted by two statutory provisions.

49    Section 29 of the Acts Interpretation Act provides:

29    Meaning of service by post

(1)    Where an Act authorizes or requires any document to be served by post, whether the expression “serve” or the expression “give” or “send” or any other expression is used, then unless the contrary intention appears the service shall be deemed to be effected by properly addressing prepaying and posting the document as a letter, and unless the contrary is proved to have been effected at the time at which the letter would be delivered in the ordinary course of post.

(2)    This section does not affect the operation of section 160 of the Evidence Act 1995.

50    In the present case, all four of the Statutory Demands were “… properly addressed [to the registered office of Gusdote and Madeas]” and were “… prepaid and posted as a letter…”. Therefore, by the operation of s 29 of the Acts Interpretation Act and s 109X of the Act, unless the contrary intention appears, service is deemed to have been effected. That is to say, delivery to the registered office is deemed to have been effected. No contrary intention appears in the Act or anywhere else. Therefore, the first limb of s 29 of the Acts Interpretation Act was satisfied to the extent that the circumstances of the present case require.

51    In the present case, however, there is direct evidence from one of the principals of Hunter Partners which established that all four Statutory Demands were, in fact, received at 569 Ross River Road, Kirwan, QLD. There is no dispute, therefore, that, as a matter of fact, delivery (and thus service) of all four Demands was effected at the registered office of Gusdote and Madeas. There is no need for the Demetrious to rely upon s 29 of the Acts Interpretation Act in order to prove the fact of delivery and thus that service had, in fact, been effected.

52    There is, however, a contest as to when the items were delivered to the registered office of those corporations and, perhaps, by whom they were delivered to that address.

53    Section 160 of the Evidence Act provides:

160    Postal articles

(1)    It is presumed (unless evidence sufficient to raise doubt about the presumption is adduced) that a postal article sent by prepaid post addressed to a person at a specified address in Australia or in an external Territory was received at that address on the fourth working day after having been posted.

(2)    This section does not apply if:

(a)    the proceeding relates to a contract; and

(b)    all the parties to the proceeding are parties to the contract; and

(c)    subsection (1) is inconsistent with a term of the contract.

(3)    In this section:

working day means a day that is not:

(a)    a Saturday or a Sunday; or

(b)    a public holiday or a bank holiday in the place to which the postal article was addressed.

Note:    Section 182 gives this section a wider application in relation to postal articles sent by a Commonwealth agency.

54    Unless the contrary is proved, the time at which a letter posted in accordance with the provisions of s 29 of the Acts Interpretation Act is deemed to have been received by and thus served upon the recipient is the time at which the letter would be delivered in the ordinary course of post. For the purposes of s 29 of the Acts Interpretation Act, the contrary may be proved by evidence which establishes precisely when the item was delivered to the appropriate address. In any given case, “the ordinary course of post” is a question of fact. It may be proved, for example, by calling appropriate and relevant evidence from Australia Post.

55    Section 160 of the Evidence Act assists in the proof of the fact “the ordinary course of post” by raising a presumption which will operate unless evidence is adduced which is sufficient to raise doubt about the presumption. The statutory presumption provided for by s 160(1) of the Evidence Act, in effect, gives context and meaning to the expression “ordinary course of post” so long as evidence is not adduced which raises doubt about the appropriateness of the presumption being applied in the particular case. In the absence of evidence sufficient to raise doubt about the presumption referred to in s 160 of the Evidence Act, the Evidence Act presumption will be engaged with the consequence that, for the purposes of s 29 of the Acts Interpretation Act, the letter will be deemed to have been delivered in the ordinary course of post on the fourth working day after it was posted.

56    Therefore, if the evidence before me is insufficient to cast doubt upon the presumption raised by s 160 of the Evidence Act and also insufficient to overcome the deeming effect of the second limb of s 29 of the Acts Interpretation Act, I will be obliged to hold that, for the purposes of ss 459E, 459F and 459G of the Act, the four Statutory Demands were all served on Thursday 31 December 2009. Taking into account weekend days and public holidays immediately after 23 December 2009, 31 December 2009 was the fourth working day after 23 December 2009 within the meaning of s 160(3) of the Evidence Act. Friday 25 December 2009 and Monday 28 December 2009 were both public holidays in New South Wales and Queensland. If I were to hold that the Demands were served on 31 December 2009, the proceedings brought by Gusdote and Madeas will have been commenced more than 21 days after 31 December 2009 and thus outside the time limited by s 459G(2) of the Act. In that event, both applications would have to be dismissed for want of jurisdiction.

57    Both parties led evidence which was intended to address the presumption contained in s 160 of the Evidence Act and the deeming effect of s 29 of the Acts Interpretation Act and, ultimately, to provide the basis for an express finding of fact as to when the Demands were delivered to (and thus served upon) Gusdote and Madeas.

58    Gusdote and Madeas called Stuart Alistair Hunter, who is a partner of Hunter Partners. In the affidavit which he swore in the Gusdote proceeding against Mr Demetriou (NSD 47 of 2010), Mr Hunter said:

2.    On Thursday 31 December 2009 I was working at my office, leaving the office between 2.00 pm and 3.00 pm.

3.    Prior to leaving the office I checked the post box for incoming mail to the office and it was empty.

4.    On Friday 1 January 2010 when I arrived at the office I checked the post box for incoming mail. I found an envelope containing a Creditor’s Statutory Demand addressed to Gusdote Pty Ltd from Emilios Demetriou.

5.    Exhibited hereto and marked “SAH 1” is a true copy of the Creditor’s Statutory Demand dated 23 December 2009.

59    He swore a similar affidavit in the proceeding in which Madeas seeks to set aside the Statutory Demand served upon it by Mrs Demetriou (NSD 49 of 2010).

60    Mr Hunter did not attend the hearing in person. However, he was cross-examined by telephone.

61    During the course of that cross-examination, Mr Hunter testified that:

(a)    In late December 2009, Hunter Partners occupied 569 Ross River Road, Kirwan, QLD. This was the address of that firm’s business premises. On the front boundary, near a driveway into the premises, there was located a street letterbox of a kind commonly found at residential properties.

(b)    In late December 2009, and for some time before then, Hunter Partners had maintained a Post Office box at the Australia Post premises at Thuringowa Central, which is another suburb of Townsville and which is located approximately two kilometres away from 569 Ross River Road, Kirwan.

(c)    Hunter Partners closed their office from 24 December 2009 to 18 January 2010 for their usual Christmas/New Year break. During this period, Mr Hunter attended at his business premises from time to time as did other staff.

(d)    Mr Hunter had the habit at the relevant time of checking the letterbox at his business premises every day in order to make sure that there was no mail there.

(e)    He checked the letterbox as he was leaving on 1 January 2010 and discovered the four Statutory Demands in that letterbox. He immediately went back into his office, scanned all four of the Statutory Demands and forwarded them by email to Mrs Matheson.

62    Email records produced by Mr Hunter established that, at 2.39 pm on Friday 1 January 2010, he forwarded the Statutory Demands served by Mr and Mrs Demetriou on Gusdote and Madeas to Mrs Matheson and at 2.41 pm on the same day he forwarded the Statutory Demands served by Mrs Ashley on Gusdote and Madeas to Mrs Matheson.

63    It was, therefore, common ground that all four Statutory Demands had actually been delivered to the registered office of Gusdote and Madeas by no later than mid afternoon on 1 January 2010. The Demetrious, however, submitted that they had been delivered by no later than 30 December 2009.

64    The Demetrious led evidence, over objection, from Mr Alan Smith, who is the manager of the Network Service Performance of Australia Post. Mr Smith said that he was responsible for the monitoring of the service performance of mail posted and delivered between Sydney and Queensland. Mr Smith swore his first affidavit after Mr Hunter had sworn both of his affidavits.

65    Mr Smith was asked to assume that four letters had been posted on 23 December 2009 at Bankstown, as the evidence disclosed. When addressing that assumption, Mr Smith said:

4.    … Those letters would normally have been received by Gusdote Pty Limited and Madeas Pty Limited on or before the 30th of December 2009. If the 4 letters were subjected to delay then this may be due to the fact that during the period in question Australia Post was being subject to industrial action. The industrial action ran for the period 11th December to 30th December 2009 inclusive and some mail items were delayed by one or two days.

66    Mr Smith continued in his affidavit as follows:

5.    The industrial actions that took place in December 2009 were of a rolling nature across the national network and did cause delays of mail items in such a way it could be possible for mail items that were all posted together to be separated during the course of processing and dispatch. The results of which could be that some items could have arrived in time for delivery whilst others arrived late. This may also occur in the processing network during normal operations due to normal logistics restrictions such as transport capacities etc. It is not possible to categorically state when any single mail item was processed and/or delivered as we do not track and trace each and every mail item that is processed.

6.    I can confirm that the 31st December 2009 was the Australia Post Authorised holiday and the 1st January 2010 was a Gazetted National Public holiday, as such no street mail deliveries for normal letter class mail’s were undertaken between Midnight 30th December 2009 and Midnight and 1 January 2010. The first street mail deliveries for 2010 for the Townsville area took place on Monday the 4th of January 2010.

67    I accept Mr Smith’s evidence. He was not cross-examined. He did not overreach. The position which he occupied at Australia Post at the relevant time qualified him to give the evidence which he gave.

68    Mr Smith said that, had Australia Post not been subjected to industrial action in the period from 11 December 2009 to 30 December 2009, the four Demands would normally have been delivered by no later than 30 December 2009. That is, those Demands would have been delivered within three working days after being posted. Although Mr Smith did not, in terms, testify as to the ordinary course of post between Sydney and Townsville as at 23 December 2009, the effect of his evidence was that the ordinary course of post, unaffected by industrial action, at that time between those two cities was no more than three working days. The first working day after 23 December 2009 was 24 December 2009. It was unlikely that the Demands would have been delivered on Christmas Eve, one day after being posted in Sydney. The next working day after that was Tuesday, 29 December 2009. The substance of Mr Smith’s evidence was that, had there been no industrial action affecting Australia Post, in the ordinary course of the post, the Demands would have been delivered on 29 December 2009 or on 30 December 2009. He was unable to be more precise than that.

69    However, Mr Smith frankly disclosed the fact that, at the relevant time, Australia Post was being subjected to industrial action. He said that, as a result, some items were delayed by one or two days. The ordinary course of post for a letter posted in Sydney for delivery to an address in Townsville as at 23 December 2009 was, therefore, up to five working days. Five working days from 23 December 2009 was 5 January 2010. The non-working days for Australia Post immediately after 23 December 2009 were 25–28 December 2009, 31 December 2009 and 1–3 January 2010. The working days in that period were 24 December 2009, 29 December 2009, 30 December 2009, 4 January 2010 and 5 January 2010.

70    The upshot of Mr Smith’s evidence was that, as at 23 December 2009 and allowing for the impact of the industrial action to which Australia Post was then being subjected, the Demands could be expected to be delivered in the ordinary course of post on one or other of 29 December 2009, 30 December 2009, 4 January 2010 or 5 January 2010. It was unrealistic to think that the Demands would be delivered on 24 December 2009.

71    The evidence of Mr Smith is sufficient to raise doubt about the presumption provided for by s 160(1) of the Evidence Act. First, he said that no street deliveries of mail took place anywhere in Australia between midnight on 30 December 2009 and 1 January 2010. Therefore, the Demands could not have been delivered by Australia Post on the fourth working day after 23 December 2009 (ie on 31 December 2009). Second, his evidence established that the ordinary course of post for a letter posted in Sydney for delivery to a street address in Townsville as at 23 December 2009 in the circumstances which obtained at the time was between two and five working days. While it is true that the four working day presumption set out in s 160(1) is within the range postulated in Mr Smith’s evidence, Mr Smith’s evidence shows that delivery on the fourth working day after the day of posting (viz 31 December 2009) is only one of four real possibilities. In any event, there were no street deliveries on the fourth working day (31 December 2009).

72    For these reasons, the Demetrious cannot rely upon the presumption provided for in s 160 of the Evidence Act.

73    I shall now consider whether the second limb of s 29 of the Acts Interpretation Act has any application in the circumstances of this case and whether Gusdote and Madeas have satisfied the Court that their applications against the Demetrious have been brought within the time limited by s 459G(2) of the Act.

74    No challenge was made by the Demetrious to the authenticity of the emails sent by Mr Hunter to Mrs Matheson on 1 January 2010. Those emails appear to be genuine. For these reasons, I find that, by 2.39 pm on 1 January 2010, Mr Hunter had obtained possession of all four Statutory Demands.

75    Mr Hunter testified that he retrieved the Statutory Demands from the letterbox located near the driveway of his business premises at 579 Ross River Road, Kirwan, QLD. Although Hunter Partners had a Post Office box at the Australia Post premises at Thuringowa Central, there is no suggestion that Australia Post had placed the Demands into that Post Office box and that they had thereafter been retrieved from that Post Office box by Mr Hunter or by one of his staff and then brought to his office. The envelopes in which the Demands had been posted were all addressed to the street address of Hunter Partners. I see no reason to doubt Mr Hunter’s evidence that he retrieved the four Statutory Demands from the letterbox near the driveway of his office premises and I find that this is what happened.

76    The evidence of Mr Smith does not enable me to fix any particular time as the time at which or any particular day as the day on which the Demands would have been delivered to 569 Ross River Road, Kirwan, QLD in the ordinary course of post. His evidence narrows down the delivery times to a period of time between 29 December 2009 and 5 January 2010. But, some of the days in that period are after 1 January 2010 and some are before that date. As I mentioned at [44] above, 1 January 2010 is the critical day.

77    For these reasons, on the assumption that the expression “the ordinary course of post” encompasses a range of dates as well as a single day, I do not think that defining “the ordinary course of post” by reference to a range of dates which begins on a day which is earlier than 21 days before the commencement of proceedings and ends within that 21 day period, is of any assistance in the present case.

78    Further, there is authority to the effect that, if the actual time of delivery is proved, that is the time of service for the purposes of s 459E of the Act (see Scope Data Systems Pty Ltd v Goman (2007) 70 NSWLR 176 at [17] (p 181)).

79    In the present case, both Gusdote and Madeas, on the one hand, and the Demetrious, on the other hand, attempted to prove the actual time at which the Statutory Demands were placed into the letterbox at 569 Ross River Road, Kirwan, QLD and thus the actual time at which they were delivered to the registered office of Gusdote and Madeas. To recap, Mr Hunter said that those Demands were not in that letterbox at about 3.00 pm on 31 December 2009 but were there by about 2.30 pm on 1 January 2010. If Mr Hunter’s evidence is to be accepted, the Demands were placed in the letterbox between about 3.00 pm on 31 December 2009 and 2.30 pm on 1 January 2010.

80    Mr Smith testified that there were no street deliveries of mail on either 31 December 2009 or on 1 January 2010. He said that the last street deliveries of mail in Townsville before the New Year of 2010 were made on 30 December 2009. He also said that street deliveries of mail in Townsville resumed on Monday, 4 January 2010.

81    I have accepted Mr Smith’s evidence. It follows from that finding that I accept that street deliveries of mail in Townsville ceased on 30 December 2009 and were not resumed until 4 January 2010.

82    If Mr Hunter’s evidence is to be accepted, the only plausible explanation for what occurred is that Australia Post delivered the Statutory Demands on either 29 December 2009 or on 30 December 2009 to another letterbox (probably another letterbox in Ross River Road) and that the occupier of the premises where that letterbox was located became aware that the mail had been misdelivered and, as a gesture of goodwill, took it upon themselves to place the misdelivered mail in the correct letterbox outside Hunter Partners’ office. As I see things at the moment, no other plausible explanation for what occurred can be advanced, if Mr Hunter’s evidence is to be accepted. During his cross-examination, Mr Hunter speculated that this is what happened. Apart from Mr Hunter’s testimony, there was, however, no evidence to support this hypothesis. It remained a matter of speculation.

83    But, even if I were to accept the hypothesis which I have described at [82] above, that hypothesis does not negate the possibility that the neighbourly good Samaritan who placed the Statutory Demands in Hunter Partners’ letterbox did so on 31 December 2009, after Mr Hunter had left the premises for the day.

84    Section 459G of the Act provides:

459G    Company may apply

(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 21 days after the demand is so served.

(3)    An application is made in accordance with this section only if, within those 21 days:

(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.

85    In David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265, when dealing with provisions which were substantially the same as those which are under consideration in the present case, Gummow J (with whom Brennan CJ and Dawson, Gaudron and McHugh JJ agreed) said (at 276–277):

In providing that an application to the court for an order setting aside a statutory demand “may only” be made within the twenty-one day period there specified and that an application is made in accordance with s 459G only if, within those twenty-one days, a supporting affidavit is filed and a copy thereof and of the applications are served, sub-ss (2) and (3) of s 459G attach a limitation or condition upon the authority of the court to set aside the demand. In this setting, the use in s 459G(2) of the term “may” does not give rise to the considerations which apply where legislation confers upon a decision-maker an authority of a discretionary kind and the issue is whether “may” is used in a facultative and permissive sense or an imperative sense 25. Here, the phrase “[a]n application may only be made within 21 days” should be read as a whole. The force of the term “may only” is to define the jurisdiction of the court by imposing a requirement as to time as an essential condition of the new right conferred by s 459G. An integer or element of the right created by s 459G is its exercise by application made within the time specified. To adapt what was said by Isaacs J in The Crown v McNeil ((1922) 31 CLR 76 at 100-101. See also (1922) 31 CLR 76 at 96, per Knox CJ and Starke J and Australian Iron & Steel Ltd v Hoogland (1962) 108 CLR 471 at 488-489, per Windeyer J), it is a condition of the gift in sub-s (1) of s 459G that sub-s (2) be observed and, unless this is so, the gift can never take effect. The same is true of sub-s (3).

This consideration gives added force to the proposition which has been accepted in some of the authorities that it is impossible to identify the function or utility of the word “only” in s 459G(2) if it does not mean what it says, which is that the application is to be made within twenty-one days of service of the demand, and not at some time thereafter and that to treat s 1322 as authorising the court to extend the period of twenty-one days specified in s 459G would deprive the word “only” of effect (Cavetina Pty Ltd v Synthetic Dyeworks Industries Pty Ltd (1994) 14 ACSR 274 at 281; 12 ACLC 768 at 774; Re J & E Holdings Pty Ltd (1995) 36 NSWLR 541 at 549).

86    In Derma Pharmaceuticals Pty Ltd v HSBC Bank Australia Ltd (2005) 188 FLR 373, Besanko J (with whom Duggan and White JJ agreed) said (at [28] (p 380)):

… There is force in the appellant's submissions, but I do not think they are sufficient to overcome the nature of the time limit in s 459G. The requirement as to time is an essential condition of the new right conferred by s 459G (David Grant & Co Pty Ltd) (Receiver Appointed) v Westpac Banking Corporation (supra) per Gummow J (at 277)). In other words, the requirement as to time is a condition of the jurisdiction of the Court to make an order under s 459G. In this case, although the statutory demand was received by the appellant on 24th October 2003 and the application to set aside the statutory demand was made within 21 days after that date, service of the statutory demand on the appellant took place at some point between 14th October and 23rd October 2003. If that service took place no earlier than 23rd October 2003 then the time limit in s 459G was met. If that service took place between 14th October and 22nd October 2003 then the time limit was not met. The evidence in this case did not allow any inference to be drawn other than the inference that the statutory demand was served on the appellant at some time between 14th October and 23rd October 2003. Whether it is appropriate to talk in terms of an onus on the appellant or simply in terms that the court must be satisfied that an essential condition of its jurisdiction is satisfied, on the evidence in this case an essential condition of the right to set aside the statutory demand was not established. The Master was right to dismiss the application.

87    In Scope Data Systems Pty Ltd at [24]–[25] (p 183), White J doubted that there was an onus on the defendant in an application to set aside a Statutory Demand to prove on the balance of probabilities that the time within which the application might be made had expired before the application had in fact been made. He preferred the approach reflected in Derma Pharmaceuticals Pty Ltd and in David Grant & Co Pty Ltd.

88    In David Grant & Co Pty Ltd, the High Court made perfectly clear that the requirement as to time embodied in s 459G(2) of the Act had to be met as an essential condition of the new right conferred by s 459G. Proof of that requirement is thus part of the evidentiary burden which the applicant is obliged to discharge.

89    I have found that there were no street mail deliveries in Townsville between midnight on 30 December 2009 and 4 January 2010. I have also found that Mr Hunter had possession of the Statutory Demands by 2.39 pm on Friday, 1 January 2010 and that he obtained possession of those documents by retrieving them from the letterbox located near the boundary of 569 Ross River Road, Kirwan, QLD. Mr Hunter’s evidence, if accepted, suggests that the Statutory Demands were somehow placed into that letterbox by someone other than an officer of Australia Post after 3.00 pm on 31 December 2009 and before mid afternoon on 1 January 2010. However, apart from Mr Hunter’s testimony, there is no evidence to support this hypothesis. The most likely explanation for the facts as I have found them so far is that the Statutory Demands were delivered to the Hunter Partners’ letterbox either on 29 December 2009 or 30 December 2009. In order to make a finding to that effect, I would have to reject the evidence of Mr Hunter. I do confess to having serious reservations about those aspects of Mr Hunter’s evidence which suggest that the Statutory Demands were served after 30 December 2009. However, I do not think it is necessary to reject Mr Hunter’s evidence in order to resolve the present question.

90    Mr Hunter’s evidence did not establish whether the Statutory Demands were delivered on 31 December 2009, after he left work, or on 1 January 2010. His evidence is consistent with both of these possibilities. Further, Gusdote and Madeas did not seek to call evidence to support the only hypothesis that Mr Hunter could conceive would satisfactorily explain how the Statutory Demands came to be delivered to his firm’s letterbox after he left work on 31 December 2009 when Australia Post did not make any street deliveries of mail on 31 December 2009.

91    Adopting the approach of the Full Court of the Supreme Court of South Australia in Derma Pharmaceuticals Pty Ltd and of White J in Scope Data Systems Pty Ltd and applying the principles laid down by the High Court in David Grant & Co Pty Ltd, I find that both Gusdote and Madeas have failed to prove that they made their applications to set aside the Demetrious’ Statutory Demands within 21 days after those Demands were served as required by s 459G(2) of the Act. Gusdote and Madeas have failed to prove that those Demands were delivered to Hunter Partners’ letterbox on 1 January 2010. For these reasons, their applications in respect of the Demetrious’ Statutory Demands must be dismissed for want of jurisdiction.

92    The findings which I have made at [44]–[91] above, strictly speaking, make it unnecessary for me to consider the other issues raised in the applications made by Gusdote and Madeas against the Demetrious. However, in deference to the parties’ arguments and against the possibility that there may be an appeal from this judgment, I will address those issues.

The Gusdote Debts

93    Mrs Ashley claims that Gusdote is indebted to her in the amount of $678,500. Mr Demetriou claims that Gusdote is indebted to him in the amount of $335,000.

94    In the annual Financial Statements for Gusdote prepared by Mr Hunter and approved by Mr Matheson for the years ended 30 June 2006 and 30 June 2007, Mr Ashley is shown as a creditor of Gusdote in the amount of $628,500 and Mr Demetriou is shown as a creditor of Gusdote in the amount of $335,000. In the Creditors’ Ledger maintained by Gusdote, Mr Ashley is shown as a creditor of Gusdote as at 28 February 2006 in the amount of $678,500 and Mr Demetriou is shown as a creditor of Gusdote as at 31 December 2006 in the amount of $335,000.

95    The entries in the Creditors’ Ledger show that $325,000 in each case was paid in the period from September 2003 to the end of May 2004. The payments which made up that total of $325,000 constitute the payments made by Mr Ashley and by Mr Demetriou in discharge of their obligations under the agreements which Cowdroy J found in his judgment in the contract proceedings had been agreed amongst Mr Ashley, Mr Demetriou and Mr Matheson in 2003 and 2004. The difference between the amount shown in the Creditors’ Ledger of Gusdote as due to Mr Ashley (viz $678,500) and the amount shown in the Financial Statements of Gusdote for the years ended 30 June 2006 and 30 June 2007 ($628,500) as due to Mr Ashley (ie the amount of $50,000) is said by Mr Matheson (and thus Gusdote) to be explained by the fact that an amount of $50,000 was paid by Mr Ashley on behalf of Mr Demetriou on 27 May 2004. Gusdote asserted that that $50,000 was brought to account in that part of the ledger referable to Mr Demetriou and should be deducted from the $678,500 shown in the Ledger as due to Mr Ashley.

96    On the assumption that this assertion is correct and assuming that the first $325,000 paid by Mr Ashley to Gusdote was not a loan but paid in consideration of the allotment of shares and the appointment of directors, there nonetheless remained as at 30 June 2006 an amount of $303,500 due to Mr Ashley (being the difference between $628,500 and $325,000). For similar reasons, as at that date, there remained due and owing to Mr Demetriou the amount of $10,000 (being the difference between $335,000 and $325,000).

97    There was no suggestion made by Mr Matheson or by anyone else on behalf of Gusdote that any part of these latter amounts had ever been repaid either to Mr Ashley (or Mrs Ashley) or to Mr Demetriou.

98    The Creditors’ Ledger of Gusdote tendered in evidence before me showed all of the payments made to Gusdote by Mr Ashley and by Mr Demetriou as loans to Gusdote. That Ledger did not take into account the terms and effect of the orders made on 11 June 2010 by Cowdroy J in the contract proceedings nor did it accurately reflect the true arrangements made amongst the parties.

99    For the purposes of the applications brought by Gusdote against Mrs Ashley and Mr Demetriou, I find that, to the extent of $325,000 of the amount claimed by each of them in the Statutory Demands served by them upon Gusdote, there was a genuine dispute as to whether that amount was due and owing from Gusdote to each of them as at 23 December 2009 and thereafter. When regard is had to the findings made by Cowdroy J, Mrs Ashley and Mr Demetriou would have great difficulty resisting the proposition that they are now estopped from asserting that the first two groups of payments (ie those totalling $325,000) made to Gusdote either by or on their behalf were loans by each of them to Gusdote.

100    I therefore find that:

(a)    As at 23 December 2009 and at all material times thereafter until 24 May 2010, there was a genuine dispute within the meaning of s 459H(1)(a) of the Act in respect of so much of the amount claimed by Mrs Ashley against Gusdote as was referable to the initial and subsequent agreements referred to by Cowdroy J in his judgment in the contract proceedings (viz $325,000) and in respect of so much of the amount claimed by Mr Demetriou as was referable to the initial and subsequent agreements referred to by Cowdroy J in his judgment in the contract proceedings (viz $325,000).

(b)    As at 23 December 2009 and at all times thereafter, there was no genuine dispute in respect of that part of the amount claimed by Mrs Ashley as was not encompassed in the allegations made by her in the contract proceedings (viz $303,500) and no genuine dispute in respect of that part of the amount claimed by Mr Demetriou as was not encompassed in the allegations made by him in the contract proceedings (viz $10,000).

(c)    It was not an abuse of process for Mrs Ashley and Mr Demetriou to press their claims in the contract proceedings at the same time as seeking to wind up Gusdote on the basis of debts due to them. Although, as I have found, the amounts claimed exceeded the amounts which were not truly in dispute, Mrs Ashley and Mr Demetriou were justified in maintaining their position before me for so long as the respondents in the contract proceedings denied the claims which the applicants had made in those proceedings and, at the same time, contended before me that the entire amount of the debt claimed by each of them from Gusdote was being claimed in the contract proceedings in another guise.

101    It follows from the findings which I have made at [96]–[100] above that, for the purposes of the proceeding between Gusdote and Mrs Ashley, the substantiated amount of the Statutory Demand served upon Gusdote by Mrs Ashley is $303,500. It also follows from those findings that, for the purposes of the proceeding between Gusdote and Mr Demetriou, should it be relevant, the substantiated amount of the Statutory Demand served upon Gusdote by Mr Demetriou is $10,000.

102    I see no reason not to vary the Statutory Demand served upon Gusdote by Mrs Ashley so as to specify that the total sum due to her as at 28 February 2006 and at all times thereafter was $303,500. I also see no reason not to make a declaration that that Statutory Demand has effect, as so varied, as and from the date when it was served upon Gusdote (as to which see s 459H(4) of the Act).

103    There is no need to deal with the Statutory Demand served by Mr Demetriou upon Gusdote in similar fashion. For reasons which I have already explained, Gusdote’s proceeding against him (NSD 47 of 2010) will be dismissed for want or jurisdiction.

The Madeas Debts

104    Counsel for Madeas submitted that, if there is a plausible contention that the claimed debt is not owing, due and payable, then the Court should be satisfied that there is a genuine dispute about the existence of the debt for the purposes of s 459H(1)(a) of the Act. Counsel relied upon Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 to support that proposition.

105    In BMG Poseidon Corp Pty Ltd v Adelaide Bank Ltd (No 2) [2009] FCA 404, at [63]–[66], I said:

63    For s 459H(1)(a) to be engaged, the Court must be satisfied that there is a genuine dispute about the existence or about the amount of the debt. In order for a dispute of that kind to be raised, there must be more than the mere assertion of a dispute or the mere making of a claim (per Lindgren J in Rohalo Pharmaceutical Pty Ltd v RP Scherer SpA & Pharmagel SpA (1994) 15 ACSR 347, (1994) 13 ACLC 94 at 352/30–354/15, esp at 353/20–25).

64    The dispute must have an objective existence the genuineness of which is capable of being assessed (Rohalo 15 ACSR 347, 13 ACLC 94 at 353/17–25). The test has been equated with the test as to whether the creditor would be entitled to summary judgment on the claim (Rohalo 15 ACSR 347, 13 ACLC 94 at 353/42–354/8).

65    In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787–788, (1994) 12 ACLC 669, McLelland CJ in Eq said:

It is, however, necessary to consider the meaning of the expression “genuine dispute” where it occurs in s 450H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the “serious question to be tried” criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit “however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be” not having “sufficient prima facie plausibility to merit further investigation as to [its] truth” (cf Eng Mee Yong v Letchumanan [1980] AC 331 at 341), or “a patently feeble legal argument or an assertion of facts unsupported by evidence”: cf South Australia v Wall (1980) 24 SASR 189 at 194.

But it does mean that, except in such an extreme case, a court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments (at 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Div 3 of Pt 5.4 of the Corporations Law, and to the terms of Div 3:

These matters, taken in combination, suggest that at least in most cases, it is not expected that the court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute.

In Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 at 605 Thomas J said:

There is little doubt that Div 3 … prescribes a formula that requires the court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the court will examine the merits or settle the dispute. The specified limits of the court's examination are the ascertainment of whether there is a “genuine dispute” and whether there is a “genuine claim”.

It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it), the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.

The essential task is relatively simple—to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).

I respectfully agree with those statements.

66    In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 461–464 a Full Court of this Court discussed the relevant principles by reference to a number of the relevant authorities. At 464F–G the Court said:

In our view a “genuine” dispute requires that:

•    the dispute be bona fide and truly exist in fact;

•    the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.

106    In considering the arguments raised by Madeas in the present case, I will apply those principles.

107    The first submission made by Madeas in support of the s 459H(1)(a) ground raised by it was that, in the contract proceedings, Mrs Ashley and Mrs Demetriou sought declarations that:

(a)    after May 2004, no meetings of directors were convened; and

(b)    after May 2004, no resolutions were passed by the directors of Madeas.

108    Madeas then submitted that, in light of those claims, further enquiry would need to be undertaken by a Court to determine whether a valid and effective resolution had ever been passed by Madeas by which the 2006 profits of the Willows Unit Trust had been distributed to the unitholders in that Trust, which included Mrs Ashley and Mrs Demetriou.

109    In the contract proceedings, at [14] (p 569), Cowdroy J found that, after May 2004, no meetings of Madeas were attended by Mr Ashley or Mr Demetriou. His Honour did not make a finding that no resolution had been passed by Madeas by which the 2006 profits of the Willows Unit Trust had been distributed to the unitholders in that Trust. On the contrary, his Honour found, also at [14] (p 569), that a recorded profit of $387,000 became payable to each of the shareholders in Madeas in 2006 and that neither Mrs Ashley nor Mrs Demetriou had received her allocated share of the overall profit.

110    Neither the declarations sought by Mrs Ashley and Mrs Demetriou in the contract proceedings nor the findings made by his Honour in those proceedings create the basis for a genuine dispute about the existence of the debts claimed by Mrs Ashley and by Mrs Demetriou in the Statutory Demands which they served on Madeas.

111    Furthermore, the Financial Statements of the Willows Unit Trust for the year ended 30 June 2006 record the following:

(a)    In the Balance Sheet, under the heading “Current Liabilities”:

(b)    Next to the entry extracted in (a) above is a reference to Note 9.

(c)    Note 9, “Unpaid Trust Distributions”, is in the following terms:

112    Those Financial Statements were approved and signed by Mr Matheson, in his capacity as a director of Madeas.

113    The Trust Income Tax Return for the same year for the Willows Unit Trust showed that the following distributions were made in respect of the year ended 30 June 2006:

That Income Tax Return was signed by Mr Matheson.

114    The profit which the Willows Unit Trust derived during the year ended 30 June 2006 came from the sale of all of the land which that Trust had held at the beginning of that Financial Year.

115    At Mr Matheson’s instigation, each of Mrs Ashley and Mrs Demetriou included the amount of $370,079 as income in her individual Income Tax Return for the year ended 30 June 2006.

116    The profits of the Willows Unit Trust for the year ended 30 June 2007 were also distributed equally among the unitholders in that Trust. This brought Mrs Ashley’s loan account with the Trust up to $613,223.34. For the same reason, Mrs Demetriou’s loan account with the Willows Unit Trust as at 30 June 2007 also stood at $613,223.34.

117    In both the 2006 and the 2007 years, the Financial Statements of the Willows Unit Trust showed that there were no retained profits in the Trust.

118    There is no evidence before me of any formal resolution passed by the directors of Madeas by which the profits of the Willows Unit Trust were allocated to Mrs Ashley, Mrs Demetriou and the Don Matheson Family Trust. In my view, this does not matter.

119    Neither Madeas nor Mr Matheson can be heard to say that “further enquiry” is required as to whether such a resolution was passed. In circumstances where Madeas, as trustee of the Willows Unit Trust, lodged its own tax returns upon the basis that all of the profits of that Trust for the years ended 30 June 2006 and 30 June 2007 had, in fact, been distributed to the unitholders of that Trust and, at the instigation of Mr Matheson, each of Mrs Ashley and Mrs Demetriou had included her share of those profits in her own individual Income Tax Return for each of those years, Madeas is now estopped from denying that the whole of the profits of the Willows Unit Trust for the 2006 and 2007 years were distributed to the unitholders in that Trust. The entries in the Financial Statements of Madeas, as trustee of the Willows Unit Trust also constitute admissions made by Madeas in that capacity, that the amounts shown were debts due to Mrs Ashley and Mrs Demetriou respectively.

120    For these reasons, I reject the first argument advanced by Madeas.

121    The second argument advanced by Madeas was that neither Mrs Ashley nor Mrs Demetriou stood in a debtor/creditor relationship with Madeas because their entitlement (if any) to recover the amounts shown in the Financial Statements of Madeas for the Financial Years ended 30 June 2006 and 30 June 2007 was an entitlement which could only be enforced in equity. It was submitted that it was not an entitlement which could support a Creditor’s Statutory Demand served upon Madeas pursuant to s 459E of the Act. In support of these arguments, Counsel for Madeas relied upon the judgment of Heerey J in Euroasian Holdings Pty Ltd v Ron Diamond Plumbing Pty Ltd (In Liq) (1996) 64 FCR 147.

122    In Euroasian Holdings Pty Ltd, the trustee of a discretionary trust had resolved to distribute the profits of that trust made in the financial year ended 30 June 1994 and to credit the amount of that distribution to the benefit of that beneficiary in the books of account of the trust. It does not appear from the judgment whether both of these steps were actually carried out. The ratio of Heerey J’s decision was that, because Westpac Banking Corporation held a charge over the assets of Euroasian Holdings Pty Ltd, the amount of the trust distribution was “its money”. It was secured by the charge and had to be paid to Westpac. By way of obiter, at 150, Heerey J said:

The second ground which I hold is made out is that there was not a “debt” which the Code requires as the foundation of a statutory demand: s 159E. The resolutions in question did not bring about the relationship between the applicant and respondent of debtor and creditor. Whether or not the respondent may have been “presently entitled” for the purposes of the Income Tax Assessment Act 1936 (Cth), it seems to be the position that rights of the respondent were enforceable in equity only. I rely on what was said in Commissioner of Inland Revenue v Ward (1969) 69 ATC 6,050 at 6,071. The New Zealand Court of Appeal was dealing with the question whether a resolution for distribution of trust income to beneficiaries amounted to an application of the trust income for the purpose of New Zealand tax law. But relevantly for present purposes McCarthy J said (at 6071):

I believe, too, that it is misleading to speak of debtor-creditor relationship. The rights of the beneficiaries here do not arise out of debt or contract. They arise out of the trusts created by the deed, and the beneficiaries are entitled to invoke the powers of the Court by reason of a new title “consisting of the exercise of the Trustees’ discretion in the infant's favour”.

123    In Chianti Pty Ltd v Leume Pty Ltd (2007) 35 WAR 488, Buss JA explained the relevant principle as follows (at [68] (p 510)):

68.    In my opinion, if, when the District Court action was commenced (that is, 18 January 2005), there remained nothing for the appellant to execute in respect of the trust on which it held the amounts distributed to the respondent, except the payment of those amounts to the respondent; or if, when the District Court action was commenced, the appellant had admitted the existence of a debt owing to the respondent on account of the distributed amounts in question, then the respondent was entitled to recover those amounts from the appellant by an action for money had and received. Such an action would be “a personal action” within s 50(1)(a) of the Act in that the relevant amounts would be money which the appellant had and received and which the respondent was entitled to recover. Any cause of action of the respondent for money had and received would be against the appellant personally in respect of its receipt of the relevant amounts and its failure to make payment to the respondent.

124    Martin CJ and Pullin JA both agreed with Buss JA.

125    The facts in Chianti Pty Ltd were very similar to the facts of the present case. The trustee had resolved to distribute the profits of the trust to the respondent in that case and the amount of those distributions was shown in the books and records of the trust as a loan by the beneficiary to the trust. The amount in question had not been paid to the beneficiary at the time when the relevant proceedings commenced.

126    At [69]–[70] (pp 510–511), Buss JA said:

69.    I turn, first, to consider whether, as at the date of commencement of the District Court action, there remained nothing for the appellant to execute in respect of the trust created pursuant to cl 3.5 of the SJRF Trust deed, except the payment over of the amounts distributed to the respondent.

70     In my opinion, cl 3.5 of the SJRF Trust deed, the resolutions, the financial statements of the SJRF Trust and the evidence of Stephen Frederick Ryan, which I have mentioned at [24], [27]–[30], [32] and [64] above, establish that as at the critical date, the appellant held the distributed amounts upon trust for the respondent absolutely. The respondent’s interest in the distributed amounts was not subject to any contingency or condition which might defeat its entitlement. Rather, the respondent's interest in the distributed amounts was vested in interest and possession. The statutory demand dated 16 July 2004 was effective to require the appellant to pay the distributed amounts to the respondent, notwithstanding that the demand was, in form, made as a creditor against a debtor for the payment of a debt rather than by a beneficiary against a trustee for the payment of amounts in respect of which the beneficiary had an absolutely vested entitlement. The court should not adopt a construction of the statutory demand which is narrow or unreal. Compare, in a contractual context, the observations in Kearns v Hill (1990) 21 NSWLR 107, 109 (Meagher JA, Mahoney & Clarke JJA agreeing). It is plain, on a reasonable construction of the statutory demand in the context of the factual and legal background against which it was made, that the demand sought payment of the distributed amounts. In my opinion, at the critical date, the appellant was obliged to pay the relevant amounts to the respondent. There remained nothing for the appellant to execute in respect of the trust on which it held the distributed amounts, except payment over of the relevant amounts to the respondent and, in consequence, on the authorities referred to by Gummow J in Roxborough [67], the respondent was entitled to recover those amounts from the appellant by an action for money had and received.

127    His Honour went on also to hold that the appellant had admitted that the distributed amounts were owing to the respondent by showing them as liabilities in its Financial Statements. At [77] (pp 514–515), his Honour said:

77.    In the present case, I am of the opinion that the financial statements of the SJRF Trust and the evidence of Stephen Frederick Ryan, which I have mentioned at [27]–[30] and [32] above, when considered in the context of the relevant factual and legal background including cl 3.5 of the SJRF Trust deed and the resolutions, constitute admissions by the appellant that the distributed amounts were owing by the appellant to the respondent, for the purposes of the principle referred to in Gummow J’s reasons in Roxborough [67]. The latest financial statements before Judge Eaton, namely, those for the year ended 30 June 2003, described the distributed amounts as an “Unpaid Beneficiary Entitlement”. When that description is read with cl 3.5, the resolutions and Stephen Frederick Ryan’s evidence, the proper conclusion is that the appellant’s admission was of an obligation to pay on demand. Although it is unnecessary to determine this point, my examination of Edwards v Lowndes and the other cases in the line of authority referred to in Meagher, Gummow & Lehane’s, Equity Doctrines & Remedies (4th ed, 2002) [1-215] and Gummow J’s reasons in Roxborough [67], does not indicate that it is essential, for there to be a binding admission in relation to an amount owing by a trustee to a beneficiary, that the relevant amount is held as, or represented by, cash at bank or some other monetary sum when the alleged admission is made.

128    In Euroasian Holdings Pty Ltd, the remarks of Heerey J at 150 were obiter. In any event, Heerey J did not make clear in his judgment whether the trustee had put into effect the resolution to which he referred. He did not say whether, at the time of the hearing before him, the books and records of the trust showed the beneficiary as a creditor of the trustee. For that reason, it is not clear whether anything remained for the trustee to do to execute the trust with which it was charged. The case is, therefore, distinguishable from the present case.

129    The reasoning of Buss JA in Chianti Pty Ltd is applicable to the present case. I think that it is correct. I intend to apply that reasoning to the present case.

130    Here, the Financial Statements of Madeas (and, by implication, the primary accounting records of Madeas) make perfectly clear that the trust distributions have actually been made as shown in those records. Each of Mrs Ashley and Mrs Demetriou was a creditor of Madeas, in its capacity as the trustee of the Willows Unit Trust, in the amount of $369,548.61 as at 30 June 2006 and a creditor for $613,223.34 as at 30 June 2007. There is no suggestion that any part of these debts has been paid to either of them.

131    Madeas also contended that it was entitled to relief because the service of the Statutory Demands constituted an abuse of process. It submitted that:

30.    The Plaintiff apprehends, although it is not altogether clear from the pleadings, that Mrs Ashley is seeking to recover the $397,161.91 in matter NSD 935 of 2009 against Madeas. If that is so, she does not in those proceedings pursue that claim as a claim in debt. The subsequent characterisation of her claim as a debt in the statutory demand reveals an abuse of process.

132    The applicants in the contract proceedings made no such claim in those proceedings. I reject the Submission made by Madeas which I have extracted at [131] above.

133    For these reasons, I would have made a declaration and order pursuant to s 459H(4) in respect of the Statutory Demand served by Mrs Ashley reducing the amount of the Statutory Demand served by her upon Madeas from $397,161.91 to $369,548.61, had it been necessary to do so. However, for reasons which I will explain shortly, the proceeding brought by Madeas against Mrs Ashley will be dismissed because it was instituted without the authority of Madeas.

134    I will dismiss the application made by Madeas against Mrs Demetriou (NSD 49 of 2010) for want of jurisdiction (as to which see [44]–[92] above). It should be noted, however, that if I am wrong in this latter conclusion, I would have dealt with Madeas’ claim against Mrs Demetriou in the same way as I propose to deal with its claim against Mrs Ashley, and for the same reasons.

135    Counsel for Mrs Ashley and Mrs Demetriou also submitted that a debt under s 459E includes an equitable debt (Manzo v 555/255 Pitt Street Pty Ltd (1990) 21 NSWLR 1; and Reale Bros Pty Ltd v Reale (2003) 179 FLR 427 at [56]–[57] (pp 434–435); Fire and All Risks Insurance Co Ltd v Southern Cross Exploration NL (No 4) (1986) 4 ACLC 447; and Re Steel Wing Co Ltd [1921] 1 Ch 349 at 355). He then submitted that the liability of a trustee to a beneficiary for money in the hands of the trustee or which the trustee is liable to pay the trustee is an equitable debt (Wickstead v Browne (1992) 30 NSWLR 1 at 14F–15B). Given that I have rejected Madeas’ arguments on other grounds, I do not need to deal with these submissions. However, I think that they are correct. They provide additional reasons for rejecting the arguments advanced by Madeas.

The Challenge to the Retainer of RNM Lawyers

136    At all times since the death of Mr Ashley, the only directors of Madeas have been Mr Matheson and Mr Demetriou. Mr Matheson concedes that he did not speak to Mr Demetriou or otherwise consult him before retaining RNM Lawyers to institute the two sets of proceedings brought by Madeas against Mrs Ashley and against Mrs Demetriou (NSD 37 of 2010 and NSD 49 of 2010).

137    Mr Demetriou testified that he would never have agreed to the retainer of RNM Lawyers or the institution of proceedings by Madeas against his wife and against Mrs Ashley.

138    Mr Matheson testified that he regarded Mr Demetriou’s interests to be in conflict with the interests of Madeas and aligned with the interests of Mr Ashley. He said that, given the time constraints under which he found himself, he had no choice but to act and to retain lawyers to institute proceedings seeking relief pursuant to s 459G(2) of the Act in respect of the Statutory Demands served upon Madeas.

139    But, the true position was that Madeas was in deadlock. Mr Matheson apparently had a very one-eyed view of the facts. The Demetrious only had a conflict of interest if the interests of Madeas coincided precisely with those of Mr Matheson. That was clearly not the case. Mr Matheson should have sought relief in the Court before taking the steps which he did.

140    In an endeavour to justify his actions, Mr Matheson gave evidence that he thought he had authority to take the steps which he did and to retain RNM Lawyers to bring s 459G(2) proceedings against Mrs Ashley and Mrs Demetriou. He gave evidence of a number of occasions in the past when he had previously instructed solicitors on behalf of Madeas. But the transactions were all commercial transactions entered into before the management of Madeas became deadlocked. They do not assist Mr Matheson.

141    Mr Matheson had no express authority to retain RNM Lawyers—that much is conceded. Nor did he have any implied actual authority (see the discussion of the relevant principles in Nece Pty Ltd v Ritek Incorporation (1997) 24 ACSR 38).

142    In Nece Pty Ltd at 45–46, Lehane J discussed whether s 1322(4) of the Act could remedy the lack of authority to retain solicitors which was established in that case. His Honour held that, where there is a deadlock in the management of the affairs of a corporation, if it is plain that, if authority to retain solicitors to institute proceedings, if sought, would be refused, it could hardly be said that the invalidity of the unauthorised act was because of a contravention of the constitution of the corporation. In that case, his Honour declined to make an order under s 1322(4). His Honour’s reasoning is apposite in the present case and I propose to apply it here. I will therefore refuse the relief sought by Mr Matheson in the Interlocutory Processes filed by him in proceeding NSD 37 of 2010 and proceeding NSD 49 of 2010. He should pay the costs of and incidental to those processes.

143    RNM Lawyers were aware from 18 January 2010 (at the latest) that Mr Matheson and Mr Demetriou were the only two directors of Madeas. They were also aware that the management of Madeas was deadlocked. They should not have accepted the instructions of Mr Matheson and should not have acted in the proceedings brought by Madeas without first obtaining the approval of the Court to do so. The absence of authority was drawn to their attention in early March 2010 but they continued to act.

144    Where solicitors have no authority to act, the Court will either stay or dismiss the proceedings (Harry S Bagg’s Liquidation Warehouse Pty Ltd v Whittaker (1982) 44 NSWLR 421 at 430–431).

145    Ratification of the authority of the solicitors to act in the two sets of proceedings with which I am concerned will never be forthcoming. For this reason, the proceedings should be dismissed. It follows that, had it become necessary, I would have dismissed proceeding NSD 37 of 2010 and proceeding NSD 49 of 2010 on this ground.

Costs

146    Mrs Ashley and the Demetrious submitted that I should not order either Gusdote or Madeas to pay the costs of the proceedings before me because such an order would unfairly prejudice them as shareholders in Gusdote and as shareholders in Madeas and unitholders in the Willows Unit Trust. I accept that submission. There will be no order as to costs in either of the proceedings brought by Gusdote.

147    The other candidates against whom I could make a costs order are Mr Matheson and the partners of RNM Lawyers. Mr Matheson is not a party to the proceedings. His only direct role was as the applicant in the Interlocutory Processes by which he sought relief under s 1322(4) of the Act in respect of his retainer of RNM Lawyers. In any event, the defendants did not seek a general costs order against Mr Matheson.

148    It is usual for the Court to make a costs order against solicitors whose retainer is successfully challenged. RNM Lawyers were on notice that such an order would be sought against them on an indemnity basis. The partners of RNM Lawyers are not parties to any of the proceedings. If the proceedings have been brought “… under …” the Act, the Court does not have power to make a costs order against a non-party (see s 1335(2) of the Act and Australian Forest Managers Ltd (In Liq) v Bramley (1996) 65 FCR 13 at 19F–23F).

149    In my view, however, the two sets of proceedings brought by Madeas have not been brought under the Act. In the case of the Madeas proceeding against Mrs Demetriou, the proceeding was never properly instituted because it was not brought within the time limited by s 459G(2) of the Act. In the case of the Madeas proceedings against both Mrs Ashley and Mrs Demetriou, they were also never properly instituted because they were brought without the authority of Madeas. In those circumstances, the partners of RNM Lawyers should pay the costs of the defendants in the two sets of proceedings brought by Madeas (NSD 37 of 2010 and NSD 49 of 2010). Although the conduct of RNM Lawyers in acting as they did is of concern, I do not think that those costs should be paid on an indemnity basis.

The Liquidation of Gusdote

150    The liquidation of Gusdote does not affect any of the orders which I propose to make.

Conclusions

151    For a number of reasons, the proceedings before me will be dismissed. I will make s 459H(4) orders in the proceeding brought by Gusdote against Mrs Ashley (NSD 36 of 2010). However, those orders will not preclude Mrs Ashley from proving in the liquidation of Gusdote for a different and larger sum if the present debt due to her is greater than the amount which I have found was substantiated as at 28 February 2006. I will make costs orders on the basis indicated at [146]–[149] above.

Associate:

Dated:    21 March 2011