FEDERAL COURT OF AUSTRALIA

LB Schofields One Pty Ltd v Trevet Property Pty Ltd, in the matter of LB Schofields One Pty Ltd [2015] FCA 1416

IN THE MATTER OF LB SCHOFIELDS ONE PTY LIMITED (ACN 600 244 639)

THE COURT ORDERS THAT:

1.    Pursuant to s 459H of the Corporations Act 2001 (Cth) the Creditor’s Statutory Demand dated 22 July 2015 and addressed to the plaintiff, LB Schofields One Pty Ltd, be set aside.

2.    The defendant pay the plaintiff’s costs of the proceedings.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE MATTER OF LB DEVELOPMENTS GROUP PTY LIMITED (ACN 169 713 400)

THE COURT ORDERS THAT:

1.    Pursuant to s 459H of the Corporations Act 2001 (Cth) the Creditor’s Statutory Demand dated 22 July 2015 and addressed to LB Developments Group Pty Ltd, be set aside.

2.    The defendant pay the plaintiff’s costs of the proceedings.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE MATTER OF LB SCHOFIELDS ONE PTY LIMITED (ACN 600 244 639)

IN THE MATTER OF LB DEVELOPMENTS GROUP PTY LIMITED (ACN 169 713 400)

REASONS FOR JUDGMENT

Background

1    These proceedings were heard together and are related. They arise out of the service by the defendant in both proceedings, Trevet Property Pty Ltd (Trevet), of creditor’s statutory demands dated 22 July 2015 issued pursuant to s 459E of the Corporations Act 2001 (Cth) (the Act) on each of LB Schofields One Pty Ltd (LB Schofields) and LB Developments Group Pty Ltd (LB Developments) (the Demands). Save for the identity of the debtor the Demands are in relevantly identical terms.

2    According to the affidavits accompanying the Demands sworn by Jerome Grech, a director of Trevet, on 22 July 2015, the debt of $374,883.95 sought in each of the Demands, is for “Agreed fees for services rendered for a joint and severally liable debt owed by” LB Schofields and LB Developments.

3    On 12 August 2015, each of LB Schofields and LB Developments commenced proceedings by the filing of an originating process naming Trevet as defendant in each case and seeking the same relief as follows:

(1)    An order under s 459H, alternatively s 459J of the Act, setting aside the Creditor’s Statutory Demand dated 22 July 2015 and delivered on 22 July 2015 on the plaintiff, a copy of which is annexed to the originating process marked “A”.

(2)    Costs of suit.

(3)    Further and/or alternative relief as the Court deems fit.

4    The affidavits relied on by the plaintiffs fall into two categories: those going to the substantive relief claimed and those going to service of the originating process and affidavit in support in each proceeding. In each proceeding, a preliminary jurisdictional issue was raised by Trevet in relation to whether the originating process and affidavit in support were served within the prescribed 21 day period. While that issue was ultimately not pressed, there is an outstanding issue in relation to the costs of that aspect of the matter which I deal with at the end of these reasons.

5    In proceedings No. NSD 955/2015, LB Schofields, as plaintiff, relies on the following affidavits in relation to the substantive relief claimed:

    affidavit of James Edward Austin sworn 11 August 2015.

    affidavit of Shu Su sworn 28 October 2015.

    affidavit of Peter Tao Zhu sworn 28 October 2015.

    affidavit of James Edward Austin sworn 29 October 2015.

6    In proceedings No. NSD 956/2015 LB Developments, as plaintiff, relies on the following affidavits in relation to the substantive relief claimed:

    affidavit of Peter Tao Zhu sworn 12 August 2015.

    affidavit of Andrew Yong Zhou sworn 28 October 2015.

    affidavit of Peter Tao Zhu sworn 28 October 2015.

    affidavit of James Edward Austin sworn 29 October 2015.

7    Trevet opposes the applications and disputes that there is a genuine dispute about the debt the subject of the Demands and that the Demands should be set aside. It relies on an affidavit affirmed by Vincent Joseph Grech on 20 October 2015 and an affidavit sworn by Brian James Gillard on 20 October 2015. Mr Gillard’s affidavit goes to the issue of costs in relation to the preliminary jurisdictional issue. These affidavits were filed in identical terms in both sets of proceedings.

Legal framework

8    Section 459E(1) of the Act enables a person to serve a demand on a company relating to a single debt that the company owes to the person or two or more debts that the company owes to the person. In either case the debts must be due and payable and the amounts must exceed the statutory minimum. Section 459E(2) prescribes what the demand must include and s 459E(3) requires that, unless the debt is a judgment debt, the demand must be accompanied by an affidavit that verifies that the debt is due and payable by the company and that complies with the rules of the relevant court.

9    Section 459G of the Act enables a company that has been served with a demand to apply to the court for an order setting it aside. Any such application must be made within 21 days after the demand is served and must comply with the requirements set out in s 459G. Other than the residual costs issue, no issue arises in relation to the validity of the applications made under s 459G of the Act to set aside the demands.

10    The applications made by LB Schofields and LB Developments to set aside the demands are made under s 459H, or alternatively s 459J, of the Act. Section 459H applies where the court is satisfied of either or both of the following:

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

(2)    the company has an offsetting claim.

11    The section provides a formula to calculate the substantiated amount of the demand and if the substantiated amount so calculated is less than the statutory minimum, the court is required by s 459H(3) to set aside the demand. If the substantiated amount is at least as great as the statutory minimum, the court may, pursuant to s 459H(4) make an order varying the demand and declaring the demand to have had effect as varied as and from when it was served on the company.

12    In Eyota v Hanave Pty Ltd (1994) 12 ACSR 785 (Eyota) McClelland CJ in Eq set out the following test at 787 in relation to the approach a court should take in determining whether there is a genuine dispute about the existence or the amount of a debt:

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.

13    In Spencer Constructions v G & M Aldridge (1997) 76 FCR 452 (Spencer Constructions), a Full Court of this Court, after reviewing various decisions which had considered the principles applicable to determining whether there is a genuine dispute about the existence or the amount of a debt to which a demand relates, including Eyota, said at 464:

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.

We consider that the various formulations referred to above can be helpful in determining whether there is a genuine dispute in a particular case, so long as the formulation used does not become a substitute for the words of the statute.

14    At 463, the Full Court noted that in considering applications to set aside a statutory demand, a court “will not determine contested issues of fact or law which have a significant or substantial basis”.

15    On this latter issue in Panel Tech Industries (Aust) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18] Barrett J stated:

[T]he task faced by a company challenging a statutory demand on the “genuine dispute” ground is by no means at all a difficult or demanding one. The company will fail in that task only if it is found upon the hearing of its s 459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger.

16    Section 459J(1) enables the court to set aside a demand, on an application under s 459G, if it is satisfied that there is a defect in the demand which will cause substantial injustice unless the demand is set aside or there is some other reason why the demand should be set aside. Section 459J(2) provides that a demand cannot be set aside merely because of a defect.

17    In relation to s 459J, at 458 the Full Court in Spencer Constructions expressed the view that, as a matter of construction, that section is intended to operate in the following way:

If the defect is “in the demand” it is only to be set aside if substantial injustice will be caused by the defect unless the demand is set aside: see s 459(1)(a) and (2). If there is any other defect, including a defect in relation to the demand rather than in the demand itself, then the demand may only be set aside if the Court is satisfied that there is some reason why the demand should be set aside: see s 459J(1)(b) and (2).

At 458–459, the Full Court went on to say:

Section 459J(1) and (2) constitute the statutory code for defects in a demand; within that code the legislature did not distinguish between degrees of defect in statutory demands. As we have pointed out a defect in a demand only gives rise to an entitlement (if substantial injustice is established) to have the demand set aside under s 459J(1)(a), but not under s 459J(1)(b). Accordingly, the “other reason” required by s 459J(1)(b) must, in our view, be a reason other than a defect in the demand.

18    The concept of some other reason in s 459J(1)(b) is broad. In Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746 (Portrait Express) at 757 Bryson J said the following about the operation of s 459J(1)(b):

… The court should not act under para (b), which is discretionary, unless the decision to do so is supported by some sound or positive ground or good reason which is relevant to the purposes for which the power exists.

The detailed provisions of ss 459H and 459J(1)(a) show that demands are to stand unless there are reasons for setting them aside, and an application under para (b) should be approached in that way.

19    In Re UGL Process Solutions Pty Ltd [2012] NSWSC 1256 Black J said at [43]:

The court may set aside a statutory demand under s 459J(1)(b) of the Corporations Act if it is satisfied that there is some other reason that the demand should be set aside. The court’s power under that section exists to maintain the integrity of the process provided under Pt 5.4 of the Corporations Act and is to be used to counter an attempted subversion of the statutory scheme, but is not exercised by reference to subjective notions of fairness: Portrait Express (Sales) Pty Ltd v Kodak (A’asia) Pty Ltd above; Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24 ; (2005) 53 ACSR 229; CP York Holdings Pty Ltd v Food Improvers Pty Ltd [2009] NSWSC 409. A statutory demand may be set aside under that section where it involves conduct which is unconscionable or an abuse of process: Arcade Badge Embroidery Co Pty Ltd v DCT [2005] ACTCA 3; (2005) 157 ACTR 22. In First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939, Santow J observed that a statutory demand could be set aside under s 459J(1)(b) by reason of a substantial overstatement in the amount claimed, and that, where a statutory demand has been so grossly inflated as to comprise matters which it should have been obvious from the outset were in genuine dispute between the parties at the time the demand was served, then an order under s 459J(1)(b) setting aside that statutory demand may well be required to prevent such an abuse of the regime under Pt 5.4 of the Act.

Facts

20    The Demands that were served on the plaintiffs by Trevet, which is the corporate trustee of the Trevet Unit Trust, relate to debts allegedly owed for services rendered by Trevet in connection with the sourcing and proposed acquisition of certain property located at Lot 10 Boundary Road, Schofields (the Lot 10 Property) which was to be subdivided as follows:

(1)    part Lot 10, Boundary Road, Schofields, NSW 2762 contained in Folio Identifier 10/536381 (the Riverstone Property); and

(2)    part Lot 10, Boundary Road, Schofields, NSW 2762 contained in Folio Identifier 10/536381 being that part of the land located in the Riverstone East Precinct release of approximately seven acres (the Riverstone East Property).

21    On 15 May 2014 Mr Vince Grech (Mr Grech) sent an email to Mr Austin which included the following:

Further to our discussion we confirm our agreement as follows.

1.    Consultancy Fees – Lot 10 Boundary Road, Schofields

a)    4% + GST for the purchase of Lot 10 Boundary Road, SCHOFIELDS.

b)    50% payable on exchange and 50% payable three (3) months from exchange.

2.    Consultancy Fees – Subsequent Acquisitions

It is agreed that as a result of LB engaging Trevet exclusively to provide all land supply requirements in accordance with LB’s five (5) year plan all subsequent acquisitions will have the following applicable fee

a)    3% + GST

b)    50% payable on exchange and 50% payable three (3) months from exchange.

We will in due course forward across our Consultancy agreement that will outline these points as per your request.

We look forward to receiving our detailed outline in relation to annual land supply requirements in accordance with your business plan including but not limited to:

…

We will continue with the provision of sites that we feel will be suitable however upon receipt of same we will originate a specific program tailored to your requirements that is aligned with appropriate precinct delivery, zoning and commencements. We look forward to working with you further.

22    On the same day, Mr Austin responded to Mr Grech’s email in the following terms:

We agree to this structure for this project precinct only at this stage.

However, it’s still unclear what you will provide in your fee structure; please clarify what is provided for and what this pays for so everything is clear, I don’t want any surprises down the track, everything needs to be spelt out clearly.

We have agreed in principle to this. Please provided [sic] further particulars with respect to the project as requested to Alex.

23    Also on 15 May 2014 Mr Henry Grech of Grech and Bannerman, solicitors, sent an email to Mr Austin copied to, among others, Mr Grech, which attached an amended call option, put and call option and contract and noted that in relation to the contract the main amendment made was to amend “vendor’s agent” to read “purchaser’s agent” and to include details of the vendor’s solicitor. The attached contract showed LB Homes Group Pty Ltd as the purchaser.

24    On 23 May 2014, LB Developments was registered.

25    On 13 June 2014, Charlie Sultana and Joseph Sultana entered into a due diligence agreement with LB Developments in relation to the Riverstone East Property. The due diligence agreement gave LB Developments, on payment of the Call Option Fee, forty-two days to determine whether it or its nominee would exercise the Call Option by providing the Notice of Exercise of Call Option, the Second Call Option and the Second Call Option fee. The Second Call Option was the Put and Call Option annexed to the due diligence agreement and the Second Call Option Fee was an amount equivalent to 5% (less the Call Option Fee) of the Estimated Price.

26    While a copy was not in evidence, I was asked to assume that a due diligence agreement in similar terms was entered into with Messrs Sultana and Sultana in relation to the Riverstone Property.

27    On 20 June 2014, LB Schofields was registered.

28    On 20 June 2014, Mr Grech sent an email to Mr Austin titled “Update” covering a number of topics relating to Lot 10. Under the heading “Acquisitions” Mr Grech noted the following:

Lot 10 complete and the site will be exercised in accordance with the exchanged contracts as per your advice. On that basis we are commencing more detailed discussions with the DIPNR owned land that we would otherwise have waited until the date of exercise to do.

29    Mr Austin responded to Mr Grech by email of the same date in the following terms:

All good notes but don’t worry this is not our first development it’s just LB Developments first job, both myself and Alex have been involved in plenty of land developments previously.

As for the other matters I would really rather you concentrate on the acquisitions and not worry about how we go about obtaining DA and which code we do so under, I thank you for your concern however it is unwarranted.

Finally I need to acquire more land to cater to our shirt [sic] term needs and we will advise of the long term requirements in due course.

Always happy to hear your thoughts on possible acquisitions so feel free to call me or Alex with them.

30    Mr Grech wrote a further email to Mr Austin on 20 June 2014 which included, among other things:

It is agreed that once acquired that process is a matter for you. Be rest assured this is done to maintain our commitment to the outcomes only – our role is essentially complete once we have the lands secured however we do not wash our hands of the project given our ongoing client relationships. Although it is not part of brief we have the resources and capacity for these matters and do so only to assist. Rest assured it does not impact acquisition progress. Your position is understood.

31    On 26 August 2014, LB Schofields, as grantee, entered into two Put and Call Option deeds with Messrs Sultana and Sultana, as grantor in each case:

(1)    one Put and Call Option deed related to the Riverstone Property:

(a)    the purchase price for that property is defined as $11,402,907.33 and the Call Option Fee is $560,145.75;

(b)    clauses 2.1, 2.2 and 2.3 of the deed provide respectively that the Call Option Fee is to be paid by the grantee to the grantor on the date of the deed, that in consideration of payment of the Call Option Fee the grantor grants to the grantee an option to purchase the Riverstone Property and that the terms and conditions of the purchase by the grantee are those contained in the Contract, in the form of the contract for sale of land annexed to the deed. That Contract included the purchase price as defined;

(c)    clause 2.5 provides that if during the Call Option Period the grantee or its nominee wishes to exercise the Call Option, the grantee or its nominee must deliver to the grantor’s solicitors:

(i)    the Call Option notice executed by the grantee or its nominee;

(ii)    the Nomination notice executed by the grantee (if applicable);

(iii)    the Contract duly completed, executed and dated by the grantee or its Nominee; and

(iv)    a section 66W certificate;

(d)    clause 8.1 of the deed provides a warranty by the grantee, prior to exercising the Call Option and subject to cl 8.7, to do the things specified in the deed to have a plan of subdivision registered at the office of Land and Property Information. Clause 8.7 provides that, should the plan of subdivision not be registered prior to the grantee exercising the Call Option, the grantee is entitled to exercise the Call Option but will ensure the plan of subdivision is registered prior to the completion date of the Contract;

(2)    the other Put and Call option deed relates to the Riverstone East Property:

(a)    in that deed the purchase price is defined as:

the Purchaser will pay the rate where the Property (including roads within the Property) is zoned Low density residential land (R2), $1,000,000 per acre and the balance of the Property shall be $600,000 per acre.

(b)    the following terms are also defined:

Call Option Fee means $415,630.61 being, the balance of 5% of the Estimated Purchase Price taking into account the Call Option Fee and the Second Call Option Fee paid pursuant to the Call Option Deed which forms part of the 5%. The Call Option Fee is to be released to the grantor upon receipt.

Estimated Purchase Price means the Estimated Price determined in accordance with clause 1.1(e) of the Call Option Deed.

(c)    while the operative provisions in terms of the manner of exercise of the option in this Put and Call Option deed are substantially the same as those in the Put and Call Option deed for the Riverstone Property, including the requirement in relation to the registration of a plan of subdivision, there are also some notable differences. First, pursuant to cl 10, titled “Rezoning”, the exercise of the call option or put option is conditional upon the director-general of the Department of Planning and Infrastructure adopting the precinct development control plan. That clause also includes:

10.4    In the event the Precinct Development Control Plan is not adopted by 31 December 2015:

(a)    the Grantee may elect to terminate this deed by notice in writing of its election to terminate the Deed which is to be provided to the Grantor by the Grantee; and

(b)    the Grantor must refund to the Grantee the Call Option Fee and Second Call Option Fee paid by the Grantee to the Grantor pursuant to the Call Option Deed within seven (7) days of receiving such written notice from the Grantee.

Next, the contract for sale of land annexed to the Put and Call Option deed for this property does not have the purchase price completed in it.

32    On 27 August 2014, Trevet issued tax invoice 192 to LB Developments (Invoice 192) in the following terms:

    DESCRIPTION    AMOUNT

Property:

Purchase of Lot 10 in DP 536381 Boundary Road Schofields

Gross Consideration:

$19,712,907.33 comprising

$11,402,907.33 for the front lot Riverstone Precinct: and

$8,310,000.00 for the back lot Riverstone East Precinct

Deductions:

$800,000.00 (comprising allowance for two (2) acres of non R2 Land Riverstone East Lot)

Nett Consideration:

$18,912,907.33

Fees as Agreed: 4% plus GST – 50% payable on exchange of binding agreement        $    378,258.15

        SUB-TOTAL $    378,258.15

All Payments to be made to Trevet Property Commonwealth Bank            10%

BSB … Acc ...

If you have any questions concerning this invoice, contact Trevet Property, Phone … Email …    $

        TOTAL $    416,083.96

“Thank you; we really appreciate your business. Please send payment within 7 days of receiving this invoice.”

33    On 8 September 2014, Mr Grech sent an email to Mr Austin in the following terms:

James

Another good race last night.

Accounts have just asked about our invoice as it did not appear overnight on Friday. I assume it was sent and has not yet appeared or is going in today.

Can you confirm so I can advise.

34    Mr Austin replied to Mr Grech by email of the same date noting that he had not yet approved the invoice as “we have not exchanged”. Mr Austin said that he would approve the invoice “once we exchange contracts”.

35    By email dated 10 September 2014 from Mr Grech to Mr Austin, Mr Grech stated as follows in relation to Invoice 192:

Further to our conversation we confirm that our invoice is due and payable.

We note your comments relating to a delayed funding and while this is not a matter for ourselves as we take a partnership approach with our clients in an effort to assist we are agreeable to providing an interim amendment to our terms in accordance with the enclosed outline.

We confirm that we are prepared to facilitate an amendment to our agreed terms for this invoice only providing that the payments occur in accordance with the proposal below:

1.    50% of the current invoice payable on or before COB Friday 12 September 2014;

2.    50% balance of current invoice payable on or before Wednesday 1 October 2014.

36    In mid-September 2014, there was a meeting between Mr Zhu and Mr Grech who each depose to different versions of the conversation alleged to have taken place at the meeting.

37    On 23 September 2014, Mr Austin sent an email to Mr Grech. Among other things, that email included:

In a nutshell our current standing is as follows:

1.    We agree with the quantum of your email dated 15 May 2014 a copy is attached (Retainer).

2.    We do not agree that “exchange” in this context is anything other than exchange of land contracts.

3.    We note that at even date we have not received any consultancy agreement.

There are issues with your current invoice namely:

(1)    The purchase price on which to base a commission is only known for the front portion of land @ $11,402,907.33.

(2)    There is no way to calculate a purchase price and thus commission on the rear portion.

(3)    In any event the commission is only due upon exchange of land contracts.

38    Later on 23 September 2014, Mr Austin sent Mr Grech a further email which, among other things, included the following:

I have looked back on the email you sent outlining the payment times for commission and find the following:

1.    Consultancy Fees – Lot 10 Boundary Road, Schofields

(a)    4% + GST for the Purchase of Lot 10 Boundary Road, SCHOFIELDS.

(b)    50% payable on exchange and 50% payable three (3) months from exchange.

I must say the above is very unclear and leaves itself open to interpretation.

What you are in effect now maintaining is that exchange of binding agreements has taken place and that we are now liable for 50% payment of all lands and that we will become liable for a further 50% in three months’ time, notwithstanding the fact that the transaction will not have completed and we will not know the final purchase price on the rear portion for some time yet.

There are no deals that involve a commissions [sic], that I am aware of where commissions are paid in full prior to completion; specifically real property deals.

This is why we take the position of exchange meaning exchange of land contracts, not exchange of binding agreements, as settlement is to take place within one month after exchange of land contracts and it makes sense to pay any residue commissions on completion, LB would thus be at risk with respect to these commission payments already paid should the vendor not complete.

As I have said we are happy to work something out by way of compromise, however as previously discussed our understanding is that exchange means exchange of land contract so as to trigger final commission payments subsequent to settlement and thus limit our risk.

The email also set out a proposal for payment of Invoice 192.

39    On 25 September 2014, Mr Grech sent an email to Mr Austin in which he said that there was no justifiable dispute for Invoice 192 and that he did not agree with the comments contained in Mr Austin’s emails dated 23 and 24 September 2014.

40    On 26 September 2014, Mr Austin sent an email to, among others, Mr Grech proposing a “finalisation scheme” as follows:

1.    Pay current invoice in full next week;

2.    Pay remaining on both portions of land three months after settlement of land.

41    By email of the same date, Mr Grech informed Mr Austin as follows:

In accordance with our discussion this morning we provide the following response using the same numerical reference and in accordance:

1.    Agreed;

2.    Payment of balance is to be paid at settlement.

42    Later on Friday, 26 September 2014, Mr Austin sent an email to Mr Grech which included the following:

Agreed and all go.

Please send draft agreement for further works.

Have a great weekend and talk Monday.

43    From early October 2014, Mr Zhu took over the conduct of ongoing discussions with Trevet about payment of Invoice 192. On 13 October 2014, Mr Zhu sent an email to Mr Grech which included the following:

I would like to put the fee payment proposal and some other points we had discussed on the phone to you as follow:

1.    I will compensate you for this deal, your next 2% will be 3 months before the settlement date.

2.    I will make the first payment of $30,000 next Wednesday and the balance of the first 2% in 5 weeks from today.

…

44    On or about 15 October 2014, a meeting took place between Messrs Zhu, Grech, Malcolm Grech and Jerry Grech. At that meeting, Mr Zhu says that an exchange took place to the following effect:

Mr Zhu: The next 2% of commission will be paid to you 3 months before settlement of the back portion. We won’t know your commission until the zoning application has been determined and exchange will take place 5 months after the zoning is determined. From exchange of the land contracts we will know your commission because we will know the purchase price of the back portion. So you will get all of your commission early for the back portion and not have to wait for settlement with the Sultanas.

Mr Grech: Agreed. But you must pay our invoice as fast as possible.

45    On 16 October 2014, Mr Grech sent an email to Mr Zhu which included the following:

The parties agree that the invoice is outstanding and due and that this proposal does not vary that obligation but rather serves to provide some temporary assistance with the timeframe for payment. Failure to meet the obligations of this agreement will result in the voiding of this option for assistance and the account being payable immediately.

The parties agree that the payment of the Trevet Fees relating to this project will occur as follows:

1.    $30,000 payable on or before 22nd October 2014;

2.    $386,083.96 being the balance of current invoice 192 payable on or before 11th November 2014;

3.    The balance in accordance with our agreement being the final 2% plus GST as calculated will be payable not later than 15th January 2015 (being three{3} months prior to due date for settlement of Riverstone Precinct Front Lot 10) or upon settlement of the front Riverstone Precinct Front Lot 10 whichever occurs first.

46    Following receipt of Mr Grech’s 16 October 2014 email, Mr Zhu telephoned Mr Grech and had an exchange with Mr Grech to the following effect:

Mr Zhu: Your email is different to the agreement we reached in the meeting. We cannot pay your commission on the back portion until we know the purchase price.

Mr Grech: The final 2% plus GST is payable by 15 January 2015 or upon settlement of the front Rivertstone Precinct Lot 10, whichever occurs first.

Mr ZHU: No. No. I don’t agree.

47    Invoice 192 was paid in instalments as follows:

48    On 4 March 2015, a contract for the sale of the Riverstone Property was entered into with Messrs Sultana and Sultana as vendors and LB Schofields as purchaser and which showed Trevet as the purchaser’s agent. The purchase price was in accordance with the Put and Call Option deed relating to that property, namely, $11,402,907.33.

49    In March 2015, an issue arose with the subdivision of the Lot 10 Property which had not been processed by the council. As the plan of subdivision had not been approved, settlement of the purchase of the Riverstone Property could not occur. Mr Zhu contacted Mr Grech about the issue and Trevet was engaged to assist with the completion of the subdivision. On 28 April 2015 Mr Grech provided Mr Zhu with an update of the current status of the steps taken and the ongoing program to assist in that process.

50    In the meantime there was a need to extend the time under the Call Option deed relating to the Riverstone Property. In the period from 3 March 2015 to 1 April 2015 there were discussions with the grantors, Messrs Sultana and Sultana, as a result of which the Call Option deed for the Riverstone Property was amended by Deed of Variation dated 17 April 2015.

51    On 13 May 2015, Mr Grech sent an email to Mr Zhu concerning the fees payable for the assistance provided by Trevet in relation to the plan of subdivision and the processing of the DAs. That email included the following:

As per our agreement we will be invoicing you $130,000.00 plus GST on each DA.

We will be billing you that amount on a monthly basis with equal monthly invoices over a nine (9) month period to allow for the Development Approvals to be secured.

The initial invoice for DA process on 51 and Lot 10 (two Lot DA) will be issued today and will require payment within seven (7) days.

52    On 13 May 2015, Trevet issued two invoices to LB Schofields, each in the amount of $14,444.44 plus GST, being for DA management and facilitation. Those invoices were paid on 20 May 2015.

53    Under cover of an email dated 5 June 2015, Trevet issued tax invoice 214 dated 4 May 2015 to LB Developments (Invoice 214) which is the subject of the Demands and is in the following terms:

    DESCRIPTION    AMOUNT

Property: Purchase of Lot 10 in DP 536381 Boundary Road Schofields

Gross Consideration: $19,712,907.33 (Comprising $11,402,907.33 for the front lot Riverstone Precinct and $8,310,000.00 for the back lot Riverstone East Precinct)

Deduct: $400,000.00 (comprising allowance for two (2) acres of non R2 Land on rear block

Nett Consideration: $19,312,907.33

Fees as Agreed: 4% plus GST – Payable 50% on three (3) months after exchange of unconditional agreement.        $    386,258.14

        SUBTOTAL $    386,258.14

All Payments to be made to Trevet Property Commonwealth Bank

BSB … Acc ...        10%

If you have any questions concerning this invoice,    $    38,625.81

contact Trevet Property, Phone … Email …    $    -

        TOTAL $    424,883.95

54    The covering email for Invoice 214 from Mr Grech to Mr Zhu included the following:

Please find enclosed the invoice as discussed.

The invoice reflects the agreement between the parties.

We note that payment of this was varied on the basis it would be paid on 7th April 2015 being the due date for settlement on the Riverstone Precinct Portion of Lot 10. This was again varied to assist you when we negotiated the amended settlement date.

We confirm our discussion that you will make a contribution of $45,000.00 plus GST towards this invoice with the balance being paid at completion of the front portion of Lot 10. Anticipated for end June 2015.

We require this payment by COB Monday 8th June 2015.

55    Mr Austin deposes that Trevet did not provide a copy of Invoice 214 to LB Schofields and that he only became aware of it when he was provided with a copy of the Demand addressed to LB Schofields and the affidavit in support of that Demand.

56    On 11 June 2015, LB Property Group made a payment of $49,500.00 to Trevet in part payment of Invoice 214.

57    On 26 June 2015, Mr Grech sent an email to Alex Maffi, of the LB Group, attaching Blacktown City Council’s notice of determination of a development application for the Lot 10 Property and noting that all conditions precedent had been satisfied or resolved.

58    On 16 July 2015, the purchase of the Riverstone Property settled.

59    On 21 July 2015, LB Schofields was notified by Land and Property Information that a caveat was lodged by Trevet in relation to the Riverstone Property. In Schedule 1 of the caveat the estate or interest claimed was an outstanding debt pursuant to an agreement between the parties described as LB Schofields and Trevet and with a date recorded as 27 August 2014. According to a search of the Riverstone Property dated 21 October 2015 the caveat was rejected on 8 October 2015.

60    On 23 July 2015, Trevet served the Demands on each of LB Developments and LB Schofields.

consideration

61    LB Developments and LB Schofields, on the one hand, and Trevet, on the other, each provided written submissions which were supplemented orally at the hearing. The issues that arise for determination are:

(1)    is there a genuine dispute in relation to the debt the subject of the Demands;

(2)    is there a defect in the Demands;

(3)    is there a defect in the affidavits sworn in support of the Demands.

Is there a genuine dispute?

62    LB Developments and LB Schofields submit that there is a genuine dispute in relation to the existence or the amount of the debt to which the Demands relate. That dispute is said to arise in a number of ways, raising issues which are interrelated. LB Developments and LB Schofields allege that there is a dispute about the basis of the obligation to pay: what are the terms of the agreement, what was the nature of the services to be provided by Trevet and is the debt due and payable; next an issue arises about the identity of the debtor: with whom was the agreement made; finally, there is said to be a dispute about the quantum of the debt alleged to be owing.

The terms of the agreement

63    LB Developments and LB Schofields submit that the terms of the agreement are those contained in the email exchange of 15 May 2014, and relate only to the acquisition of the Riverstone Property and Riverstone East Property. Thus, Trevet was acting as buyer’s agent and was required to comply with the terms of the Property, Stock and Business Agents Act 2002 (NSW) (the Agents Act). Failure to do so means that it cannot claim any amount by way of commission on the sale because the commission is not enforceable or recoverable. The Agents Act defines “agent” in s 3 to mean, among other things, a real estate agent. The term real estate agent is, in turn, relevantly defined in s 3 as:

real estate agent means a person whether or not the person carries on any other business) who, for reward (whether monetary or otherwise), carries on business as an auctioneer of land or as an agent:

(a)    for a real estate transaction; or

(b)    for inducing or attempting to induce or negotiating with a view to inducing any person to enter into, or to make or accept an offer to enter into, a real estate transaction or a contract for a real estate transaction, or

(c)    for the introduction, or arranging for the introduction, of a prospective purchaser, lessee or license of land to another licensed agent or to the owner, or the agent of the owner, of land, or

…

64    Section 9(1) of the Agents Act makes it an offence for a corporation to act as or carry on the business of an agent unless the corporation holds a corporation licence. There was evidence before me that Trevet holds such a licence. Further s 55(1) of the Agents Act specifies that:

(1)    A licensee is not entitled to any commission or expenses from a person for or in connection with services performed by the licensee in the capacity of licensee for or on behalf of the person unless:

(a)    the services were performed pursuant to an agreement in writing (an agency agreement) signed by or on behalf of:

(i)    the person, and

(ii)    the licensee, and

(b)    the agency agreement complies with any applicable requirements of the regulations, and

(c)    a copy of the agency agreement signed by or on behalf of the licensee was served by the licensee on that person within 48 hours after the agreement was signed by or on behalf of the person.

65    Trevet submits that the debt is owed under an agreement the terms of which are contained in the email exchanges of 15 May 2014 and 20 June 2014 between Messrs Grech and Austin. It further submits that the services provided under that contract are extensive and are not limited to the acquisition of the Riverstone Property and the Riverstone East Property but extend to advisory work. Given the extent of the services, this is not a contract to which the Agents Act applies.

66    The parties are agreed that the agreement includes the email exchange of 15 May 2014. They diverge on whether it also encompasses the email exchange of 20 June 2014. Leaving that to one side, there is then disagreement about the meaning of the email exchange of 15 May 2014 and, in particular, what is meant by the payment term: 50% payable on exchange and 50% payable three months from exchange. LB Developments and LB Schofields submit that the trigger for payment is exchange with 50% of the commission due at that time and the balance due three months thereafter. The issue that arises is what is meant by “exchange” referred to in the 15 May 2014 emails particularly in circumstances where the single site referred to in those emails was in fact to be dealt with and sold as two subdivided sites.

67    LB Developments and LB Schofields submit that there is clear authority about what is meant by “exchange” and rely on the decision of Lindsay J in C&P Syndicate Pty Ltd v Reddy (2013) 16 BPR 31,771 at [72] to the effect that the usual method of buying and selling real estate is by “signing and exchange of contracts adopting a standard form approved by the Law Society of New South Wales and Real Estate Institute of New South Wales” and the decision of Bryson AJ in Parkin v Pagliuca (2008) 13 BPR 25,267 at [27] to similar effect to support a submission that there must be exchange of contracts for the whole of the Lot 10 Property to trigger the payment of the commission. That has not occurred and so no liability arises. The fact that Invoice 192 was paid does not detract from that position. It was paid after a request was made to do so and after negotiation.

68    Trevet submits that the parties i.e. Messrs Sultana and Sultana as grantors and LB Schofields as grantee became bound on the entry into of the Put and Call Option deeds on 26 August 2014 because the grantors immediately became entitled, subject to the terms of the deeds, to require LB Schofields to buy the land and LB Schofields immediately became entitled, subject to the terms of the deeds, to require the Sultanas to sell the land.

69    Trevet relies on the decision of the High Court in Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 to the effect that the interpretation of a written contract requires “the ascertainment of meaning which the document would convey to a reasonable person having all the background knowledge which would have been available to the parties in the situation in which they were at the time of the contract”. Trevet also submits that one must have regard to the commercial purpose of a transaction when considering the words in a commercial contract.

70    Trevet submits that “exchange” must mean the exchange of the Put and Call Option deeds which bound and entitled the respective parties to those deeds to buy or sell the Lot 10 Property. If “exchange” means anything else it could lead to the absurd consequence that Trevet, despite all its work and effort, could end up never being paid if LB Schofields failed to complete pursuant to a put option compelling it to acquire registered proprietorship of the Lot 10 Property. Put another way, Trevet submits that if the grantors failed to convey the land to LB Schofields, but sold it to an innocent third party, that could not lead to a result where Trevet would not be entitled to its agreed fees from LB Schofields or LB Developments. If that were the case, it would defeat the “commercial purpose” of the contract.

71    Properly construed, Trevet contends that there is no genuine dispute that, in the context of this contract, “exchange” means the exchange of the Put and Call Option deeds. I note that, presumably as a consequence of that position, Invoice 192 was issued the day after the Put and Call Option deeds were signed. Trevet submits that the payment of Invoice 192 is an admission by LB Schofields and LB Developments in Trevet’s favour that negatives the legitimacy of the argument put by them in relation to “exchange”.

72    In order for LB Schofields and LB Developments to be successful they must satisfy the Court that there is a bona fide dispute that truly exists in fact and that the grounds for alleging the dispute are not spurious, hypothetical, illusory or misconceived. There must be a plausible contention requiring investigation as to whether the amount claimed is due and payable.

73    In my view there is a genuine dispute about the terms of the agreement and in particular whether that agreement is limited to the email of exchange of 15 May 2014 or extends to encompass the email exchange of 20 June 2014, whether the agreement is subject to the Agents Act and what the term “exchange” means in the context of that agreement. I am satisfied that the grounds for alleging the dispute are real and not spurious. There is evidence from Mr Austin and Mr Zhu to the effect that their understanding is that the agreement is limited to the terms of the email exchange of 15 May 2014. Trevet contests that and says that the agreement incorporates the email exchange of 20 June 2014 respectively. Much turns on the finding of what constitutes the terms of the agreement: first there is a contest about whether the Agents Act applies and, if so, its effect and then there is a contest about the meaning of “exchange” used in the email of 15 May 2014. The parties rely on different authorities to support their respective cases about the meaning of exchange in this context. The contentions raised require investigation. An arguable dispute has been raised that goes to the existence of the debt.

With whom was the agreement made

74    LB Developments and LB Schofields submit that an agreement came into existence but an issue arises as to which LB Group company was a party to that agreement. It does not necessarily follow that it was one of the plaintiff companies: LB Developments or LB Schofields. It may be another company in the LB Schofields group. LB Developments and LB Schofields were registered on 23 May 2014 and 20 June 2014. Those dates are after 15 May 2014, the date on which LB Developments and LB Schofields say the agreement came into effect. LB Developments and LB Schofields submit that this is a factual inquiry that needs to be undertaken and that it is not appropriate to undertake that inquiry in the context of the current proceedings.

75    LB Developments and LB Schofields also submit that unless it can be established that either of them is subject to s 131(1) of the Act there is a real and very live inquiry to be undertaken whether either or both can be said to be contract counterparties. Section 131(1) of the Act provides:

(1)    If a person enters into, or purports to enter into, a contract on behalf of, or for the benefit of, a company before it is registered, the company becomes bound by the contract and entitled to its benefit if the company, or a company that is reasonably identifiable with it, is registered and ratifies the contract:

(a)    within the time agreed to by the parties to the contract; or

(b)    if there is no agreed time—within a reasonable time after the contract is entered into.

76    LB Developments and LB Schofields submit that the operation of the section is dependent on the company for whom the agent or trustee contracted being “reasonably identifiable”: see Ford’s Principles of Corporations Law (16th ed, Lexis Nexis, 2014) at 15.28. They contend that it is a requirement that some adequate description of the future company be provided at the time the contract is entered into which is a factual inquiry that ought not be undertaken by this Court as it is not a debt collection court. LB Developments and LB Schofields rely on the draft contract attached to the email dated 15 May 2014 which records LB Homes Group Pty Ltd as a purchaser as the “best evidence” of who the counterparty and thus debtor might be noting that a statutory demand has not been issued to that company.

77    Contrary to the evidence given by Mr Jerome Grech in the affidavits in support of the Demands, counsel for Trevet conceded that the debt owing to Trevet is not owed jointly and severally by LB Developments and LB Schofields. Trevet’s positon is that one or the other of those companies is liable and that two statutory demands were issued because one company, LB Developments, entered into the Due Diligence Agreements and the other company, LB Schofields, entered into the Put and Call Option deeds and there was uncertainty as to the identity of the debtor.

78    In response to a query as to whether two statutory demands could be issued for the same debt in circumstances where the recipients of those demands were not jointly liable, counsel for Trevet submitted that one of the Demands could be set aside and that Trevet could get the benefit of the deemed insolvency under s 459C of the Act against the other company in relation to whom the Demand had not been set aside. It is a matter for the Court to determine which of the Demands ought to be set aside. Further to that submission, counsel for Trevet submitted that it was open to find that the proper debtor is LB Developments based on its execution of the Due Diligence Agreements combined with Mr Austin’s email of 20 June 2014 to Mr Grech in which he said “… don’t worry this is not our first development it’s just LB Developments first job, both Alex and I have been involved in plenty of land developments before”.

79    Alternatively, counsel for Trevet submitted that one of the companies in receipt of the Demands could have paid the amount sought in the statutory period such that the second demand would have been withdrawn. This of course did not occur.

80    Section 459E(1) of the Act permits a person to serve a demand on a company relating to a single debt or two or more debts that the company owes that person that is due and payable and is greater than the statutory minimum. In this case, given Trevet’s lack of certainty about the identity of the debtor, it is difficult to see how it could be in a position to serve a demand on either company as it could not say definitively which of those companies owed it the amount claimed. It presumably served the Demands in the hope that one of the companies might pay or alternatively there would be disclosure about which of the companies was liable.

81    The very fact that Trevet was uncertain as to the identity of the debtor and thus served two demands for the same debt of itself suggests that there is a bona fide dispute and there is an issue which requires investigation. Namely, who is the counterparty to the agreement and thus who is the debtor. It suggests that the best way forward to resolve the issue would be to commence proceedings against the two companies seeking relief in the alternative rather than to serve statutory demands on two companies for the same debt. It may well be that LB Developments is the proper debtor. However, given the matters raised by LB Developments and LB Schofields and the issue that arises in relation to s 131 of the Act, I am satisfied that there is a dispute about the identity of the debtor.

82    Is then the dispute that arises about the true identity of the debtor a genuine dispute about the existence or amount of the debt as required by s 459H(1) of the Act? If LB Developments and/or LB Schofields are not a party to the agreement with Trevet and thus one or both are not debtors then it follows that the dispute that arises goes to the existence of the debt vis-a-vis each of them.

83    That said, I do not condone the conduct of LB Developments and LB Schofields on this issue. There is no evidence one way or the other as to whether there has been an attempt to clarify the issue inter parties and I make no comment or finding on that. In argument it was suggested that indeed there could be a third company, which was registered as at 15 May 2014, which may be the debtor adding further to the conundrum. While, as their counsel submitted, they were not required to identify the debtor, it seems that to require a party to undertake costly steps by, for example, commencing proceedings against multiple defendants to ascertain that issue, is not a course that ought to be encouraged.

Quantum of the debt

84    LB Developments and LB Schofields allege that there is a genuine dispute about the quantum of the debt included in the Demands. The amount sought in the Demands is $374,883.95. LB Developments and LB Schofields’ primary submission is that the commission payable on the Riverstone East Property is not ascertainable and therefore not due and payable or recoverable. They also contend that:

(1)    there is an incorrect deduction for non R2 land in that the deduction is at $400,000 per acre. According to the Put and Call Option deed for the Riverstone East Property it should be at $600,000 per acre; and

(2)    Trevet was overpaid $8,799.88 for Invoice 192 which is not reflected in the amount included in the Demands.

85    In its supplementary note, filed with leave, Trevet submits that as there is no evidence before the Court identifying the land that is classified R2 low density residential within the Riverstone East Property, there is no occasion for an election between inconsistent rights. Trevet says that for these reasons and for the purpose of this application only, it is prepared to use the lower figure of $600,000 per acre included at cl 1.1(o) of the Put and Call Option deed for the Riverstone East Property to calculate its fee. Adopting that amount, Trevet submits that the amount owing is $246,796.94. A breakdown of how that amount is calculated is provided. It relies on a survey plan included in Mr Grech’s affidavit to ascertain the size of the Riverstone East Property.

86    LB Developments and LB Schofields do not accept the calculation. They submit that there is no evidence before the Court to identify the dimensions of the Riverstone East Property and that the survey plan included in Mr Grech’s affidavit on which Trevet relies for its calculation includes a disclaimer as to accuracy of dimensions, was not prepared for the purpose for which Trevet contends and to the extent that plan identifies a “Residue” there is no evidence that the Residue so identified is the Riverstone East Property.

87    The amount now said to be due, $246,796.94, is approximately one third less than the amount included in the Demands. Further that amount is only calculated for the purposes of the applications that are before me to determine. That approach suggests that, should the land be rezoned such that a part of it is low density residential land (R2), Trevet will recalculate its fees and seek a further amount. If that is the case then in my view there is a real issue about whether Trevet’s fees or commission for the Riverstone East Property can be ascertained. If they cannot, as seems to be the case, it is difficult to see how they can be said to be presently due and payable. Further taking into account the matters raised by LB Developments and LB Schofields as to the calculation undertaken by Trevet, there is clearly an issue with that calculation. These matters taken cumulatively lead me to the conclusion that there is a genuine dispute about the quantum of the debt.

Is there a defect in the Demands or the Affidavits in Support of the Demands?

88    While, in light of my findings above, it is not necessary for me to do so, for completeness I have also considered the parties’ submissions in relation to the application of s 459J of the Act.

The Demands

89    The Court may set aside a demand under s 459J(1)(a) if it is satisfied that there is a defect in the demand that will cause substantial injustice.

90    LB Developments and LB Schofields submit that a defect arises in relation to the identity of the creditor in the Demands. The Demands name the creditor as Trevet and the affidavits in support sworn by Mr Jerome Grech describe the creditor as Trevet but with an ACN that does not belong to that company but seems to correspond in part to the ABN of the Trevet Unit Trust. Mr Grech gives evidence that Trevet is the trustee of the Trevet Unit Trust which is the operating entity. LB Developments and LB Schofields submit that leaves the debtors in a position of not knowing the true identity of the creditor which is fatal to the Demands.

91    In my view the identity of the creditor in the Demands is clear. There is no defect that could be said to cause substantial injustice unless the Demands were set aside. LB Developments and LB Schofields had been dealing with Trevet for some time. The argument that there could be confusion about the identity of the creditor cannot succeed, particularly in the circumstances of the dealings between the parties. The issue that arises as to whether Trevet was acting in its capacity as trustee or otherwise and the inclusion of the wrong ACN in the affidavits does not change my conclusion.

92    LB Developments and LB Schofields also submit that there is a defect in the Demands because the source of the obligation to pay is not clearly described. The Demands seek payment of $374,883.95 “being the amount of the debt described in the Schedule”. The Schedule to the Demands is in the following terms:

SCHEDULE

Description of the debt: Agreed Fees relating to Invoice 214

Amount of the debt: $374,883.95

93    LB Developments and LB Schofields submit that the source of the obligation to pay is not Invoice 214 but, on Trevet’s own case, the agreement of 15 May 2014. They rely on Business To All Australia Pty Ltd v North East Developments Pty Ltd [2011] NSWSC 668. The statutory demand in that matter sought a debt owing by the debtor as lessee under a lease. In deciding that the demand should be set aside under s 459J(1)(a), Hammerschlag J accepted as well founded the plaintiff’s complaint that, among other things, the demand did not “specify the nature of the amount claimed under the lease by identifying any provision which” gave rise to the claimed debt or otherwise. Hammerschlag J observed that the demand in that case did “not provide a clue as to the source of the obligation asserted”.

94    I do not think that the Demands can be characterised in the same way as the demand considered by Hammerschlag J. The Demands refer to Invoice 214 as creating the obligation. Invoice 214 sets out a calculation of the amount claimed and refers to the relevant properties. In my view it is clear that Invoice 214 is based on the underlying agreement between the parties and that would have been clear to LB Developments and LB Schofields. Even if the failure to identify the source of the obligation to pay as the 15 May 2014 agreement was a defect it is not one which, in the circumstances of this case, could be said to cause substantial injustice unless the Demands were set aside.

The affidavits sworn in support of the Demands

95    LB Developments and LB Schofields submit that the affidavits sworn by Mr Jerome Grech on 22 July 2015 in support of the Demands contain a defect in that Mr Grech fails to identify the source of his knowledge. In paragraph 1 of each of his affidavits, Mr Jerome Grech deposes to be a director of the creditor. He annexes a copy of Invoice 214 and recites some facts relating to Invoice 214. He deposes that the debt is due and payable and that he believes there is no genuine dispute about the existence or the amount of the debt.

96    Section 459E(3) of the Act requires a demand, where it is not based on a judgement debt, to be accompanied by an affidavit that verifies that the debt is due and payable and that complies with the rules. Section 9 of the Act defines “rules” to mean “rules of the Federal Court or of the Supreme Court of a State or internal Territory as the case requires”. Rule 5.2 of the Federal Court (Corporations) Rules 2000 (The Corporations Rules) provides as follows:

For the purposes of subsection 459E (3) of the Corporations Act, the affidavit accompanying a statutory demand relating to a debt, or debts, owed by a company must:

(a)    be in accordance with Form 7 and state the matters mentioned in that Form; and

(b)    be made by the creditor or by a person with the authority of the creditor or creditors; and

(c)    not state a proceeding number, or refer to a Court proceeding, in any heading or title to the affidavit.

97    Form 7 requires, among other things, that the deponent state the source of the knowledge of the matters stated in the affidavit in relation to the debt. In Portrait Express Bryson J found that there were three ways in which the affidavits in support of the demands served in that matter failed to comply with the relevant rule, one of which was the failure by the deponent to state the source of his knowledge of the matters stated in the affidavit concerning the debt. At 758 Bryson J said:

I see a clear distinction between a defect in a demand as a ground for setting aside the demand, and a defect in an affidavit purportedly verifying the demand as a ground for setting aside the demand. An affidavit which is incorrect has a different and higher order of importance to a demand which is incorrect.

98    Having found defects in the affidavits in support of the demands, Bryson J set aside the demands.

99    The affidavits sworn by Mr Jerome Grech do not contain the source of his knowledge beyond a statement that he is a director of the creditor. There is no evidence about how he knows the matters to which he deposes for example because he inspected Trevet’s records, he had dealings with LB Developments and/or LB Schofields about the matters to which he deposes or otherwise. There has been a failure to comply with s 459E(3) of the Act in that the affidavits in support of the statutory demands do not comply with the Corporations Rules. In my view this failure is of appropriate seriousness to set aside the Demands pursuant to s 459J(1)(b).

Costs of the jurisdictional issue

100    When these proceedings were commenced Trevet foreshadowed a preliminary issue for separate determination in relation to jurisdiction. Trevet submits that this issue arose because the evidence served by LB Developments and LB Schofields with their originating process in each proceeding suggested that the applications to set aside the Demands had not been filed within 21 days of service of the Demands as required by the Act. LB Developments and LB Schofields seek the costs of this issue on a full indemnity basis. Trevet submits that, given the way in which this issue arose, there should be no order as to costs in relation to it. In order to consider this issue it is necessary to set out its history.

101    In the affidavits filed in support of the originating process in each proceeding sworn by Mr Austin and Mr Zhu respectively, they give evidence that the Demands were received on 22 July 2015. In a subsequent affidavit sworn by Mr Zhu on 14 August 2015, which was filed and served in each of the proceedings, Mr Zhu gives evidence that he received the Demands at the registered office of LB Developments and LB Schofields on 23 July 2015, that he gave copies of the Demands to Mr Austin on that date and that he did not advise Mr Austin that he had received the Demands on 23 July 2015 and not on 22 July 2015. LB Developments and LB Schofields also rely on an affidavit sworn by Sian Jones, their solicitor, on 31 August 2015 in relation to service in which she deposes to serving the originating process and the affidavits in support (although she incorrectly refers to Mr Zhu having sworn an affidavit in proceedings NSD955/2015) on Trevet by email and by express post to its registered office. She also deposes that she served the affidavits sworn by Mr Zhu on 14 August 2015 in each proceeding on Trevet by email and by express post to its registered office.

102    On 7 September 2015 the solicitors for Trevet sent a letter to the solicitors for LB Developments and LB Schofields requesting copies of the express post envelope including the tracking ID number used to deliver the documents referred to in Ms Jones’ affidavit sworn 31 August 2015. On 9 September 2015, Mr Gillard had a telephone conversation with Ms Jones in which he raised the issue of service and sought copies of the express post envelopes or the tracking ID numbers. While the version of this conversation deposed to by each of Mr Gillard and Ms Jones, insofar as what Ms Jones said to Mr Gillard, varies slightly it appears from the evidence given by both Mr Gillard and Ms Jones that Ms Jones was having her secretary locate the tracking ID numbers. In her affidavit sworn 29 October 2015 relied on by LB Developments and LB Schofields Ms Jones says that she also told Mr Gillard that his clients should have the envelopes.

103    On 9 September 2015, the proceedings were listed before the Court and orders were made for the filing and service by Trevet of a notice stating the jurisdictional ground of opposition, affidavits and submissions by 23 September 2015 and for the filing and service by LB Developments and LB Schofields of affidavits and submission in reply by 23 September 2015. The matter was to be referred to a judge at a date and time after 23 September 2015.

104    On 21 September 2015, LB Developments and LB Schofields served a further affidavit of Ms Jones filed in each of the proceedings relating to service in which Ms Jones, among other things, provides the tracking numbers of the express post envelopes used to serve the documents referred to in Ms Jones’ affidavit sworn on 31 August 2015. On 23 September 2015, Trevet’s solicitors wrote to LB Developments and LB Schofields’ solicitors seeking a seven day extension in which to file its notice of jurisdictional ground of opposition, affidavits in support and submissions.

105    On 28 September 2015, Orders were made by consent extending the time for Trevet to file and serve its notice stating the jurisdictional ground of opposition and affidavits to 30 September 2015 and extending the time for LB Developments and LB Schofields to file and serve any affidavits dealing with the issue of service to 30 September 2015. An order was also made for the parties to file and exchange submissions by 7 October 2015 and the matter was fixed for hearing.

106    On 30 September 2015, Trevet’s solicitors informed LB Developments and LB Schofields’ solicitors that it no longer pressed the jurisdictional issue. That was after LB Developments and LB Schofields had filed two further affidavits in relation to service on 24 and 28 September 2015 respectively.

107    LB Developments and LB Schofields submit that the affidavits sworn by Ms Jones on 21 September 2015 and Ms Milicevic on 24 September 2015 establish that the application was served at the registered office of Trevet by 12 August 2015 and that a simple inquiry by Trevet could have established this. They further submit that instead Trevet raised the jurisdictional issue which they characterise as “disingenuous” and which they say was wasteful of costs and delayed the resolution of the application.

108    Trevet relies on the decision of Barrett J in Five G Pty Ltd v Pinnacle Funding Group Pty Ltd (2008) 28 FLR 118 (Five G Pty Ltd). In that case an application was made under s 459G of the Act and at hearing the plaintiff announced that it wished to withdraw its claim because it was served outside the 21 day period required for service. The evidence which prompted the plaintiff to withdraw its claim was an Australia Post delivery receipt produced by the defendant. The only issue for resolution was whether the plaintiff should bear the cost of the application. At [9] and [10] of his decision Barrett J observed:

[9]    The question arising upon the present application, broadly stated, is who, in s 459G proceedings, bears the onus of proving the date of service of the statutory demand. More precisely and more immediately, the question is whether a plaintiff who seeks to discontinue upon discovering that the statutory demand was served on a date which makes its s 459G application untenable (that being the position I am now assuming, as just stated) may avoid the normal costs consequences of withdrawal by pointing to a failure of the defendant to discharge some form of responsibility that the defendant has to inform the plaintiff of the actual date of the service of the defendant’s statutory demand on the plaintiff.

[10]    By resorting to s 459G, a company served with a statutory demand undertakes the task of persuading the court that an order setting aside the demand should be made. It is that company, as plaintiff, that must prove all matters necessary to justify the making of the order. No onus rests with the defendant. One thing that the plaintiff must prove is that the statutory demand was served on it—otherwise the plaintiff fails to establish that it has standing under s 459G(1) to bring the application. Another thing that the plaintiff must prove is that a copy of its originating process and a copy of the supporting affidavit were served on a day that is consistent with the s 459G(3)(b) requirement—otherwise the plaintiff fails to establish what the David Grant case recognises to be a matter going to the existence of the court’s jurisdiction to award the relief the plaintiff seeks. If satisfaction of the condition based on action by the plaintiff within the period of 21 days is put in issue, jurisdiction cannot be seen to exist unless the plaintiff shows when the period began.

109    Section 43 of the Federal Court of Australia Act 1976 (Cth) confers a broad jurisdiction on the Court to award costs. The usual rule is that the successful party is entitled to its costs. Indemnity costs may be ordered where there is some justification to depart from the usual rule of party/party costs: see Silver Fox Co Pty Ltd v Lenard’s Pty Ltd (No 3) (2004) 214 ALR 621 at [26]. The justification for the order here seems to be that a simple inquiry by Trevet in relation to service could have established the facts that were later established by the affidavits sworn by Ms Jones and Ms Milicevic. However, on the evidence before me such a simple inquiry was made by Mr Gillard on 7 and 9 September 2015. As Barrett J observes in Five G Pty Ltd it is for a plaintiff to establish that a statutory demand was served on it to invoke the jurisdiction under s 459G(1) of the Act and it is for a plaintiff to establish that its originating process and affidavit in support were served in accordance with the requirements of s 459G(3)(b) of the Act. The service of the affidavits of Ms Jones and Ms Milicevic did just that. There is in my view no justification for ordering indemnity costs in relation to the jurisdictional issue.

110    The question that then arises is whether there should be no costs order in relation to this aspect of the matter as submitted by Trevet. Mr Gillard made an early inquiry of Ms Jones in relation to the service of the originating processes and affidavits in support. Eventually Mr Gillard’s queries were satisfied by the filing and service of affidavits of service. Those affidavits were filed in the context of the issue of jurisdiction having been formally raised and in the context of orders of the Court for the filing of affidavits in relation to service. While LB Developments and LB Schofields were required to prove that they had served the material as required by the Act, given the circumstances in which they did so and the need to comply with Orders of the Court, this is not a case where in my view it is appropriate to make no order as to costs in relation to the jurisdictional issue.

conclusion

111    In light of the matters set out above I will make orders to set aside the Demands. I will make those orders pursuant to s 459H. However, I note that given my findings, it is also open to me to make orders pursuant to s 459J(1)(b) but, in the circumstances, not necessary. I will make the following orders:

(1)    In proceeding NSD 955/2015:

(a)    an order that pursuant to s 459H of the Act the Creditor’s Statutory Demand dated 22 July 2015 and addressed to the plaintiff, LB Schofields One Pty Ltd be set aside;

(b)    an order that the defendant pay the plaintiff’s costs of the proceedings.

(2)    In proceeding s NSD 956/2015:

(a)    an order that pursuant to s 459H of the Act the Creditor’s Statutory Demand dated 22 July 2015 and addressed to LB Developments Pty Ltd be set aside;

(b)    an order that the defendant pay the plaintiff’s costs of the proceedings.

Associate:    

Dated:    15 December 2015