In the matter of Mearth Technology Pty Ltd

The plaintiff, Mearth Technology Pty Ltd, applies under s 459G of the Corporations Act 2001 (Cth) to set aside the statutory demand dated 8 February 2024 served on Mearth by the defendant, 40Seas Inc, on 9 February 2024 pursuant to s 459E of the Corporations Act demanding payment of the amount of US$486,355.14.

Mearth was incorporated on 30 March 2017. The sole director and secretary of Mearth is Mr Ming Ye. Mearth is an Australian micromobility company based in Sydney that focuses on the creation, innovation and development of electric scooters.

40Seas is a fintech platform that is involved in cross-border trade financing. 40Seas appears to be based in the United States of America, although its Chief Executive Officer, Eyal Moldovan, is based in Israel.

In general terms, Mearth ordered scooters from China and entered into arrangements between its suppliers pursuant to which the debts owing by Mearth to the suppliers were assigned to 40Seas. Such arrangements are commonly known as debt factoring.

The grounds of the application made by Mearth are those contained in s 459J(1)(a) and (b) of the Corporations Act, being:

During the hearing, Mearth expressly abandoned seeking to set aside the statutory demand on the grounds contained in s 459H of the Corporations Act despite the further amended originating process (which itself was amended during the hearing) which stated that those grounds were relied on (T11–12). I will therefore determine whether the statutory demand should be set aside solely on the basis of the operation of s 459J, as I made plain during the course of the hearing (T13–14).

Mr R Hudson appeared as counsel for Mearth, instructed by Broadside Lawyers. Ms N Bailey appeared as counsel for 40Seas, instructed by Turks Legal.

In summary, 40Seas provides payment on assigned account receivable services under an invoice based model, the terms of which are contained in individual Payment of Assigned Account Receivable Agreements. Each arrangement effectively involves:

On 11 June 2023, Mearth entered into a Payment of Assigned Account Receivable Agreement with Kixin Electronics. In the Agreement, Kixin is defined as the “Seller”, Mearth is defined as the “Buyer” and 40Seas is defined as the “Factor”. The recitals of the Agreement, which are set out below, use the parties’ respective names in square brackets as replacement for Seller, Buyer and Factor respectively and also leave in place all grammatical and typographical errors.

Those recitals are:

Pausing here, the “accounts receivable purchase agreement” between Kixin and 40Seas is not in evidence and neither is the “40Seas Platform User Agreement”.

Continuing with the replacement of the defined terms of “Seller” with Kixin, “Buyer” with Mearth and “Factor” with 40Seas, the relevant operative provisions of the Agreement are as follows:

The provisions contained in the “Miscellaneous” section 4 of the Agreement include, inter alia, that the governing law of the Agreement is the laws of the State of New York, USA, and that each party to it irrevocably and unconditionally submits to the exclusive jurisdiction of the courts of the State of New York.

The form of “EXHIBIT A” which is referred to in the Agreement is as follows:

On 6 November 2023, Kixin gave a document titled “Invoice Based Model Notice of Assignment” (Assignment) to Mearth in the following form (using the same replacement of definitions):

The form of “EXHIBIT A” to the Assignment is precisely the same as “EXHIBIT A” to the Agreement, the form of which is quoted above.

The Assignment also contains an “EXHIBIT B” but no reference is made to any “EXHIBIT B” in the operative parts of the Assignment. The form of “EXHIBIT B” states:

The invoice which is referred to in the Agreement and the Assignment, and identified as “EXHIBIT A” to the Agreement and the Assignment, which was the principal focus at the hearing of the application, is the invoice number KX027369 dated 30 October 2023 issued by Kixin to Mearth (October Invoice) in the following form:

In addition to the October Invoice, the following further invoices were issued by various suppliers (including Kixin) to Mearth (Further Invoices, or singularly, Further Invoice) which are the subject of the statutory demand (with the “due date” being as stated on each invoice):

On their face, each of the Further Invoices fell due for payment at various times between 25 February 2024 to 30 April 2024. The assignments of the Further Invoices to 40Seas were given at various times between 27 November 2023 and 2 February 2024.

Each of the Further Invoices express an amount due for payment in US dollars. The October Invoice expresses an amount due for payment in Australian dollars.

It is common ground that the terms of the agreement accompanying each of the Further Invoices (Further Agreements) were in exactly the same form as the Agreement for the October Invoice (with the only difference being the form of Exhibit A to each of the Further Agreements), and the terms of the assignment for each of the Further Invoices (Further Assignments) were exactly the same as the Assignment (with the only difference being the form of Exhibit A to each of the Further Assignments).

Mearth had established debit banking arrangements in place to pay each of the October Invoice and the Further Invoices until 4 February 2024. Ensign represented 40Seas in relation to payment issues on the October Invoice.

On 4 February 2024, a number of technical difficulties arose in relation to the debit banking system during the payment of the October Invoice. Ming Ye of Mearth communicated with Ensign over Wechat text messages about these difficulties. The Chinese to English translation of these Wechat messages relevantly state:

The Wechat text messages make reference to the concepts of “bind”, “binding” and “rebind”. This is a form of electronic authority given to Ensign, the platform operator, and in effect, it is a debit authority.

Clearly, despite this long text exchange over the payment of the October Invoice, it remained outstanding. In addition, there is no evidence that Mearth ever re-established the “binding” or direct debit authority to pay the October Invoice or any of the Further Invoices. The October Invoice and the Further Invoices all remain unpaid. Further, it was also abundantly clear from this exchange that Ming Ye of Mearth understood that the payment of the October Invoice was to be made in US dollars.

On 8 February 2024, 40Seas issued the statutory demand.

The description of debt in the statutory demand is:

The statutory demand states the amount of debt as a single figure expressed as US$486,355.14.

The affidavit of Eyal Moldovan sworn 8 February 2024 (Moldovan Affidavit) in support of the statutory demand lists each of the invoices comprising the sum of US$486,355.14, including the October Invoice in the amount of US$127,138.52 issued by Kixin.

The form of the October Invoice uses a “USD:AUD” conversion rate of 1.53, which converts the amount owing under the October 2023 Invoice of A$194,521.93 to US$127,138.52. The October Invoice does not express the amount owing as US$127,138.52, and there is nothing in the statutory demand or the supporting affidavit which states that such a conversion at that rate has been made.

On 9 February 2024, the statutory demand was served on Mearth.

Section 459J of the Corporations Act is in the following terms:

Section 9 of the Corporations Act defines “defect”, in relation to a statutory demand, as including the following:

The principal authorities on the application of s 459J(1)(a) of the Corporations Act concerning a “defect” in a statutory demand causing “substantial injustice” can be summarised as follows:

In Daewoo Australia Pty Ltd v Suncorp-Metway Ltd (2000) 48 NSWLR 692; [2000] NSWSC 35, Austin J considered the question of whether a statutory demand which states the amount of a debt in a foreign currency contains a defect for the purposes of s 459J(1)(a) and concluded at [35]:

In Daewoo Australia, Austin J also confronted the argument that because s 459E(2)(e) requires that the statutory demand must be in the prescribed form (Form 509H) which provides for the creditor to state that the debtor company owes it “the amount of $(insert amount)”, expressing the debt in a foreign currency means that the statutory demand does not meet the prescribed form. Austin J said at [39]:

In addition, in Daewoo Australia, Austin J at [40]–[41] referred to Vehicle Wash Systems Pty Ltd v Mark VII Equipment Inc (1997) 25 ACSR 709; (1997) 80 FCR 571 (which concerned a statutory demand for a US dollar amount) and identified that it was not sufficient to only consider whether the expression of the debt in a foreign currency in the statutory demand is a “defect” but whether it met the description used in s 459J(1)(a) – “because of a defect in the demand, substantial injustice will be caused unless the demand is set aside”. At [42] Austin J stated:

In Aldridge Electrical Industries Pty Ltd v Mobitec AB (2001) 39 ACSR 287; [2001] NSWSC 823, Santow J dealt with an appeal from a decision of Master McLaughlin to dismiss an application to set aside a statutory demand. One of the grounds of appeal was that an arbitrary date was chosen on which to convert the debt in Swedish krone to Australian dollars. At [24] Santow J found that it is permissible for a creditor to serve a demand for the Australian dollar equivalent of a debt owed in a foreign currency. In relation to the date of conversion to Australian dollars, Santow J at [27] said:

In Aldridge Electrical, Santow J at [29] expressed the view that if the date selected for conversion of currency was not one of the three appropriate dates identified above, then the statutory demand would suffer from a “mere defect” – not ordinarily of the kind “where substantial injustice will be caused unless the demand is set aside”. Santow J said at [30] that if the date selected for conversion is at least potentially inappropriate such that the statutory demand suffers from a defect, it is still necessary to consider whether the defect gives rise to substantial injustice so as to be set aside under s459J(1)(a) of the Corporations Act, notwithstanding s459J(2). The latter question turned on whether the statutory demand stated the date and rate by which the Australian dollar equivalent of the Swedish krone had been calculated, such that there is no burden placed on a debtor to make its own inquiries as to whether the sum demanded was a proper representation in Australian dollars of the debt at some date appropriate under the law for conversion (Aldridge Electrical at [29]).

In JTEC v Industrial Development Agency (Ireland) [2003] NSWSC 10, Berecry AM dealt with an application to set aside a statutory demand on the basis that the agreement which gave rise to the alleged debt contained an obligation to make payment in Irish pounds, but that the statutory demand was expressed in both Irish pounds and Euros without making clear the applicable exchange rate, or the relevant date for conversion. Berecry AM at [25] noted the plaintiff’s concession that the defendant may issue a statutory demand in a foreign currency following Daewoo Australia and then said at [27]–[28]:

I propose to follow the approach taken in Daewoo Australia and in Aldridge Electrical. It is in keeping with the law recognising the realities of modern commerce in which contracts frequently contain obligations to make payments in foreign currency. The days of regarding a foreign currency as being a commodity and incapable of creating a “debt” (as held in Jolley v Mainka (1933) 49 CLR 242 by Dixon J at 260) have long since passed. The approaches in Daewoo Australia and Aldridge Electrical also emphasise that the key question raised by s 459J(1)(a) is whether or not the defect would give rise to substantial injustice.

The ground for setting aside a statutory contained in s 459J(1)(b) for “some other reason” is distinct from the ground contained in s 459J(1)(a). The use of the disjunctive “or” between them makes this clear. In Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262, Barrett JA (Beazley P and Gleeson JA agreeing) at [18]–[25] analysed the cases which had dealt with s 459J(1)(b), concluding that:

In In the matter of Australian Institute of Fitness (Vic & Tas) Pty Ltd [2016] NSWSC 1143, Barrett AJA at [38] emphasised that:

The following further statements made in Kisimul Holdings by Barrett JA at [32]–[33] about the statutory scheme in Part 5.4 are instructive to the operation of s 459J(1)(b):

In In the matter of Gemi 169 Pty Ltd [2024] NSWSC 615, Black J at [27] emphasised that the court’s power under s 459J(1)(b) to set aside a creditor’s statutory demand where there is some other reason for it to do so, 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 attempt at subversion of the statutory scheme, but is not exercised by reference to subjective notions of fairness.

In Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746; [1996] NSWSC 199, Bryson J at 750 held that including amounts not yet due for payment with amounts due for payment in a statutory demand is a defect in that statutory demand, stating that:

The view stated in Portrait Express was expressly the subject of disagreement in NT Resorts Pty Ltd v Deputy Commissioner of Taxation (1998) 153 ALR 359 by Finkelstein J at 365, who said:

Importantly, in NT Resorts, Finkelstein J at 366–367 stated that although it was not necessary to reach a concluded view, where there is a question about whether the debt the subject of the statutory demand was due and payable, the application to set aside the statutory demand could be made under s 459H(1)(a) (there “is a genuine dispute … about the existence … of a debt to which the demand relates”) or s 459J(1)(b) (“there is some other reason why the demand should be set aside”), with Finkelstein J inclining to the view that s 459J(1)(b) is the only available ground. Finkelstein J at 367 said:

Since the views stated in NT Resorts, further decisions of this court have been made on the issue. In Re Renu Waste Pty Ltd [2020] NSWSC 108, Rees J at [25]–[32] outlined those views in the following way:

In the present case, Mearth expressly eschewed any reliance on s 459H of the Corporations Act as a basis for setting aside the statutory demand. I propose to follow the approach of Black J in MK Group and Tuffrock and give consideration to whether there is a genuine dispute as to whether the debt to which the statutory demand relates is not yet due and payable as a basis for setting the statutory demand aside under both s 459J(1)(a) and (b).

Mearth submit that the statutory demand should be set aside under s 459J(1)(a) because it states a global amount of US$486,355.14, which is a defect that will cause substantial injustice if it is not set aside.

40Seas says in response that s 459E(2)(b) makes plain that if there is more than one debt relied upon, that the demand must state what the total sum is, that is the total amount of the debt. 40Seas further state that the Moldovan Affidavit in support of the statutory demand sets out each of those invoices that comprise the total sum by reference to invoice number, date and particular amount.

As stated in Chippendale Printing, a statutory demand for multiple debts must give a description of the individual debts and state their amounts as well as state the total of those amounts. It is not sufficient for the statutory demand to only provide a total amount because the prescribed form 509H requires each debt to be stated as well as the total of the debts. I consider that the failure to state the amount of each debt in the statutory demand is a deficiency that constitutes a defect in it.

I am not, however, persuaded that because of this defect substantial injustice will be caused unless the statutory demand is set aside. This is because the Moldovan Affidavit accompanied the statutory demand and it identified the details of each invoice – the number, the date, the amount and the entity who issued it. Applying the test described in Condor Asset Management, I consider that when the statutory demand is considered in the context of what Mearth knew or ought reasonably to be expected to know from reviewing the Moldovan Affidavit when read with the statutory demand, Mearth would have no difficulty determining each individual amount which comprised the total amount stated in the statutory demand. Mr Ye’s first affidavit lists the amounts owing under each of the October Invoice and the Further Invoices which strongly demonstrates that he had no confusion about the composite amounts which made up the global amount sought in the statutory demand.

For these reasons, the expression of the amount in the statutory demand as a global amount is not a basis for setting aside the statutory demand under s 459J(1)(a) of the Corporations Act.

Mearth submitted that the statutory demand should be set aside under s 459J(1)(a) or 459J(1)(b) because the majority of the alleged debt expressed as a single amount of US$486,355.14 was not presently due and payable at the time the statutory demand was issued. Mearth says that only the October Invoice was due and payable as at 8 February 2024 and that each of the Further Invoices were not due and payable until after that date.

40Seas relies on clause 2(d)(v) of the Agreement which states that, if at any time Mearth fails to grant or revokes authority to debit Mearth’s bank account on or before the due date, then the amount on the “applicable invoice” shall become due and owing to 40Seas immediately. 40Seas also points to Exhibit B to the Assignment which stipulates that Mearth grants 40Seas permission to debit its bank account on the invoice due date and to verify the bank account ownership and that Mearth undertakes to maintain such permission continuously until all the amounts due to 40Seas are fully paid. According to 40Seas, the Wechat messages of 4 and 5 February 2024 evidence that the “binding” of the direct debit had failed and there is no evidence that the “rebinding” had occurred at any subsequent time for any other invoice. 40Seas says that the end result is that there is no authority that would enable 40Seas to be able to deduct money from an account of Mearth.

In light of this, 40Seas submits that where there has been either a revocation or withdrawal of the “binding” (the direct debit authority) by Mearth with no evidence that steps had been taken to “rebind”, then under cl 2(d)(v) of the Agreement each of the invoices became immediately due and payable notwithstanding whatever due date might have appeared on the face of those invoices.

In my view, cl 2(d)(v) in each of the Agreement and the Further Agreements operated such that when the direct debit authority was revoked or withdrawn by Mearth on 4 February 2024 as evidenced in the Wechat text messages, each of the amounts in the October Invoice and the Further Invoices became immediately due and payable. By 4 February 2024, each of the Assignment and the Further Assignments had occurred (the last one having occurred on 2 February 2024) so each of the October Invoice and the Further Invoices were payable to 40Seas. There is no evidence that the direct debit authority was ever re-established by Mearth. There is compelling evidence that it was not re-established because none of the respective amounts payable under each of the October Invoice and the Further Invoices has been paid.

For these reasons, there is no basis for the argument by Mearth that the whole of the amount contained in the statutory demand was not due and payable. As a result, the statutory demand should not be set aside on the grounds contained in either s 459J(1)(a) or (b) of the Corporations Act as asserted by Mearth.

Mearth submitted that the only invoice contained in the statutory demand which was due and payable was the October Invoice (an argument which I have rejected), the component parts of which were expressed in a combination of currencies (USD, RMB and AUD) and which then formed part of the larger amount sought in the statutory demand expressed in US dollars. Mearth says that the 100000RMB amount has been converted to some unspecified currency in an unspecified manner, with a “40seas fee” added to it, the reasons and basis for which is unclear. Mearth submitted that it has not been put in a position by the statutory demand to know how, why and on what basis this was done.

Mearth further submits that the payment sought in the October Invoice is A$194,521.93, which is the same amount expressed as the Buyer’s Total Charge of A$194,521.93 in Exhibit A to the Agreement and in Exhibit A to the Assignment. Mearth says there is no reference to an amount expressed in US dollars as due and payable in the Agreement, the Assignment or the October Invoice, yet the amount in the statutory demand is only expressed in US dollars, and there is no reference to any conversion rate of Australian dollars to US dollars or the date on which that conversion was made.

Mearth says that applying the reasoning in Vehicle Wash, a statutory demand expressed in US dollars is defective under s 459J(1)(a) and, applying the reasoning in Daewoo Australia and JTEC, there is no defect where the demand relates to a contract under which the company has promised to meet a financial obligation in the foreign currency. Mearth explains that because Exhibit A to the Agreement and Exhibit A to the Assignment both express an amount as owing in Australian dollars, there was no obligation for Mearth to meet a financial obligation in US dollars.

40Seas says that the decision in JTEC is plainly distinguishable because, in JTEC, the issue the court was faced with was that the demand referred to an amount in Irish pounds that was no longer legal tender and the company receiving a demand in an amount no longer in legal tender had to go through and find certain information to establish that the Republic of Ireland was a member of the European Union, information about various regulations in EU common currency and then make enquiries to ascertain the relevance of the references to the Euro. 40Seas emphasised that, in applying the test from Aldridge Electrical, if the date selected for the currency conversion is appropriate or inappropriate it would only be a defect and it is still necessary to consider whether substantial injustice will be caused.

40Seas submit that there is no evidence of any substantial injustice to Mearth caused by the statutory demand being expressed in US dollars. 40Seas says it is clear in the Wechat text messages on 4 and 5 February 2024 that Mr Ye knew that the October Invoice was payable in US dollars and the exact amount of those US dollars. 40Seas also says that, in Mr Ye’s affidavits, he has been able to readily identify each invoice which he has expressed as payable in US dollars, including the October Invoice, as well as in the substantive documentation in the form of the Agreement. 40Seas also points to the admissions in Mr Ye's second affidavit stating that the US$127,138.52 in the October Invoice was due at the date of the statutory demand. 40Seas also contends that, in Mr Ye’s third affidavit, he says that Mearth needs around 28 to 45 days to pay the October Invoice, and nowhere is it suggested that there could be any form of confusion causing substantial injustice to Mearth because of the foreign currency issue.

40Seas says that there is no defect for the purpose of 459J(1)(a) in stipulating that an amount in a statutory demand can be in a foreign currency, and there is no substantial injustice for the purposes of 459J(1)(a) because it is abundantly clear that Mearth at all times knew and accepted that the amount of US$127,138.52 was and remains due and payable to 40Seas.

In my view, expressing the statutory demand as an amount owing in US dollars was not a defect with respect to each of the Further Invoices which contained amounts payable in US dollars. For each of those Further Invoices there was, to use the words in Daewoo Australia, no defect where the demand relates to a contract under which Mearth had promised to meet a financial obligation in the foreign currency (US dollars) as contained in cl 2(d)(iii) of each of the respective Further Agreements which were in the same form as the Agreement. The “Buyer’s Total Charge” in Exhibit A to each of the Further Agreements was expressed in US dollars in exactly the same amount as the relevant accompanying Further Invoice.

As for the October Invoice, it contains a conversion rate of USD to AUD of 1.53. That is the third of the alternative dates for conversion (being the date for the scheduled payment which had not been made) expressed in Aldridge Electrical as an appropriate date. There is not defect in the statutory demand in those circumstances.

In any event, even if I had found that the expression of the amount in the statutory demand in US dollars was a defect, there is no substantial injustice caused to Mearth. The evidence is unsurmountable that Mearth knew that each of the October Invoice and the Further Invoices was payable in US dollars. Mr Ye says so in his first affidavit, listing the “amount due” for every invoice in US dollars, including the October Invoice for the exact amount as sought in the statutory demand by 40Seas. The Wechat text messages on 4 and 5 February 2024 repeatedly refer to the October Invoice as payable in US dollars and for the exact amount as sought in the statutory demand by 40Seas. Mr Ye’s second affidavit says that the October Invoice is payable in US dollars. Mr Ye’s third affidavit says that Mearth needs time to pay the October Invoice, raising no issue about any problem of currency conversion. There is nothing to suggest otherwise.

For these reasons, the expression of the amount owing as US dollars in the statutory demand is not a ground for setting it aside under s 459J(1)(a) of the Corporations Act.

For the reasons set out above, I propose to make the following orders: