In the matter of Omaya Investments Pty Ltd; In the matter of Omaya Holding Pty Ltd

1. [1]

   These two proceedings relate to two statutory demands issued by the Defendant (The Owners Corporation) to the respective Plaintiffs, Omaya Investments Pty Ltd and Omaya Holding Pty Ltd, which were served on 9 August 2024 (Statutory Demands).

2. [2]

   By the Statutory Demands, the Owners Corporation demanded an amount of $3,066,622.96 for which each of Omaya Investments and Omaya Holding was said to be liable.

3. [3]

   The Debt was claimed to arise pursuant to the terms of a Deed of Settlement and Release which was entered into by the Owners Corporation, Omaya Investments and Omaya Holding on 14 December 2023 (the Settlement Deed). The Debt was said to be comprised of two components: first, an amount of $3m described as the settlement sum due under the Settlement Deed (the Settlement Sum); and secondly, an amount of $66,622.96, representing interest on the Settlement Sum at the rate specified in the Settlement Deed, from 1 March 2024 to the date of the Statutory Demands.

4. [4]

   By an Amended Originating Process filed in each respective proceeding, Omaya Investments and Omaya Holding seek to set aside the Statutory Demands, pursuant to s 459H(1)(a) and/or ss 459J(1)(a) or (b) of the Corporations Act 2001 (Cth) (the Act).

5. [5]

   On 25 September 2024, the Owners Corporation filed, in each proceeding, an affidavit of a strata committee member, which stated that, in light of a dispute raised by Omaya Investments and Omaya Holding regarding the calculation of interest, the Owners Corporation:

   1. (1)

      intended on reducing the amount claimed in the Statutory Demands by removing the interest calculated on the Settlement Sum; and

   2. (2)

      pressing only its claim for the Settlement Sum.

6. [6]

   Accordingly, in opening written submissions filed in advance of the hearing, the Owners Corporation sought that an order be made under s 459H(4) of the Act varying each of the Statutory Demands so that the amount demanded is the amount of the Settlement Sum (that is, $3m). Omaya Investments and Omaya Holding agree that, if they fail to set aside the Statutory Demands, such an order should be made.

7. [7]

   Against that background, Omaya Investments and Omaya Holding stated, in opening, that they did not press any contention that there is a genuine dispute regarding the debt. That was because they acknowledged that there was no genuine dispute that the full amount of the Settlement Sum became due and owing in April 2024, in the circumstances described below.

8. [8]

   Instead, Omaya Investments and Omaya Holding sought that the Statutory Demands, reduced to $3m, be set aside on the basis either that because of a defect in the Statutory Demands, substantial injustice will be caused unless the Statutory Demands are set aside (s 459J(1)(a)); or that there is some other reason why the demand should be set aside (s 459J(1)(b).

9. [9]

   In seeking an order under s 459J(1)(b), Omaya Investments and Omaya Holding relied on the same defects as were the subject of submissions in respect of s 459J(1)(a). In short, they submitted that "in light of the multiple defects in the Statutory Demands, the Court ought set-aside the Statutory Demands to maintain the integrity of the statutory demand process under Part 5.4 of the [Act]".

Background

1. [10]

   Given the admitted debt in respect of the Settlement Sum, the relevant facts may be briefly stated.

2. [11]

   On 14 December 2023, the Owners Corporation, Omaya Holding and Omaya Investments entered into the Settlement Deed, in order to resolve litigation between them in this Court regarding alleged defective building works.

3. [12]

   Pursuant to the Settlement Deed, Omaya Holding and Omaya Investments agreed to pay the Settlement Sum to the Owners Corporation. Clause 2.2 of the Settlement Deed relevantly provided as follows:

4. [13]

   Omaya Investments and Omaya Holdings did not pay the amount of $300,000 which was required, pursuant to cl 2.2(a)(i), to be paid to the Owners Corporation by 31 March 2024 (the First Payment).

5. [14]

   On 5 April 2024, the Owners Corporation wrote to Omaya Investments and Omaya Holding giving notice under cl 2.2(c) of the Settlement Deed and demanding that the First Payment be paid to the Owners Corporation within 14 days.

6. [15]

   Omaya Investments and Omaya Holding did not comply with this demand.

7. [16]

   It is common ground that, as a result of the failure to comply with this demand, the full amount of the Settlement Sum became due and payable to the Owners Corporation, pursuant to cl 2.2(c), at the expiration of the 14-day period specified in the notice (namely, on 19 April 2024).

Defects in the Statutory Demand

1. [17]

   Omaya Investments and Omaya Holding contended that there were defects in several parts of the Statutory Demands.

2. [18]

   First, each of the Statutory Demands stated that the amount owed was "$3,066.622.96 inclusive of GST". Omaya Investments and Omaya Holdings said that this was a defect because cl 7.1 of the Settlement Deed contains an agreement that all amounts payable under the deed "are characterised as damages and do not attract GST".

3. [19]

   This alleged defect may be put to one side for the following reasons:

   1. (1)

      the Plaintiffs acknowledged that this was not identified as a defect in the supporting affidavit accompanying the application to set aside the Statutory Demands;

   2. (2)

      in any case, I do not consider that this is a defect in the Statutory Demands, given that the phrase "inclusive of GST" is commonly used to mean inclusive of any GST which is payable (which may be nil).

   3. (3)

      further, the Plaintiffs conceded that any such defect was a minor error and did not give rise to any substantial injustice.

4. [20]

   Secondly, the Statutory Demands, after setting out the terms and effect of cl 2.2(a)-(c) of the Settlement Deed (in a manner which was not alleged to be inaccurate), stated as follows:

5. [21]

   Omaya Investments and Omaya Holdings identified two defects in this statement.

6. [22]

   The first was that the quoted passage stated that the Settlement Sum became due and payable under "clause 2.2(d)(i)", when there was no such clause. There was a cl 2.2(d) but, as set out above, it related to a different subject matter.

7. [23]

   The reference to “clause 2.2(d)(i)” is plainly a typographical error. It was obvious to any reasonable reader that the Settlement Sum was claimed to be owing under cl 2.2(c)(i). This clause was quoted in full immediately above the statement in question. Further, the supporting affidavit which was served with the Statutory Demands referred to cl 2.2(c)(i) and referred to and attached the notice issued pursuant to cl 2.2(c)(i). There could have been no genuine confusion on the part of any reasonable recipient of the Statutory Demands about the clause upon which the Owners Corporation was relying.

8. [24]

   The Plaintiffs’ second contention in relation to the passage quoted above was as follows.

   1. (1)

      It is common ground that as a result of the Plaintiffs’ failure to comply with the notice issued under cl 2.2(c) in respect of the First Payment, the whole of the Settlement Sum became due and payable on 19 April 2024.

   2. (2)

      It followed that the Second Payment in an amount of $300,000 (which was to be payable under cl 2.2(a) in the event that the scheduled programme of payments continued to be met) did not in fact become due and payable.

   3. (3)

      The statements made in the Statutory Demands regarding the basis on which the debt arose were inconsistent and confusing, by reason that:

9. [25]

   The Owners Corporation agreed that, because the full amount of the Settlement Sum became due and payable as at 19 April 2024 following failure to comply with the notice in respect of the First Payment, there was no obligation to make the Second Payment on 30 June 2024 (and therefore, any non-payment of the Second Payment by 30 June 2024 could not cause the Settlement Sum to become due and payable). The significance of these matters is addressed below.

10. [26]

    Thirdly, the Statutory Demands were alleged to contain an error in the calculation of interest. The error was, essentially, said to be that interest on the whole of the Settlement Sum was calculated as running from 31 March 2024 (being a date when only the First Payment was due), rather than from 19 April 2024 (being when the full amount of the Settlement Sum became due).

11. [27]

    The Owners Corporation did not concede that there was an error in the interest calculation, and contended that it was reasonably arguable, on a construction of the Settlement Deed, that interest ran from the earlier date. However, as noted above, the Owners Corporation accepted that there was a genuine dispute about this issue, which is why the Owners Corporation accepted that an order should be made varying the Statutory Demands so as to exclude any demand for interest.

12. [28]

    It is neither necessary nor desirable to determine this issue. Where the amount claimed in a statutory demand has two separate components, and where it is conceded that a genuine dispute exists in respect of one of the two components and that the statutory demand should be varied to exclude that component, I do not consider that any dispute about the calculation of the excluded component can provide a basis for setting aside the demand in respect of the other component (particularly where the other component is admitted).

13. [29]

    Further, the Court should not, in such circumstances, go on to consider and determine the component of the demand about which there is conceded to be a genuine dispute, which is a matter that falls outside the statutory demand procedure.

14. [30]

    For that reason, I have made no finding regarding whether there was an error in the interest calculation or not.

Section 459J(1)(a)

1. [31]

   Section 459J(1)(a) of the Act provides that the Court may make an order setting aside a statutory demand if it is satisfied that, because of a defect in the demand, substantial injustice will be caused unless the demand is set aside.

2. [32]

   Both parties relied on the statement of the relevant principles by McGrath J in In the matter of Mearth Technology Pty Ltd [2024] NSWSC 656 at [35] as follows:

3. [33]

   I accept, for the reasons I have indicated above, that there was a defect in the Statutory Demand, insofar as it stated that the Settlement Sum became due and payable by reason of the non-payment of the First Payment and the Second Payment. In fact, it became due and payable by reason of the failure to comply with the notice issued pursuant to cl 2.2(c) on 5 April 2024, which demanded payment of the First Payment within 14 days.

4. [34]

   However, applying the principles in Mearth, I do not consider that this defect is such that substantial injustice will be caused unless the demand is set aside.

5. [35]

   First, Omaya Investments and Omaya Holding were able, on receipt of the Statutory Demands, to identify with precision the specific debt on which the Statutory Demands were based, which had two distinct components, the Settlement Sum of $3m and interest on that sum: Mearth at [35(2)].

6. [36]

   Secondly, any ambiguity regarding the reference to the non-payment of the Second Payment, or regarding the Settlement Sum becoming due on the non-payment of both the First Payment and the Second Payment, was not such as to produce doubt in the mind of any reasonable reader as to the course that had to be taken in order to avoid a situation where the statutory presumption of insolvency was created: Mearth [35(3)].

7. [37]

   The course that had to be taken was readily apparent, namely, payment of the Settlement Sum. The Statutory Demands did not demand payment of the Second Payment. The Statutory Demands referred specifically to cl 2.2(c) of the Settlement Deed which made the Settlement Sum due and payable in circumstances where there is failure to comply with a notice following non-payment of an amount due under cl 2.2(a). The only notice referred to in the supporting affidavit was the notice which was issued upon non-payment of the First Payment. Further, the calculation of interest, insofar as it is relevant, was calculated from the date when the First Payment was due.

8. [38]

   Having regard to those matters, it was apparent to any reasonable reader that the full amount of the Settlement Sum was claimed to be owing and was claimed to have become owing from the time of failure to comply with the obligations in respect of the First Payment.

9. [39]

   Thirdly, it follows that this cannot be described as a case where Omaya Investments and Omaya Holding were left "to guess which of several possible courses suggested by the statutory demand is to be taken by it to forestall the statutory presumption of insolvency": Mearth at [35(4)]. Instead, it was obvious to any reasonable reader that there was one course, namely, to pay the amount of the Settlement Sum.

10. [40]

    Fourthly, any uncertainty created by the reference to the non-payment of the Second Payment was not such as to mean that a reasonable person in the shoes of a director of Omaya Investments or Omaya Holding was unable to identify "the general nature of the debt to a sufficient degree so as to assess whether there was a genuine dispute as to its existence": Mearth at [35(5)] Instead, the Statutory Demands, viewed in light of what the Plaintiffs already knew or ought reasonably to have known, contained sufficient information for the Plaintiffs to assess their liability for the amount demanded: Mearth [35(9)].

11. [41]

    In particular, the Statutory Demands claimed that the amount of the Settlement Sum was due and payable pursuant to cl 2.2 of the Settlement Deed, following a failure to comply with the payment regime in that clause. A reasonable director of the Plaintiffs would have readily been able to assess whether there had been (as asserted in the Statutory Demands) a failure to comply with the payment regime in cl 2.2(a), whether there had been (as set out in the supporting affidavit) a notice issued in respect of that default, whether (as stated in the supporting affidavit) the default had been remedied following the issue of that notice, and whether, as a result, the whole of the Settlement Sum has become due and payable pursuant to clause 2.2.

12. [42]

    As matters have transpired, the Plaintiffs have considered each of those matters and have formed the view that there is no genuine debt that the Settlement Sum is due.

13. [43]

    For those reasons, I am not satisfied that, by reason of any defect in the Statutory Demands, substantial injustice will be caused unless the demand is set aside.

Section 459J(1)(b)

1. [44]

   Section 459J(1)(b) of the Act provides that the Court may make an order setting aside a statutory demand if it is satisfied that there is "some other reason why the demand should be set aside".

2. [45]

   The Plaintiffs relied on the following statement of principle by the Full Court of the Federal Court (French, Kiefel and Sundberg JJ) in Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 80 FCR 296; 25 ACSR 675 at 700; [1997] FCA 1366:

3. [46]

   I am not satisfied that the matters upon which the Plaintiffs relied as defects, even if each were accepted to be a defect, rise so high as to establish that the Statutory Demands were made "with such carelessness as to be frivolous or vexatious or an abuse of process". That is clearly a stringent test. At the most, there was:

   1. (1)

      a mistaken reference to GST (in circumstances where it was known that no GST was included);

   2. (2)

      a typographical error, with the Statutory Demands referring to cl “2.2(d)(i)” instead of cl “2.2(c)(i)”;

   3. (3)

      an (arguably) incorrect calculation of interest from 31 March 2024 rather than from 19 April 2024; and

   4. (4)

      a reference to the fact (which is not disputed) that the Plaintiffs had not made the First or Second Payment specified in cl 2.2(a), and an erroneous suggestion that the non-payment of the Second Payment as well as of the First Payment caused the Settlement Sum to become due and payable (in circumstances where it was known that the only notice issued was in respect of the First Payment, as stated in the supporting affidavit).

4. [47]

   The Plaintiffs submitted that the power to set aside a statutory demand for "some other reason" is aimed at maintaining "the integrity of the Part 5.4 process". The Plaintiffs attributed this statement to Bryson J in Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 132 FLR 300; [1996] NSWSC 199. His Honour did not make a statement in these terms in that case. Instead, his Honour said (at 311) that the court should not act under s 459J(1)(b) in the absence of “some sound or positive ground or good reason which is relevant to the purposes for which the power exists", and continued as follows:

5. [48]

   In CP York Holdings Pty Ltd v The Food Improvers Pty Ltd [2009] NSWSC 409 at [21], Barrett J referred to this passage of Bryson J’s judgment, and continued as follows:

6. [49]

   Importantly, having made that observation, Barrett J made the following statement regarding the facts of that case (at [22]):

7. [50]

   In Hebbel Constructions Pty Ltd v Bitar Pty Ltd [2022] NSWSC 1594 at [35], Hammerschlag CJ in Eq referred to the principle from CP York stated above, and observed that:

8. [51]

   Having regard to those principles, I do not consider that the integrity of the Part 5.4 process could be said to be undermined by the issue of a statutory demand which contains relatively minor errors, particularly where the statutory demand clearly identifies the amount of the debt (the Settlement Sum), the contractual provision pursuant to which the debt arises (clause 2.2 of the Settlement Deed), and where there is no genuine dispute about the existence of the debt. In that context, the errors in the text of the Statutory Demands upon which the Plaintiffs relied do not provide “reasons of appropriate seriousness for setting them aside” (Portrait Express at 311), and the conduct of the Owners Corporation in issuing the Statutory Demands with such errors could not be said to amount to “attempted subversion of the statutory scheme” (CP York at [21]) or conduct which is “which is unconscionable, an abuse of process, or gives rise to a substantial injustice” (Hebbel Constructions at [35]).

9. [52]

   It would be more likely to undermine the integrity of the statutory demand regime if a statutory demand for an undisputed debt arising from a failure to pay a fixed sum due under a deed were liable to be set aside because of minor errors in the text of the statutory demand, particularly where those errors were not such as to lead the Court to conclude that there would be substantial injustice unless the statutory demand is set aside.

10. [53]

    For those reasons, I am not satisfied that the Plaintiffs have established, within the meaning of s 459J(1)(b), “some other reason” why the Statutory Demands should be set aside.

11. [54]

    As noted above, the Owners Corporation accepted that, given the existence of a genuine dispute regarding the calculation of the interest component, there should be an order varying the amount of each of the Statutory Demands to $3m (being the amount of the Settlement Sum). Otherwise, for the reasons set out above, the Plaintiffs’ respective applications to set aside the Statutory Demands should be dismissed.

12. [55]

    Because the Owners Corporation was successful in each proceeding, it is entitled to an order for its costs.

13. [56]

    The Plaintiffs contended that there should be no order as to costs for the period from the commencement of each proceeding until the Owners Corporation filed affidavits on 25 September 2024 confirming that the Owners Corporation did not press its claim for interest. I do not consider that the fact that the Owners Corporation, on filing its evidence, acknowledged the existence of a genuine dispute about the interest component of the amount claimed in the Statutory Demands provides a basis for denying the Owners Corporation its costs of the proceedings in respect of the period until that acknowledgement was given. The claim for interest represented a comparatively minor component (around 2%) of the amount specified in the Statutory Demands, and the Plaintiffs were, in this period, asserting that there was a genuine dispute in respect of the remaining 98% of the debt. Any such contention was abandoned at the hearing. Accordingly, the Owners Corporation’s concession in respect of interest, provided at an early stage, does not alter the conclusion that the Owners Corporation has, in this proceeding, had substantial success.

14. [57]

    The Owners Corporation sought that costs be awarded on an indemnity basis from 13 December 2024, on the basis of a letter of offer sent on this date. However, as the Plaintiffs submitted, this offer was not directly concerned with the matters at issue in this proceeding (for example, there was no offer to vary the amount of the Statutory Demands), and was instead directed at resolving the underlying commercial dispute regarding the Plaintiffs’ indebtedness pursuant to the Settlement Deed (by requiring payment of a sum of $2.95m to the Owners Corporation). The Plaintiffs did not seek, and these proceedings have not resulted in, an order for the payment of any sum to the Owners Corporation. In those circumstances, I am not satisfied that the letter of offer provides a basis for the award of costs on an indemnity basis in this proceeding.

15. [58]

    Accordingly, I make the following orders in each proceeding:

    1. (1)

       Grant leave to file in Court the Amended Originating Process initialled and dated by Nixon J on 19 December 2024.

    2. (2)

       Pursuant to s 459H(4) of the Corporations Act 2001 (Cth), the amount of the statutory demand issued by the Defendant to the Plaintiff and dated 6 August 2024 be varied to $3m.

    3. (3)

       The Amended Originating Process otherwise be dismissed.

    4. (4)

       The Plaintiff pay the Defendant’s costs as agreed or assessed on the ordinary basis.