In the matter of Jana Pty Ltd

By originating process filed on 1 October 2021, Jana Pty Ltd ACN 158 982 122 (Jana) applies pursuant to s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand issued to it on 13 September 2021 by the defendant, Allspec Constructions and Project Management ACN 617 645 799 (ACPM) (the demand).

Paragraph 1 of the demand states that Jana owes ACPM “the amount of $481,865.51 being the total of the amount of the debt described in the Schedule”. The Schedule describes the debt as follows:

I will return to the provisions of the deed dated 19 January 2021 later in these reasons (the Deed).

It is common ground that Jana’s application to set aside the statutory demand was made within the statutory period in s 459G(2) of the Corporations Act.

Jana applies to set aside the demand on two grounds.

First, Jana contends the demand should be set aside pursuant to s 459H(1)(a) of the Corporations Act because there is a genuine dispute about the existence of the debt to which the demand relates. The dispute concerns:

Second, Jana contends that the demand should be set aside pursuant to s 459J(1)(b) of the Corporations Act because ACPM has engaged in conduct that was unconscionable, an abuse of process or has given rise to substantial injustice by issuing the demand for the purported improper purpose of applying pressure to Jana.

ACPM contends that there is no genuine dispute and that the demand was not issued for an improper purpose.

Jana relies on two affidavits of its director, Mr Anthony Azizi sworn on 1 October 2021 and 22 November 2021 and two affidavits of its solicitor, Mr Nathan Buckley sworn on 25 October 2021 and 22 November 2021, together with the annexures and exhibits to those affidavits.

ACPM relies on an affidavit of its director, Mr Joseph Elia, sworn on 26 October 2021, an affidavit of Elie Elia (a former employee of one of the parties to the Deed) sworn on 8 October 2021 and an affidavit of its solicitor, Mr Kirco Jakimoski, sworn on 4 November 2021, together with the annexures and exhibits to those affidavits.

The evidence was voluminous. I have had regard to Jana’s written submissions, the written submissions provided by counsel for ACPM, [1] the further submissions made orally at the hearing and the evidence referred to in the parties’ written and oral submissions.

At the conclusion of the hearing of Jana’s application on 14 February 2022, I made an order setting aside the demand on the basis that I would publish my reasons for doing so at a later date. These are those reasons.

Section 459E(1) of the Corporations Act provides that a statutory demand may only be served on a company in relation to debts which are “due and payable”, meaning that the debt is “ascertainable, immediately payable and presently recoverable or enforceable by action”: see In the matter of Essential Media and Entertainment Pty Ltd [2020] NSWSC 990 at [96]-[97] (Rees J) and the authorities there cited.

The principles to be applied to determine whether there is a genuine dispute about the existence or amount of the alleged debt or whether it is due and payable are well known. The threshold to establish a genuine dispute within the meaning of s 459H(1)(a) of the Corporations Act is not high. A genuine dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived. In other words, the company applying to set aside the statutory demand must demonstrate that there is “a plausible contention requiring investigation”. The Court is concerned only with the existence of a genuine dispute, and not with the parties’ relative prospects of success in relation to the dispute. A finding of genuine dispute will be made if the applicant shows that even one issue has a sufficient degree of cogency to be arguable, even where the case to be advanced against the applicant appears to be stronger. The Court does not engage in any form of balancing exercise between the strengths of the parties’ competing contentions: Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212; [2017] NSWCA 300 at [17] (Barrett AJA, Gleeson and White JJA agreeing), citing with approval Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330 at [47]–[50]; see also In the matter of JF Essential Power Pty Limited [2018] NSWSC 435 at [24] (Black J) and In the matter of Savemore Wholesale Pty Ltd [2021] NSWSC 307 at [22]-[25] (Black J) and the authorities there referred to.

As I have already mentioned, the dispute raised by Jana in the present case principally concerns the construction of the Deed. Drawing on previous authority, Barrett AJA explained the approach to be taken to disputes about construction issues in the context of s 459H of the Corporations Act in Creata (Aust) Pty Ltd v Faull, supra, at [26]-[29] (Gleeson and White JJA agreeing): [2]

There are seven parties to the Deed:

The Deed is very poorly drafted.

Broadly speaking, the Deed makes provision for:

The demand relates only to the $481,865.51 amount referred to above.

The recitals to the Deed record that:

Clause 2 of the Deed provides: [3]

The term “settlement” is not defined in the Deed. However, the term “Settlement Date of the Contract for Sale” is defined in clause 8.64 as meaning “for an off the plan purchase, the settlement period runs parallel with the construction program, progress of the subject property, the occupation certificate being granted authorizing the property to be habitable and strata plan registration with the NSW Land Registry Services.” The “Contract for Sale of Land” is defined in clause 8.17 as meaning the contract referred to in clause 5 of the Deed for the sale of Lot 30 by Jana to the Purchaser.

Clause 3 of the Deed provides:

Clause 8 of the Deed is entitled “General” and contains a number of sub-clauses that are structured as definitions. At least some of those sub-clauses nevertheless contain what appear to be substantive rather than definitional provisions, including clauses 8.30, 8.31 and 8.34 referred to below.

Clause 8.30 provides:

Clause 8.34 provides:

Clause 8.32 provides:

Clause 8.35 provides:

The “Contract for sale of land” is defined in clause 8.17 as meaning the contract for sale by Jana to the purchase of part of the Bexley North land that I have referred to at [18] above.

Clause 8.27 provides:

Clause 8.31 is entitled “Guarantee Absolute and Unconditional” and relevantly provides that each “Guarantor” understands and agrees that “this Guarantee shall be construed as a continuing, absolute, irrevocable and unconditional guarantee of payment and performance” and that when “making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, any Guaranteed Party may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against the Head Contractor and its associated entities, any other Guarantor or any other Person or against any collateral security or guarantee for the Guaranteed Obligations …”

Clauses 8.22 and 8.23 provide:

Clause 8.24 provides:

Clause 8.46 provides:

Clause 8.48 provides:

Although the Deed names only one party as a “Guarantor” (Mr Azizi), clause 2.3 and the definitions of “Guarantee” in clause 8.30, “Guaranteed Moneys” in clause 8.35, “Enforcement of Guarantee” in clause 8.27 and “Guarantee Absolute and Unconditional” in clause 8.31 refer to guarantors in the plural or to “each Guarantor” (arguably assuming that there is more than one guarantor). Clause 8.34, which purports to define the term “Guarantors”, does not in fact define that term but rather describes the obligations guaranteed. The term “Guarantee Debt” is defined in clause 2.1 and defined differently in clause 8.32. In clause 2.3, “the landowner” is referred to separately from “the guarantors”. As I have referred to above, Jana is the party the Deed described as “the Landowner”.

Clause 2.3 of the Deed describes the time at which the “landowner and guarantors acknowledge and confirm that all amounts due to the subcontractor will be paid” by reference to:

Options (2) and (3) above are described in clause 2.3 as being in the alternative to option (1) and “at the discretion of the Subcontractor and by agreement”.

By contrast, the definition of “Guarantee” in clause 8.30 states that “each Guarantor unconditionally and irrevocably guarantees the payment by the Head Contractor and or its associated entities to the Subcontractor of the Guarantee debt and Guaranteed moneys upon demand by the Subcontractor …” (my emphasis).

ACPM issued a letter of demand dated 4 May 2021 to Jana, Trinco and the Head Contractor. The letter was sent by email to Mr Azizi. It stated:

A second letter of demand was issued on 11 May 2021 for an amount of $757,567.46, including the amount of $481,865.51.

As I have already referred to, the statutory demand was issued on 13 September 2021.

Mr Azizi has given evidence that, as at 13 September 2021, none of the three circumstances referred to in clause 2.3 of the Deed had occurred. In his affidavit sworn on 22 November 2021, Mr Azizi deposed that:

It is common ground that construction is still taking place and that the transfer of Lot 30 to the Purchaser has not occurred. In his affidavit sworn on 26 October 2021, Mr Joseph Elia deposed that:

There was no evidence that this position had relevantly changed between the date these affidavits were sworn and the hearing of Jana’s application to set aside the statutory demand on 14 February 2022.

Mr Azizi also deposed in his 22 November 2021 affidavit that neither of the other two conditions set out in clause 2.3 of the Deed had occurred, as Jana had not entered into any further contracts of sale with ACPM or the Purchaser and Jana had not refinanced the development site.

The written submissions served by Jana prior to the hearing stated that none of the events referred to in clause 2.3 had occurred as at the date of the demand. The submissions disclosed that:

It was submitted on behalf of Jana that there is a genuine dispute within the meaning of s 459H(1)(a) of the Corporations Act. Relying on the matters referred to at [34] above, Jana submits that there is a genuine dispute about whether it was a “guarantor” under the Deed, properly construed. Jana submits that recital J to the Deed, which refers to “the terms and conditions set out in this Deed” being guaranteed by, inter alia, “the landowner”, is not an operative clause. Jana submits that it is clear from clause 3.1 of the Deed that the amount of $481,865.51 is a debt owed to ACPM by the Head Contractor and Trinco, and not by Jana. Jana characterises clause 3.2 of the Deed as merely containing an acknowledgement rather than imposing an obligation of payment. Jana submits that, reading the Deed as a whole, it is clear that its role is the role of a landowner permitting the performance of other parties’ obligations under the Deed to be secured by the charge against its property.

Jana further submits that, even assuming that it is a “guarantor” within the meaning of the Deed (which is disputed), the “Guarantee debt” referred to in clause 2.1 of the Deed was not due and payable at the time the demand was issued because the events referred to in clause 2.3 had not occurred. Jana relies on the provisions of clause 2.3, Mr Azizi’s evidence referred to at [43]-[45] above and the provisions of clause 8.64 of the Deed as defining “settlement” for the purpose of clause 2.3.

ACPM contends that “properly construed, the guarantee extends to the obligation of Jana as guarantor both to repay on demand the Guarantee Debt $481,865.51 principal and interest on the guarantee debt and to its obligation to pay the Additional Moneys”. The reference to interest and to “Additional Moneys” (a term that is not defined in clause 8 of the Deed) can be put to one side for the moment, as the question is whether there is a genuine dispute about the debt in respect of which the demand was issued. The demand was issued only in respect of the sum of $481,865.51 allegedly owed by Jana “as Guarantor”.

ACPM’s submissions in support of its contention referred to immediately above may be summarised as follows:

ACPM relies on various surrounding circumstances in support of the construction for which it contends.

ACPM’s submissions referred to paragraph 27 of Mr Azizi’s second affidavit in which he stated that “the Deed does not ‘secure all monies owed to the Defendant’ at settlement of the ‘Property’” and that “the Plaintiffs only obligation to make payment is in the sum of $481,865.21, being the sum claimed under the Defendant’s Statutory Demand”. Read in context, I do not accept ACPM’s submission that this statement by Mr Azizi constitutes an admission of “the debt”. I do not regard the statement as an admission that Jana’s obligation in respect of that amount was an obligation “as Guarantor” or that the amount was due and payable as at the date of the demand.

ACPM also relies on the indemnity in clause 3.4 of the Deed as supporting the construction of the Deed for which it contends.

ACPM submits that:

That submission merely begs the question: on the proper construction of the Deed, what has been stated about the payment by Jana of the sum of $481,865.51?

ACPM’s submissions also refer to the evidence of Mr Joseph Elia to the effect that Mr Azizi agreed “that the acknowledgement of debt was to be paid down and the sum of $330,000 was to be paid by 9 September 2021”. I do not regard that submission as relevant to the present application. The question is whether there is a genuine dispute about the debt that is the subject of the demand. The demand related to a debt said to be owed by Jana “as Guarantor” under the Deed, not an amount owed pursuant to an agreement allegedly made subsequently between Mr Azizi and Mr Joseph Elia.

Having considered Jana’s submissions referred to at [48]-[49] above and ACPM’s submissions referred to at [50]-[54] above, I was satisfied by the conclusion of the hearing on 14 February 2022 that there is a genuine dispute in relation to the whole of the alleged debt. The dispute concerns the existence of the alleged debt described in the demand (“as Guarantor”) and, if that debt exists, whether it was due and payable at the time of the demand was issued on 13 September 2021. Contrary to ACPM’s submissions, Jana’s contentions about the construction of the Deed are not “baseless”. On the contrary, Jana relies on the express words of certain clauses in the Deed. ACPM has raised contrary arguments. I do not express any view about which party’s arguments may ultimately succeed, but I reject ACPM’s submission that “there is not a bona fide disputed issue of fact or law but only one based on spurious, hypothetical, illusory or misconceived grounds”. In my view, Jana’s application raises bona fide issues of law concerning the proper construction of the very poorly drafted Deed.

To put it another way, this is not a case that is “plain as a pikestaff”. There is a genuine dispute about how the Deed, properly construed, operates in respect of the amount of $481,865.51 referred to in clause 2.1. Noting the Court of Appeal’s observations in Creata (Aust) Pty Ltd v Faull, supra, about the need for judges determining applications of this kind to exercise caution before expressing views about the merits of the dispute, I shall refrain from making any further comment about the substance of the parties’ submissions concerning the proper construction of the Deed.

For those reasons, I determined at the conclusion of the hearing the “admitted amount” for the purpose of s 459H is nil and the statutory demand must be set aside: s 459H(3).

Given the conclusion I reached in relation to s 459H(1)(a), it is not necessary to consider the alternative basis of Jana’s application to set aside the statutory demand.

Costs ordinarily follow the event and ACPM did not seek to be heard against an order that it pay Jana’s costs of the proceedings.

For the foregoing reasons, I made the following orders on 14 February 2022: