In the matter of ABA Villawood Place Pty Ltd

By Originating Process filed on 6 June 2023, the Plaintiff, ABA Villawood Place Pty Ltd (“ABAV”) applies to set aside a creditor’s statutory demand dated 11 May 2023 (“Demand”) issued by the Defendant, CBRE (RP) Pty Ltd (“CBRE”). Although ABAV’s application is brought under ss 459G, 459H and 459J of the Corporations Act 2001 (Cth) (Act”), the parties’ submissions were directed to whether a genuine dispute is established for the purposes of s 459G of the Act.

The Demand claims the amount of $380,287.38, calculated as the total of 39 tax invoices dated 29 November 2022 issued by CBRE. An affidavit dated 11 May 2023 of Ms Rebecca Frankham, affirmed in support of the Demand, indicates that the debt claimed relates to the provision of sales and marketing services by reference to the specified invoices. She affirms that she had the dealings with ABAV that gave rise to the debt and that the debt is due and payable by ABAV and that she believes there is no genuine dispute about the existence or amount of the debt.

In support of its application to set aside the Demand, ABAV relies on the affidavit dated 6 June 2023 of its sole director, Mr Ahmad Diab. Mr Diab’s evidence is that a company controlled by him acquired the shares in ABAV on or about 27 February 2020, after the dealings between ABAV and CBRE to which the Demand relates. Mr Diab acknowledges that, at the time his company acquired the shares in ABAV, 64 apartments in a development at Villawood had been sold off the plan with contracts exchanged and deposits held, and 39 of those sales had been facilitated by CBRE.

Mr Diab refers to cl 32 of the contracts between ABAV and purchasers of the units which provided that Completion (as defined) was subject to and conditional on the registration of the Strata Plan (as defined) and to cl 32.3 of those contracts which provided that “[i]f the Strata Plan is not registered on or before the Sunset Date, then within 10 business days after the Sunset Date either party may rescind by written notice to the other.” Clause 32.4 in turn provided that ABAV must use all reasonable endeavours to have the Strata Plan registered on or before the Sunset Date (as defined).

The strata plans for the units were not registered by the applicable sunset dates and, as will emerge below, the purchasers in 36 of the 39 sale contracts facilitated by CBRE rescinded those contracts. Mr Diab’s evidence, by way of bare assertion, is that:

Mr Diab’s evidence is that he only became aware of the agency agreement between ABAV and CBRE (“Agency Agreement”) when it was provided to him by CBRE on 23 May 2023. That, of course, is a matter between Mr Diab, his company and ABAV and its former officer, and not a matter which impacts on CBRE’s rights under the Agency Agreement. Mr Diab also says that he is unable to determine whether the agency agreement provided to him on 23 May 2023 is the final version of that agreement, or whether it was amended, but that takes matters no further where there is no evidence of any other version of that agreement or of any such amendment.

Mr Diab in turn refers to clauses 8.5 and 8.6 of the Agency Agreement which I set out below. He expresses a view, based on a review of unidentified business records of ABAV, that it failed to collect the full 10% deposit from the purchasers at contract exchange. Mr Rizk, who appears for ABAV, fairly did not press that proposition at the hearing given records of deposits that had been repaid to purchasers. Mr Diab’s evidence is also, and it is common ground, that three sales facilitated by CBRE proceeded to settlement. Mr Diab relies on cl 8.6(b) of the Agency Agreement to resist the payment of the third instalment of commission to CBRE. His evidence, by way of submission, is that:

Again, that evidence is unsupported by any identification of the steps which were taken by ABAV, which are said to amount to such reasonable endeavours. However, nothing turns on that matter where, even if ABAV had defaulted in those obligations, the purchase contracts were rescinded and not terminated for that default.

Mr Diab in turn relies on cl 8.6(c) of the Agency Agreement to resist payment of the commission and contends that no deposits were retained by ABAV for any sales that did not proceed to settlement, for apartments sold by CBRE.

Mr Diab’s evidence is in turn that:

CBRE in turn relies on the affidavit dated 4 July 2023 of Ms Kounsavat, its Associate Director, National Operations, who refers to the entry into the Agency Agreement relating to the marketing and sale of the relevant apartments. Her evidence, which appears to be common ground, is that CBRE facilitated the sale of 39 units pursuant to the Agency Agreement and she outlined the process followed by CBRE in facilitating the contract of sale of the relevant apartments, although nothing turns on that for present purposes. Ms Kounsavat also addressed the scope of cl 8.6 of the Agency Agreement, which I address below. Ms Kounsavat’s evidence is that CBRE received payment for the first tranche of commission from ABAV in respect of the 39 units sold by CBRE, which, I interpolate, indicates that the exchange of contracts with purchasers took place, since that is the circumstance in which the first tranche of commission was payable by ABAV. Ms Kounsavat’s evidence is that ABAV did not raise any dispute regarding CBRE’s entitlement to commission prior to service of the Demand and she is not aware of the reason for CBRE’s delay in commencing “recovery action” against ABAV. She refers to a letter of demand dated 13 December 2022 sent by CBRE to ABAV seeking payment of the amount of $380,287.38 and notes that, to the best of her knowledge, no response was received to that letter.

By an affidavit dated 18 July 2023, Mr Diab responds, in a somewhat argumentative fashion, to aspects of Ms Kounsavat’s affidavit dated 4 July 2023.

As I noted above, ABAV seeks to set aside the Demand on the basis of a genuine dispute under s 459H(1)(a) of the Act. I first set out the applicable principles, drawing on Counsel’s submissions and my judgment in Re PSR Refining Services Pty Ltd [2023] NSWSC 243 at [16]ff.

The Court has power to set aside a creditor's statutory demand under s 459H(1)(a) of the Act where there is a genuine dispute between the company and the issuer of the demand about the existence or amount of the debt to which the demand relates. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464; [1997] FCA 681, the Full Court of the Federal Court observed that a genuine dispute must be bona fide and truly exist in fact, and the grounds for the dispute must be real and not spurious, hypothetical, illusory or misconceived. The threshold to establish a genuine dispute is not high, and it is necessary to bear in mind the observations of Barrett J (as his Honour then was) in Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 (at [18]) that:

Mr Rizk in turn points to Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 at [8], where Barrett AJA approved my observations in Re Wollongong Coal Ltd (2015) 110 ACSR 134; [2015] NSWSC 1680 at [9]-[22], that summarised the principles applicable to a genuine dispute as follows:

A similar approach was adopted by the Court of Appeal in Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212; [2017] NSWCA 300 (“Creata”) and again by the Court of Appeal in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60 (“Grandview”). Mr Rizk also points to the observation of Gleeson JA in Re AMP Life Ltd [2018] NSWSC 855 at [35] that the bar for establishing a genuine dispute is not set high.

It is also well-established that the Court will not determine questions of construction in an application to set aside a creditor's statutory demand. This position was emphasised by the Court of Appeal in Creata, where the Court of Appeal referred to the observations of the Supreme Court of Victoria in Spacorp Australia Pty Ltd v Myer Stores Limited (2001) 19 ACLC 1270; [2001] VSCA 89 at [4], where Brooking and Charles JJA indicated that unless it was "plain as a pikestaff" that a particular construction was not tenable, the Court must not express a view on a question of construction. The approach in Creata was applied by Williams J in Re Jana Pty Ltd [2022] NSWSC 112 at [15]. In Grandview at [90], White JA also observed that:

His Honour also there observed that “where the legal argument propounded in support of a particular construction is ‘patently feeble’ … or where it is ‘as plain as a pikestaff’ that it has no basis … then there will be no genuine dispute”.

I now set out the relevant terms of the Agency Agreement, which provide the basis for each of the matters on which ABAV relies to establish a genuine dispute.

The recitals to the Agency Agreement record that ABAV wishes to appoint CBRE as its exclusive sales and marketing agent for the sales of apartments in a development at Villawood, within the Australian market only, and cl 2.1 of the Agency Agreement gave effect to that appointment. Clause 3.1 required CBRE to use “its best endeavours to effect Sales at the highest achievable prices”, and the term “Sale” was defined to mean “in relation to the Property means the exchange of a Contract between [ABAV] and the purchaser”. Clause 3.1 required CBRE to take steps including:

Clause 4.1 provided that the term of the Agency Agreement was to begin on 2 August 2015 for a period of no less than the “Agency Period”, which was defined, in effect, to mean a period of 6 months from 15 August 2015.

Clause 8 of the Agency Agreement provided for CBRE’s entitlement to commission as follows:

Mr Rizk submits that cl 8.2 of the Agency Agreement has the effect that CBRE was entitled to be paid a commission of 2.25% of the sales price for sales made during the Agency Period (excluding 30 units that ABAV could sell itself), and pursuant to clause 8.5, that entitlement was enlivened once a purchaser had paid the 10% deposit (ordinarily due 10 business days after exchange). He submits that, pursuant to cl 8.6 of the Agency Agreement, the commission would then be payable in three tranches, as to which the first tranche, being 25% of the commission, was payable after exchange upon receipt of the deposit; the second tranche, being 25% of the commission, was payable no later than 29 February 2016; and the third tranche, being 50% of the commission, was payable on completion of the contract; or, if the contract was terminated by the purchaser for a breach of contract by the plaintiff; or (iii) if the contract was terminated by the plaintiff and the deposit was forfeited by the purchaser.

Clause 8.6 of the Agency Agreement is subject to cl 9 of the Agency Agreement which relevantly provides that:

First, ABAV contends that it has a seriously arguable claim that CBRE is not entitled to any of the claimed commission in the second and third tranches as the underlying sales contracts which gave rise to an entitlement to commission were rescinded.

It is common ground that CBRE was involved in the prospective sale of 39 apartments during the agency period, between May 2015 and March 2016. It appears that the first tranche of commission was paid to CBRE in respect of all 39 sales contracts. CBRE has not been paid the second and third tranches in respect of 36 sales contracts. Mr Rizk points out, relying on Mr Diab’s affidavit, that 36 of the sales contracts entered into during the Agency Period were subsequently rescinded under the applicable sunset clauses, and the deposits were refunded to the purchasers who were entitled to rescind. Mr Rizk submits that it is seriously arguable that that rescission is to be treated to have effect ab initio, as if the sales contracts were never entered into, and points to the treatment of rescission under s 66ZR of the Conveyancing Act 1919 (NSW), while recognising that this provision does not have direct application to this dispute. He submits that:

Mr Ng, who appears for CBRE, responds that:

It does not seem to me that any genuine dispute arises from this contention. Clause 8.2 of the Agency Agreement provides for commission payable on a “Sale”, and a “Sale” is defined as the exchange of a Contract (as defined) between ABAV and the purchaser. The right to commission arose at that point, although it was subject to the collection of the full 10% deposit from the purchaser upon the individual contracts, and was due and payable as specified in cl 8.6 and 9. The fact that a contract was subsequently rescinded as between ABAV and the purchaser does not have the consequence that it did not previously exist, or that CBRE’s entitlement to commission on a Sale did not arise at the point at which the Sale occurred, subject to the provisions of the Agency Agreement to which I have referred above. There is no seriously arguable case to the contrary.

Second, ABAV contends that it has a seriously arguable claim that CBRE’s claim for the second and third tranches of commission is time barred.

Mr Ng put a faint submission that this claim was not available because it had not been squarely raised in Mr Diab’s affidavit. This submission invoked the principle sometimes described as the “Graywinter” principle, originating from the decision in Graywinter Properties Pty Ltd v Gas and Fuel Corporation Superannuation Fund (1996) 70 FCR 452 (“Graywinter”). That principle arises from the structure of the statutory regime to set aside a creditor's statutory demand under s 459G of the Act, as discussed below. In Graywinter, Sundberg J referred to the statutory requirement in s 459G(3) of the Act that there be an affidavit supporting an application to set aside a creditor's statutory demand and noted that the affidavit must disclose material facts identifying a genuine dispute between the parties. That principle has in turn been applied to prevent reliance on matters which are not disclosed, within the 21-day period, to establish a genuine dispute.

The balance of authority indicates that the principle raises a fact-specific inquiry as to whether an affidavit in support of an application to set aside a creditor's statutory demand in fact supports that application, and it will do so sufficiently if that dispute is raised expressly or is a reasonably available inference: Hopetoun Kembla Investment Pty Ltd v JPR Legal Pty Ltd (2011) 87 ACSR 1; [2011] NSWSC 1343 (“Hopetoun Kembla”). There are some cases where the principle has been treated as involving notice to the defendant of the relevant claim; however, in my view, that principle is ultimately based, not upon notice of the claim to a defendant, but upon the statutory requirement of s 459G of the Act that the claim in fact be raised within the 21-day period. I will refer below to appellate authority that is consistent with that view. The Court of Appeal in turn considered the principle in Grandview, where Bell P (as the Chief Justice then was) referred to provisions in the former Federal Court Rules 1979 (Cth) which provided some reinforcement of that principle. It seems to me that, as the President's reference (at [38]ff) to the language of the statute implies, the Graywinter principle had its foundation in s 459G of the Act and never depended upon the Federal Court Rules 1979 (Cth) which operated in parallel with it. The provision is a matter which goes to the Court's jurisdiction and not a matter involving any element of discretion on the Court's part. The scope of the principle has in turn been considered, at length, by the Court of Appeal of the Supreme Court of Victoria in Sceam Construction Pty Ltd v Clyne (2021) 64 VR 404; [2021] VSCA 270 at [11]ff, where the Court observed (at [38]) that what was critical was the legislative requirement that an affidavit support the application to be filed with the Court within the statutory period and (at [42]) that the question for the Court is whether the affidavit “supports” the application and, if it does, then the affidavit may be supplemented by evidence filed outside the statutory period and, if it does not, there is no jurisdiction to consider material filed beyond that period.

It seems to me that, consistent with the approach taken in Hopetoun Kembla, Mr Diab’s affidavit sufficiently raised the limitations claim where it annexed the Agency Agreement and identified the timing of events, so as to identify the elements of that claim, although it did not specifically identify that it would be put.

Turning now to the substance of this claim, Mr Rizk submits that the second tranche of commission, arising under cl 8.6(b) of the Agency Agreement, was payable by no later than 29 February 2016. He submits that it follows that the cause of action for the failure to pay that tranche accrued to CBRE on 29 February 2016; more than six years has since elapsed; and any cause of action CBRE may have had is time barred pursuant to s 14 of the Limitations Act 1969 (NSW) (“Limitations Act”), and the claim to the underlying debt extinguished pursuant to s 63 of the Limitations Act; and, at the minimum, this issue would give rise to a genuine dispute: Sundarjee Bros (Aust) Pty Ltd v Sundarjee Bros (HK) Pty Ltd (in liq) [2004] NSWSC 1158; Rinfort Pty Ltd & Anor v Arianna Holdings Pty Ltd [2016] NSWSC 251.

Mr Ng responds that:

I accept that cl 8.5 of the Agency Agreement was subject to cl 9 of the Agency Agreement. However, the latter clause itself describes that relevant amount as having “become due and payable under clause 8 of this Agreement” although it then, possibly inconsistently, providers for payment following invoice. It seems to me that ABAV has a genuinely arguable claim that the relevant amount fell due and was payable in accordance with cl 8.5 of the Agency Agreement and that cl 9 assumed rather than reversed that result. On that basis, a real question of construction arises as to whether the debt was due and payable on 29 February 2016 rather than on 30 December 2022. Mr Ng fairly accepts that, once that proposition is genuinely arguable, then the proposition that the claim is barred by the Limitations Act is also genuinely arguable. For that reason, it is genuinely arguable that the second tranche of the commission claimed by CBRE is not now payable.

Third, Mr Rizk submits that there is a genuinely arguable case that the circumstances in which the 36 contracts came to an end meant that, under cl 8.6 of the Agency Agreement, CBRE was not entitled to the third tranche of commission, because the contracts did not complete; they were not terminated for breach by ABVA; and they were not terminated in a manner that allowed ABVA to retain the deposit.

In his opening outline of submissions, Mr Ng contended that:

It seems to me that there is a genuine dispute as to CBRE’s entitlement to the third tranche of commission under cl 8.6 of the Agency Agreement, where 33 contracts were rescinded rather than completed so as to trigger the entitlement to commission under cl 8.6(a); CBRE does not identify any basis for a contention that ABAV had defaulted under the purchase contracts, and, even if it did so, it is apparent those contracts were rescinded rather than terminated by reason of or following that default for the purposes of cl 8.6(b) so no entitlement arises under that clause; and there is no suggestion of any default of the purchaser and that the whole or part of deposits paid were liable to be forfeited for the purposes of cl 8.6(c) of the Agency Agreement. Mr Ng accepted, in oral submissions at the hearing, that it was at least genuinely arguable that the conditions for payment of the third tranche of the commission under cl 8.6 of the Agency Agreement were not satisfied.

While I recognise that Mr Ng contends that cl 8.2 of the Agency Agreement creates a right to payment of the whole commission, it seems to me that it is genuinely arguable that right is qualified and narrowed by cl 8.6, and that is a construction question of the kind that a Court should not determine in this application. Mr Ng also relies on cl 8.5 of the Agency Agreement which, as I noted above, provides that the commission as specified in cl 8.2 is “due and payable only under the condition that a full 10% deposit has been collected from purchaser upon the exchange contract.” However, it also seems to me to be genuinely arguable that cl 8.5 of the Agency Agreement narrows CBRE’s rights to commission, so that it is not payable unless the deposit is paid, rather than expanding that right so that the third tranche is payable irrespective of whether the circumstances in cl 8.6 of the Agency Agreement arise, where the latter construction would marginalise cl 8.6 of the Agency Agreement. That is also a construction question of the kind that a Court should not determine in this application. For that reason, it is genuinely arguable that the third tranche of the commission claimed by CBRE is also not payable.

It is therefore not necessary to address Mr Rizk’s further submission that, to the extent that CBRE asserts that the obligation to pay the full commission arose immediately upon receipt of the deposit (and it is irrelevant whether the contracts were not completed), the cause of action would have accrued at the time the deposit was paid, more than six years has elapsed and the cause of action is time barred pursuant to s 14 of the Limitations Act, and the claim to the underlying debt extinguished pursuant to s 63 of the Limitations Act.

For these reasons, the Demand should be set aside, and CBRE must pay ABAV’s costs as agreed or assessed on the ordinary basis.