In the matter of Black Tie Holdings Pty Ltd

1. [1]

   HIS HONOUR: The application before the Court is an application by the plaintiff (the company) against the defendant for relief related to a statutory demand (statutory demand/demand) served by the defendant on 31 January 2022.

2. [2]

   The originating process filed on 2 February 2022 sought relief that the statutory demand be set aside pursuant to s 459G Corporations Act 2001 (Cth) (Corporations Act). All references to sections in the judgment are references to the Corporations Act, unless otherwise indicated.

3. [3]

   The company filed an amended originating process on 20 April 2022 seeking alternative relief that the demand is null and void; alternatively orders pursuant to s 459J(1)(a) Corporations Act setting aside the demand and alternatively an order under s 459J(1)(b) Corporations Act setting aside the demand.

4. [4]

   The company’s application raised many issues in support of the relief claimed.

5. [5]

   For the reasons which follow I have determined to dismiss the amended originating process.

6. [6]

   The company relied upon evidence from Caroline Macdonald, the sole director of the company, Jovan Sarai (Mr Sarai), the solicitor for the company and an expert witness, Dr Allan Charles Watt (Dr Watt).

7. [7]

   The defendant relied upon evidence from James Boxell a director of the defendant (Mr Boxell), Robert Colin Tidy a shareholder of the defendant (Mr Tidy) and two solicitors, namely Brendan Reidy (Mr Reidy) and Mia Behlau (Ms Behlau).

The statutory scheme

1. [8]

   Winding up in insolvency is dealt with under Pt 5.4 Corporations Act.

2. [9]

   A creditor of a company may apply to the Court for an order that the company be wound up in insolvency: s 459P(1)(b).

3. [10]

   On an application under s 459P the Court may order that an insolvent company be wound up in insolvency: s 459A.

4. [11]

   The Court must presume that the company is insolvent if, during or after the three months ending on the day when the application was made, the company failed (as defined by s 459F) to comply with a statutory demand: s 459C(2)(a).

5. [12]

   Section 9 Corporations Act defines "statutory demand" and "statutory period".

6. [13]

   Division 2 of Pt 5.4 Corporations Act deals with matters relating to a statutory demand and Div 3 deals with applications to set aside a statutory demand.

7. [14]

   Section 459E deals with provisions regarding service of a statutory demand including provisions regarding the debt on which the demand is based, the form of the demand and verification and compliance provisions in relation to demands based on a debt that is not a judgment debt.

8. [15]

   Section 459E(1)–(3) is in the following terms:

9. [16]

   The prescribed form of a demand is form 509H (PF) which inter alia requires:

10. [17]

    The statutory period to comply with a demand, is as noted above 21 days.

11. [18]

    Section 459F sets out provisions as to when a company is taken to have failed to comply with a statutory demand.

12. [19]

    If, as at the end of the period of compliance with a statutory demand, the demand is still in effect and the company has not complied with it, the company is taken to fail to comply with the demand at the end of that period: s 459F(1).

13. [20]

    The period for compliance with a statutory demand is generally the statutory period after the demand is served: s 459F(2)(b).

14. [21]

    If the company applies in accordance with s 459G for an order setting aside the demand, the period for compliance with the statutory demand may differ from the statutory period depending on how the s 459G application is determined: s 459F(2)(a).

15. [22]

    A company may apply to the Court for an order setting aside a statutory demand served on the company: s 459G(1).

16. [23]

    However, the application may only be made within the statutory period after the demand is served: s 459G(2).

17. [24]

    For a valid application to be made within that period, an affidavit supporting the application must be filed with the Court and copies of the application and supporting affidavit are served on the person who served the demand on the company: s 459G(3).

18. [25]

    The provisions of s 459H apply where on a s 459G application the Court is satisfied of either both of the following:

19. [26]

    The "respondent" means the person who served the demand on the company: s 459H(5).

20. [27]

    Section 459H has effect subject to s 459J: s 459H(6).

21. [28]

    There is provision for setting aside a demand on grounds other than a genuine dispute or an offsetting claim and this is set out in s 459J.

22. [29]

    Section 459J provides as follows:

23. [30]

    Unless the Court makes, on an application under s 459J, an order under s 459H or 459J, the Court is to dismiss the application: s 459L.

24. [31]

    Section 15 of Service and Execution of Process Act 1992 (Cth) (SEPA) provides that an initiating process issued in a State may be served in another State.

25. [32]

    However, s 16 SEPA provides that Service is effective only if copies of such notices as are prescribed are attached to the process, or the copy of the process, served.

26. [33]

    Clause 6 of the Service and Execution of Process Regulations 2018 (Cth) provides that, for the purposes of s 16, Form 1 in sch 1 is the SEPA prescribed form (SEPA notice).

27. [34]

    Section 9 SEPA provides that service of a process, order or document under SEPA on a company is to be effected by leaving it at, or by sending it by post to, the company’s registered office.

Corporate details

1. [35]

   The evidence on the hearing included ASIC searches for the company, the defendants and Stone Group Lawyers Pty Ltd (SGL), the solicitors for the defendant.

2. [36]

   The ASIC search for the company as at 3 March 2022 discloses Ms Macdonald as the sole director and secretary: CB 430.

3. [37]

   It also discloses that there are 100 issued shares in the company, all said to be beneficially held by Progressive Investment Management Pty Ltd: CB 430–431.

4. [38]

   The principal place of business of the company is an address in Chatswood (as from 30 March 2021) and the registered office of the company is listed as being Trend Partners Pty Ltd (Trend Partners) at 52 O'Connell Street, Parramatta NSW 2150 (as from 23 November 2020): CB 430.

5. [39]

   The ASIC search for the defendant reveals that Mr Boxell is the sole director and secretary of the defendant and that Kym Raymond Gallagher (Mr Gallagher) was a secretary of the defendant as between 29 July 2020 and 8 February 2022: CB 440.

6. [40]

   There are 200 ordinary issued shares in the defendant, with the search disclosing that Mr Boxell and Mr Tidy hold 100 shares beneficially each. Prior members holding some shares included Krack Properties Pty Ltd, ZCVC Pty Ltd and Zipett Magazine Pty Ltd: CB 440–441.

7. [41]

   The principal place of business and the registered office of the defendant is listed as being 72 Martin Street, Belgrave VIC 3160, in each case as from 23 July 2020.

8. [42]

   The ASIC search for SGL discloses the principal place of business (from 23 July 2018) and registered office (from 16 August 2018) as being "Southport Central Tower 3" Suite 31106 Level 11 9 Lawson Street Southport QLD 4215: CB 271.

The statutory demand

1. [43]

   The statutory demand in these proceedings is dated 19 January 2021. That date appears to be a mistake for 19 January 2022. There is some dispute in the proceedings about whether the mistake is significant or not. I address this below.

2. [44]

   The demand was addressed to the company at "52 O'Connell Street, Parramatta in the State of New South Wales".

3. [45]

   Paragraphs 1–3 of the demand are as follows:

4. [46]

   Paragraph 7 of the demand is as follows:

5. [47]

   In the schedule at the end of the demand, the detail for the description of the debt and amount of the debt is as follows:

6. [48]

   The demand is signed by Mr Boxell in his capacity as director of the defendant.

Affidavit in support of the demand

1. [49]

   On 19 January 2022. Mr Boxell affirmed an affidavit accompanying the statutory demand: CB 31.

2. [50]

   The contents of that affidavit are as follows:

Service of the demand

1. [51]

   On 20 January 2022 SGL sent a letter to the company addressed to the registered office of the company marked to the attention of "The Proper Officer" and also by email to "caroline@zwallet.digital": CB 316.

2. [52]

   The letter indicated that SGL had been engaged to act upon behalf of the defendant and stated that pursuant to s 109X Corporations Act, the statutory demand and affidavit of Mr Boxall affirmed 19 January 2022 in support of the demand were enclosed by way of service.

3. [53]

   The letter included the following:

4. [54]

   The letter concludes under the name of SGL with a signature and then underneath the signature the following:

5. [55]

   The letter contained at the top right-hand corner under the logo for SGL the following:

6. [56]

   On 31 January 2022 the letter was received by the company's accountants Trend Partners. The letter at CB 316 is impressed with a received stamp with the date 31 January 2022.

7. [57]

   Ms Macdonald indicates that on or about 31 January 2022 she received a letter from Trend Partners attaching correspondence and the statutory demand and the affidavit of Mr Boxell: CB 9.

8. [58]

   The company engaged Mr Sarai of Safe Harbour Lawyers (SHL) to act in relation to the matter.

Correspondence about instructions for service

1. [59]

   On 17 February 2022 at 12:09 PM Mr Sarai sent an email to the email address for Ms Behlau: CB 329.

2. [60]

   The email indicated that SHL acted for the company and referred to the letter dated 20 January 2022 enclosing the statutory demand, noting that it had been served on “our client’s accountants” (being the registered office of the corporation) on 31 January 2022 and requested Ms Behlau to advise if she held instructions to accept service of the originating process to set aside the demand, and further noting that Mr Sarai anticipated that the originating process would be filed the next day, 18 February 2022: CB 329.

3. [61]

   Mr Sarai indicates that on the same day on or around 12:17 PM he received a read receipt confirmation: CB 331. Ms Behlau indicates that she does not recall seeing or reading that email and states that she has never received a read receipt request from Mr Sarai, nor ever clicked to confirm a read receipt on any email that Mr Sarai has sent to her. She states that prior to the commencement of the proceedings she was not familiar with Mr Sarai and does not recall having ever exchanged emails with him: CB 58–59.

4. [62]

   There was no email from Ms Behlau indicating any instructions to accept service.

Filing and service of the Originating Process and Supporting Affidavit

1. [63]

   On 21 February 2022 Mr Sarai caused to be filed with the Court an originating process at 10:37 PM: CB 1.

2. [64]

   Mr Sarai states that on 21 February 2022 on or around 10:50 PM AEST he served via email to Ms Behlau's email address sealed copies of the originating process and an affidavit of Ms Macdonald late on 21 February 2022 (OP service email): CB 18.

3. [65]

   A copy of the OP service email bearing the timing of 9:50 PM on 21 February (CB 356) and at 10:50 PM (CB 359) is in evidence (the difference in time being explained by time differences between NSW and Queensland).

4. [66]

   Mr Sarai states that on 22 February 2022 on or around 9:19 AM he received a read receipt message from Ms Berlau: CB 18, 385.

5. [67]

   Mr Sarai further deposes to the fact that he caused a copy of the originating process and affidavit of Ms Macdonald to be express posted to the attention of Ms Berlau using the address listed in paragraph 7 of the statutory demand and also on 22 February 2022 caused the documents to be express posted to the proper officer of the defendant at the Belgrave registered office address and by email correspondence to Mr Boxell and Mr Tidy.

6. [68]

   It is common ground in the proceedings that other than the OP service email sent to Ms Berlau on 21 February 2022 the other methods of attempted service of the originating process by Mr Sarai were effected outside the statutory period for compliance with the demand.

7. [69]

   It is common ground that the statutory period for compliance with the demand expired at midnight on 21 February 2022.

8. [70]

   Dr Watt, a digital forensics expert, prepared two reports dated 12 May 2022 and 19 May 2022 respectively annexed to affidavits affirmed by him in the proceeding. The affidavits and reports were admitted without objection.

9. [71]

   In his first report Dr Watt gave evidence to the effect that the OP service email was sent at 21 February 2022 at 10:50:10 PM (AEDT), equating to 21:50:10 (AEST) Brisbane: CB 74.

10. [72]

    In his second report, Dr Watt examined an additional electronic copy of the email and concluded that the OP service email took 24 seconds to arrive from the time it was sent and confirms that it was “capable of being retrieved” at that time: CB 115–116.

11. [73]

    Subject to the effect of the statutory provisions and other arguments referred to below, there is no factual dispute that the OP service email was capable of being retrieved by Ms Berlau at or from the time indicated by Dr Watt, and in any event, prior to midnight on 21 February 2022.

Affidavit in support of the Originating Process

1. [74]

   The affidavit of Ms Macdonald dated 21 February 2022 in referring to the demand made a number of statements including:

2. [75]

   Ms Macdonald then went on in the affidavit to refer to the relationship between the parties and made reference to the company engaging the defendant on or about 1 August 2021 (CB 198-206), under a consultancy agreement (consultancy agreement) (though bearing the date 23 July 2021 on the execution page: CB 206), to assist in token sales via its platform, which consultancy agreement she stated had been terminated in or about December 2021. I will refer to the consultancy agreement as such, although it is described on its front page as “Independent Contractor Agreement”: CB 198. Its efficacy as a document is disputed, as will be seen below.

3. [76]

   Ms Macdonald stated that the company had paid $320,000 to the defendant under the consultancy agreement being:

4. [77]

   Ms Macdonald in the affidavit denied that she had sent any email to the defendant or its representatives on 17 December 2021 or any other date in which she had acknowledged the existence of the debts claimed or promised to repay any debt to the defendant.

5. [78]

   Ms Macdonald further stated that the parties had never entered into any loan agreement as asserted.

6. [79]

   Ms Macdonald indicated that there was a genuine dispute about the amount of the debt, and that the company has an offsetting claim "which greatly exceeds the amount of the alleged debt": CB 10.

Ms Macdonald’s March affidavit

1. [80]

   On 25 March 2022 Ms Macdonald affirmed a further affidavit. The affidavit dealt with a number of topics including service of the demand. The affidavit reiterated a number of assertions made in her February affidavit. Ms Macdonald annexed a copy of the consultancy agreement which she asserted that Mr Tidy had executed on behalf of the defendant, annexed various minutes of Zoom meetings said to have taken place with representatives of the defendant including Mr Tidy and Mr Gallagher, and also annexed a copy of a notice of termination said to have been dated 5 November 2021.

2. [81]

   Ms Macdonald in her March affidavit annexed an email she sent to Mr Tidy on 8 December 2021 at 4:33 PM referring to, amongst other things, "the $40k per month sales retainer BT has been paying details attached… since July 21 so 5 months now terminated". She indicates Mr Tidy acknowledged receipt later that day at 5:57 PM in an email in which he set out a response.

3. [82]

   In the March affidavit Ms Macdonald revised her claim about the total of monthly payments made under the consultancy agreement indicating that over $320,000 of payments had been made, although she corrected that in a later affidavit affirmed on 27 April 2022 to resume the position that the company had only paid the defendant a total of $320,000, with only $200,000 paid under the consultancy agreement: CB 26.

4. [83]

   Ms Macdonald's March affidavit persisted with assertions that there had been non-performance under the consultancy agreement by the defendant causing significant loss and damages to the company, claiming that these losses and damages surpass the total paid to the defendant under the consultancy agreement: CB 16.

Consultancy agreement, notice of termination and minutes of meetings

1. [84]

   I pause to note that the validity of the consultancy agreement, service of the notice of termination and contents of minutes of meetings was hotly disputed in the proceedings by the defendant.

2. [85]

   Mr Tidy gave evidence regarding the disputed consultancy agreement and in response to the purported offsetting claim: CB 50–55. Suffice it to say that he has a disputed and contested account regarding the so-called consultancy agreement.

3. [86]

   Mr Tidy denied his signature was on the consultancy agreement.

4. [87]

   Mr Boxell said that he had never sighted the consultancy agreement.

5. [88]

   Both disputed that they had ever seen a notice of purported termination.

6. [89]

   Mr Tidy indicated that whilst he had attended meetings with Ms Macdonald via Zoom, stated that he had never received any copies of minutes of meetings with the content as asserted by Ms Macdonald.

7. [90]

   In cross examination Mr Tidy accepted that he had on 8 December 2021 at 5:57 PM (CB 286) sent a responsive email to an email 4:33 PM from Ms Macdonald (CB 283). Mr Tidy stated he was dyslexic: T37, 40.

8. [91]

   I noted that the subject heading as between the two emails has been altered to some degree. Mr Tidy responded (T41-42):

The nature of the parties’ relationship

1. [92]

   There were a number of odd aspects of the evidence in the proceedings.

2. [93]

   One odd aspect was the general evidence of the parties describing their relationship with each other. There was a disconnect in the evidence.

3. [94]

   Ms Macdonald's affidavits in the proceedings, in describing the relationship between the company and the defendant, principally directed attention to the consultancy agreement: CB 10, 14–16, 27. The tenor of Ms Macdonald's affidavits suggest that the relationship between the company and the defendant commenced in or about mid-2021 and was formalised by the consultancy agreement.

4. [95]

   In her affidavit affirmed on 27 April 2022 Ms Macdonald made reference to the consultancy agreement and stated that the company "is the owner and entered into a brand partner arrangement to operate the online platform known as Zipett. The platform allows its members to transact using cryptocurrency called ZIPC". Ms Macdonald claimed that the defendant was contracted to promote and sell ZIPC tokens to the existing members and also to bring new members to the platform via its sources and channels and that proceeds from sale of any ZIPC tokens were to be deposited to the company's nominated bank accounts "as the sole property of the Plaintiff as determine[d] as the payment for operating the platform": CB 27.

5. [96]

   Ms Macdonald asserted during the period of five months (seemingly the period July/August 2021 – November/December 2021) the defendant diverted revenue and income from sales from the company to the defendant, misappropriating the revenue and also failed to meet sales targets: CB 27.

6. [97]

   The defendant's evidence indicated that the relationship occurred significantly earlier.

7. [98]

   Mr Boxell indicated that in or around November 2020 he engaged Mr Tidy as a consultant to assist the defendant in identifying potential investment opportunities: CB 34.

8. [99]

   Mr Tidy indicates that at about that time he developed a concept on behalf of the defendant which amongst other things involved developing a crypto currency digital wallet known as "Z-Wallett" and a crypto currency known as "Zipett Coin" (the Zipett Project).

9. [100]

   Mr Tidy states that in or about February 2021 he contacted Ms Macdonald to discuss engaging the company’s services to build the digital platform/technology required to give effect to the Zipett Project: CB 45.

10. [101]

    Mr Tidy states that in or about February 2021 the company agreed to develop the digital platform/technology, but given the nature of the Zipett Project as much of the work that was required would be identified as the process progressed, the defendant did not enter into a formal service agreement in writing with the company. Instead, the parties worked from "a mutually agreed project planning document" which Mr Tidy says was prepared at the commencement of the Zipett Project outlining (amongst other things) the products, processes, user interfaces, project timelines and projected costs which were to form part of the Zipett Project (Project Plan). Mr Tidy exhibited a copy of the project plan: CB 45–46, 159–171.

11. [102]

    Mr Tidy states that the project timeline and projected costs were broken into three stages. Under the first stage referred to in the Project Plan, the Android and iOS application (App) framework and design were due to be completed by 30 March 2021, with a total cost of the first stage to be $38,000 (Stage One Works).

12. [103]

    He states that the Stage One Works were important because once this was complete, the App would be ready to launch and start generating income for the defendant: CB 46.

13. [104]

    Mr Tidy indicates that the company has not completed the Stage One Works, because there are critical bugs in the Apps which have not been fixed.

Defendant’s case regarding advancing funding to the company

1. [105]

   Significantly, Mr Tidy states that prior to the company commencing the Stage One Works he met with Ms Macdonald and discussed funding requirements for the Zipett Project and had a conversation in words to the following effect:

2. [106]

   Mr Tidy indicates that in order to provide the company with sufficient capital to commence the Stage One Works the defendant advanced $85,000 in four separate tranches being amounts totalling $70,000 paid on 18, 21 and 27 January 2021 and a further $15,000 payment on 10 March 2021: CB 46–48.

3. [107]

   Mr Tidy states that from time to time, Ms Macdonald contacted him by telephone to request the defendant loan the company further funds to pay wages, invoices and other expenses such as licensing fees: CB 47.

4. [108]

   Mr Tidy says that the amounts advanced to the company at the request of Ms Macdonald formed part of a running loan balance which he describes as "Loan Agreement".

5. [109]

   He refers to an example of Ms Macdonald requesting an advance as occurring on 26 May 2021 with the text message he sent to her "Sent boys 55K to cover coms and a contribution of 10k to office // 75K to you as loan": CB 47, 193.

6. [110]

   Mr Tidy states that pursuant to the Loan Agreement the defendant advanced a total of $668,000 to the company in tranches between the period 18 January 2021 and 29 October 2021: CB 47.

7. [111]

   In Mr Tidy's affidavit he sets out a table with amounts between those dates totalling up to $668,000.

8. [112]

   The table includes:

9. [113]

   There are copies of bank records which record payments in those amounts in evidence (or at least $660,000, I could not separately locate a statement for the sum of $8,000 said to be advanced on 14 May 2021).

10. [114]

    Thus, it can be seen at least chronologically that prior to the date of the disputed consultancy agreement document, whether the operative date be 23 July 2021 or 1 August 2021 (CB 198, 206), the defendant had advanced the four amounts said to have been initial $85,000 loan between 18 January 2021 and 10 March 2021 and the further sum of $443,000 between 24 March 2021 and 20 July 2021.

11. [115]

    Mr Tidy states that on or about 12 September 2021 the defendant advanced $120,000 to the company as payment for 3 million DOTALK coins and claims that despite attending to payment the company did not transfer ownership of the coins to the defendant: CB 48.

12. [116]

    Mr Tidy states that on or about 13 October 2021 the defendant advanced $34,000 to the company as payment for 84,000 Zipett coins and claims that despite attending the payment the company did not transfer ownership of the Zipett coins to the defendant: CB 48.

13. [117]

    Mr Tidy states that in or about October 2021, he received a text message (CB 254) from Ms Macdonald stating "We will just do adjustment of $34k on loan account" but says the defendant never received any confirmation of that adjustment: CB 49.

14. [118]

    Mr Tidy says that the payments from the defendant to the company on 12 September 2021 and 13 October 2021 are recorded in the account statements from the defendant's Bendigo bank account: CB 49. There are account statements at CB 249 and 256 which appear to record those payments.

15. [119]

    Both parties appear to agree that there was transfer of a Mercedes Benz motor vehicle from the company to the defendant.

16. [120]

    Ms Macdonald as noted above had indicated that the transfer had taken place on 29 December 2021 with a payment (or perhaps an allocation) of an amount of $120,000: CB 10. Her assertion was that the payment had been made in the context of the consultancy agreement: CB 10, 14. She asserted that all payments made to the defendant were under the consultancy agreement for the sale of tokens on the defendant's platform and that no monies had ever been paid or transferred to the defendant as loan repayments: CB 15.

17. [121]

    Mr Tidy on the other hand, whilst agreeing that the sum was $120,000, indicated that it was to be reduced from the total amount owing under what he describes as the loan account: CB 49.

18. [122]

    Both Ms Macdonald and Mr Tidy produced documentation regarding the transfer of the motor vehicle.

19. [123]

    Mr Tidy annexed an email from Ms Macdonald dated 19 December 2021 to him which in its terms suggests that the vehicle be transferred to Mr Tidy privately at a consideration of $170,000: CB 290–291. Mr Tidy responded indicating that as the defendant had “paid the money out” he believed the best course of action was to transfer the vehicle to the defendant: CB 292.

20. [124]

    The following day 20 December 2021 Mr Tidy sent another email to Ms Macdonald copied to Mr Boxell and Mr Gallagher regarding the vehicle stating “Jim will do all of this today and you can adjust the loan account". He indicated that although the current value was $140,000 "we are obviously happy to do at the original and adjust mums 50k for her car loan and 120k off ours": CB 293. The “original” appears to be a reference to the amount of $170,000: CB 290-291.

21. [125]

    Later in the morning of 20 December 2021 Ms Macdonald replied to the email from Mr Tidy stating inter alia "Our records will be $120,000 from Z4life loan cleared and $50,000 helen tidy loan cleared, this was never an asset of BT and was always your car": CB 294. Ms Macdonald annexed some subsequent emails. However, none of them (CB 297, 299–304) qualify what appeared to be the arrangement that the sum of $120,000 would be reduced from what she described as the “Z4life loan”: CB 294.

The claimed amount

1. [126]

   The above background details give the context for understanding the amount claimed in the statutory demand and the supporting affidavit of Mr Boxell.

2. [127]

   Mr Tidy states that as part of the reporting process under the Zipett Project the company was to provide the defendant with updates regarding Stage One Works, which would sometimes include reference to the company's financial statements.

3. [128]

   He states that in or about December 2021, as part of the usual weekly financial updates received from the company (which commenced on 1 October 2021) he was given a copy of the company's balance sheet dated 10 December 2021 by Michael Wang who he understood to be responsible for overseeing the company's finances: CB 49–50. He exhibited a copy of the balance sheet: see CB 288.

4. [129]

   The balance sheet is a somewhat unusual document. It is extracted below:

5. [130]

   Listed in the balance sheet as non-current assets, albeit conventionally they would be regarded as being liabilities, are included the following amounts:

6. [131]

   I raised the unusual nature of the balance sheet with counsel during the hearing: see T12.

7. [132]

   Mr Allan suggested “They are excluded from the balance sheet analysis, that is the total equity at the bottom is $180,000, they have been parked”: T12.

8. [133]

   Both Mr Boxell and Tidy address the calculation of the amount of $225,375, which is referred to in the statutory demand.

9. [134]

   Mr Boxell did so in the affidavit accompanying the statutory demand (CB 31), as noted above.

10. [135]

    Mr Tidy did so in his 7 April affidavit. Using the balance sheet as a starting point, Mr Tidy indicates that the amount is calculated as follows:

11. [136]

    He goes on to state that the amount referred to does not represent the total amount owing from the company to the defendant, rather the amount "represents the total amount admitted by Black Tie in its Balance Sheet as the outstanding loan from Z4Life and is the amount referred to in the statutory demand issued by Z4Life": CB 50.

12. [137]

    Mr Tidy states that on 4 January 2022 he was forwarded an email chain from Mr Gallagher who he says was also involved with the Zipett Project regarding discussions of a proposed block chain as a service agreement: CB 50, 305–309. He refers to an email from Ms Macdonald on 4 January 2021, which amongst other things, includes the end the words "Billing can be taken off the Z4life loan": CB 308.

Cross examination

1. [138]

   The circumstances in which cross examination may be undertaken on an application to set aside a statutory demand is referred to by Rees J in In the matter of Horizons (Asia) Pty Ltd [2021] NSWSC 1690 at [3] – [6].

2. [139]

   Each of Ms Macdonald, Ms Berlau, Mr Tidy and Mr Boxell were cross-examined on the application.

3. [140]

   Ms Macdonald cross-examination readily accepted that her assertion that she had never had direct dealings with Mr Boxell and that all her dealings with the defendant with via Mr Tidy (CB 9) was false: T17.

4. [141]

   I otherwise address some of the cross examination on the issues below.

Issues advanced

1. [142]

   A variety of issues were advanced by the company in support of the application to challenge the statutory demand.

2. [143]

   Because of issues regarding service of the originating process and the SEPA notice this affected how the issues for determination by the Court were framed by the parties: Company’s written submissions dated 20 May 2020 (PWS) [1]-[3]; Defendant’s written submissions (DWS) [2]-[4], [39]-[40].

3. [144]

   The company apprehended that the service and SEPA notice matters might preclude it from relying upon certain of the Corporations Act provisions to set aside a demand.

4. [145]

   The company sought to address these matters by the relief in the amended originating process seeking a declaration to the effect that the demand was null and void. The company sought to do this by relying upon the decision of Brereton J in In the matter of International Materials & Technologies Pty Ltd [2013] NSWSC 787; (2013) 282 FLR 362 (IMT).

5. [146]

   The company raised arguments against the demand based upon what was said to be non-compliance with the PF. It is said that the document lacks the essential character of a statutory demand, within the meaning of s 459E(2) Corporations Act and failed in a fundamental way to comply with the form requirements prescribed by s 459E(2): PWS [1].

6. [147]

   The PWS indicated that company seeks alternative relief, setting aside the demand on the hypothesis that it is valid, because substantial injustice would otherwise arise. That injustice is said to be due to defects within the same document citing s 459J(1)(a): PWS [2].

7. [148]

   The PWS also stated that there are ‘other’ reasons why the demand should be set aside (s 459J(1)(b)) including the mentioned failure of the demand to follow the PF. The ‘other’ reasons were said to include problems in the demand’s supporting affidavit: PWS [2].

8. [149]

   A final basis for relief mentioned in the PWS [3] namely, “that if the demand is not a nullity then it should be set aside, pursuant to s 459H, because there is a genuine dispute about the existence of the demanded debt” was not pursued by the company at the hearing: T 9.39-.45.

9. [150]

   Mr Allan in opening the case appeared to ground the nullity argument principally on what I describe below as the due and payable issue and address issue allegedly creating a misleading character of the demand inherent in the demand document: T5.

10. [151]

    Mr Allan submitted that there is “no need [for me] to go on and consider whether there are internal problems to the demand, or explore at any deep level the relationship between the parties”: T5.

11. [152]

    Notwithstanding the PWS, Mr Allan conducted the case for the company on the basis that there are certain avenues of challenge to the demand that are closed off to him namely s 459G (genuine dispute) and s 459J(1)(a) (substantial injustice): T12.16-.20.

12. [153]

    Essentially the issues were as follows:

    1. (1)

       Did the demand served so lack the essential character of a demand such that it was a nullity (nullity issue) because of non-compliance with the PF in the following respects:

    2. (2)

       In consideration of the nullity issue does it matter whether the company was in fact mislead or not or is the alleged misleading character of the document per se sufficient to underpin the nullity argument (misleading effect issue)? See T6 (Mr Allan).

    3. (3)

       If the demand was a valid demand, and not a nullity, was the Originating Process effectively served within the 21-day period (effective service issue)?

    4. (4)

       What is the effect of the failure of the company to attach a SEPA notice (SEPA notice issue)?

13. [154]

    In the event that I found that the demand is a valid demand Mr Allan submitted that there was some other reason for setting aside the demand pursuant to s 459J(1)(b). Mr Allan connected this with the SEPA notice issue: T7.1-.5. Essentially the company sought to address this by claiming that the defendant engaged in unconscionable conduct because of the operation of SEPA (PWS [6] and [33]-[36]; DWS [54]) and thus argued the defendant was estopped by relying upon the demand.

14. [155]

    The “some other reasons” advanced by Mr Allan were the following matters (T6):

    1. (1)

       the address issue;

    2. (2)

       a complaint that the amount claimed collated several loans into a single sum in the demand such that the company could not identify the debt claimed (separate debt issue);

    3. (3)

       the due and payable issue;

    4. (4)

       Mr Boxell did not have appropriate knowledge to verify the demand but relied upon hearsay from Mr Tidy (verification issue); and

    5. (5)

       the cumulative effect of the above.

15. [156]

    The company also complained that the demand was incorrectly dated being 19 January 2021 (date issue). This submission was said to be not merely a question of what date Mr Boxell signed the document but alternatively to be connected to the amount due if it is taken as a “reference date” for the demand, asserting that as at 19 January 2021 according to Mr Tidy only $85,000 was owing as at 19 January 2021 rather than the $225,375 claimed amount: T57.19-.31.

16. [157]

    The defendant submitted (DWS [4]) that if the demand is not a nullity and the originating process was effectively served within time, there were issues as to:

    1. (1)

       whether “substantial injustice” would be suffered by the company if the demand is not set aside under s 459J Corporations Act (substantial injustice issue); and

    2. (2)

       whether there is a genuine dispute about the existence of the debt under s 459H Corporations Act (genuine dispute issue).

17. [158]

    The defendant also submitted that if the demand is not a nullity and that the originating process was not effectively served within the 21-day period required under s 459G, it is unnecessary for the Court to consider the substantial injustice issue and genuine dispute issue: DWS [4], [39]-[40].

18. [159]

    As I have noted Mr Allan did not press s 459G (genuine dispute) and s 459J(1)(a) (substantial injustice) issues.

Genuine dispute principles

1. [160]

   In In the matter of AMP Life Ltd [2018] NSWSC 855 (AMP Life), Gleeson JA stated at [35]-[37]:

2. [161]

   The evidence required to establish a genuine dispute varies in each case, but a mere assertion that a debt is denied will be insufficient: Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527; (2004) 185 FLR 130 at [20]-[25] per White J; Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; (2011) 87 ACSR 1 at [69]-[70] per Ward J.

Nullity principles

1. [162]

   Cases in which a demand is so defective as to render it a nullity are extremely rare: F Assaf, Assaf's Winding Up in Insolvency (3rd ed, 2021, LexisNexis) (Assaf) [8.27] page 531-532. Assaf notes that any defects relied upon must be defects in the demand and not the supporting affidavit citing inter alia Roberts v South East Asia Communications Pty Ltd [2003] NSWSC 800 per Barrett J.

2. [163]

   It is said that the key reason why there are so few cases where a demand is so defective so as to render it a nullity is because of the width of the definition of “statutory demand” in s 9 in that it includes a document that purports to be a demand served under s 459E: Assaf page 531-532 citing 2020 Construction Systems Pty Ltd v Dryka & Associates Pty Ltd [2010] WASC 22 Beach J at [35]-[39].

3. [164]

   As observed by Dart J in SP Hay Pty Ltd (ACN 093 703 765) v David Gray & Co Pty Ltd (ACN 008 671 127) [2019] SASC 6; (2019) 133 ACSR 504 (SP Hay) at [21]-[26] per Dart J there are a surprisingly large number of cases dealing with demands which failed to provide an address for service in the correct state: at [22].

4. [165]

   There are some cases where the alleged defect is gross. For example, Sheslow v Diamond Rose NL [2005] NSWSC 492; (2005) 54 ACSR 376 per Barrett J where the creditor used a completely incorrect form referring to “section 123(1)(a) or 222(1)(A) of the Insolvency Act 1986”.

5. [166]

   There are some cases where concessions are made. For example, in Primespace Property Investment Ltd v Vienne Pty Ltd [2015] FCA 326 (Primespace) the plaintiff conceded that it could point to no substantial injustice as a result of the statutory demands providing an address for service in the ACT, as opposed to in NSW: at [15].

6. [167]

   In other cases such as AMP Life, the non-compliance with paragraph 6 of the PF (Form 509) did not have the effect of misleading AMP as to how to commence a valid application under s 459G to set aside the statutory demand. The application was validly served in Western Australia, together with a SEPA notice: at [25]. Gleeson JA thus found it unnecessary to determine the application by reference to the nullity submission.

7. [168]

   Assaf at [8.31] states that the approach in IMT has not met with universal acceptance citing various judgments being In the matter of Leasing Holdings Pty Ltd (formerly Charlie Lovett Pty Ltd) [2015] NSWSC 771 at [15]-[28] per Black J (Leasing Holdings); Primespace at [14]-[15] per Griffiths J; In the matter of Urban Solutions Group Pty Ltd [2015] NSWSC 1940 (Urban Solutions Group) at [8]-[11] per Black J; Slap Corp Pty Ltd v Civil, Infrastructure & Logistics Pty Ltd (2017) 50 VR 542; [2017] VSC 168 at [37]-[75] per Randall AsJ; AMP Life at [25] per Gleeson JA; and SP Hay at [21]-[26] per Dart J.

8. [169]

   Whilst in many cases the capacity for a demand which specifies an interstate address (or some other defect) to mislead is readily acknowledged by courts, what is not common is the acceptance of whether injustice has flowed from that defect and the approach adopted by each court to try to avoid the injustice: see SP Hay at [22] per Dart J.

9. [170]

   Assaf at [8.31] page 536 in particular refers to the decision of Black J in Urban Solutions Group at [3] in which His Honour stated:

10. [171]

    In Leasing Holdings Black J observed (at [16]) that whether the specification of an address for service outside that State is misleading, to the extent necessary to either invalidate the demand or give rise to substantial injustice will depend upon the circumstances in the particular case. I agree.

11. [172]

    Further, in Leasing Holdings Black J (at [17]), after referring to the decision of Mahoney M in Ultimate Manufacturing Pty Ltd v Lyell Morris Pty Ltd (1995) 13 ACLC 1268, emphasised the need to focus on whether the defect was causative of an applicant’s failure to make an application to set aside the demand.

12. [173]

    In Leasing Holdings Black J found that the address defect issue whilst potentially having a capacity to mislead, was not misleading on the facts: at [26]. Accordingly, His Honour was satisfied that the winding up application in that case should be determined on the basis the demand was effective: at [28].

13. [174]

    In SP Hay whilst Dart J found that the demand to be a valid demand, but to avoid an obvious injustice on the facts, injuncted the defendant from relying on the plaintiff’s failure to comply with the demand: at [3].

14. [175]

    Dart J stated that the approach to question of whether or not an injunction should be granted is simply whether, in the circumstances of the matter, it would be unconscientious for the defendant to rely on the plaintiff’s failure to comply with the demand in a winding up application: at [35].

15. [176]

    Dart J noted that often the critical issue will be the circumstances by which the right or entitlement was acquired: at [37].

16. [177]

    Specifically, at [39] Dart J stated “As a result of the failure of the plaintiff to comply with the demand, the defendant has obtained a right or entitlement to rely on the presumption of insolvency in the foreshadowed winding up application. The question is whether, on the facts of this matter, it would be unconscientious for the defendant to do so. The answer to the question requires a consideration of the manner in which the right or entitlement was acquired and the injustice the exercise of it would cause the plaintiff.”

17. [178]

    There was no application for injunctive relief in this case.

18. [179]

    In approaching the company’s application for a declaration that the demand is a nullity I propose to adopt the approach taken by Black J In Leasing Holdings to consider whether the company was misled and focus on whether the defect was causative of the company’s failure to make an effective application to set aside the demand.

Nature of dispute regarding a loan account

1. [180]

   I have mentioned one odd aspect was the evidence outlining the parties’ relationship to one another. Another odd aspect of the matter was an almost complete disconnect in the evidence regarding the whether there was a loan account between the company and the defendant.

2. [181]

   I have set out above the defendant’s case regarding a loan account.

3. [182]

   The company’s submissions asserted that the evidence is that there is no Loan Agreement, and no repayments because there is no loan: T10.

4. [183]

   Essentially, the defendant's case is that there was a loan account in place between the parties pre-existing and well before the consultancy agreement alleged by Ms Macdonald.

5. [184]

   The debt claimed in the statutory demand explained in the context of the supporting affidavit of Mr Boxell bases the amount claimed in the realm of loan less some adjustment to the loan figures.

6. [185]

   The affidavits of Mr Boxell (6 April 2022) and Mr Tidy (7 April 2022) provide detail in relation to the claimed debt of a balance of a loan account.

7. [186]

   The affidavits of Ms Macdonald in February and March 2022 simply deny any reference to such a loan account, and as I have said bases the relationship between the parties in the context of the alleged consultancy agreement.

8. [187]

   Forensically, the affidavit of Ms Macdonald affirmed 27 April 2022 was really the opportunity for her to grapple with the defendant's case in respect of the loan account beyond the denial of its existence.

9. [188]

   However, Ms Macdonald's affidavit of 27 April 2022, rather than doing that, harks back to the consultancy agreement and sets out assertions in relation to that as I have referred to above. The affidavit does not seek to address evidence about the loan agreement. The affidavit does not seek to address and explain the company's balance sheet which provides the basis or foundation for the amount claimed in the demand.

10. [189]

    Ms Macdonald does not dispute that the balance sheet was provided by the company to the defendant.

11. [190]

    Whilst I am mindful that the threshold for establishing a genuine dispute is a relatively low one, the evidence from Ms Macdonald, in particular in her affidavits in chief, really failed to grapple in any way with the documentary material demonstrating significant monies are undoubtedly advanced from the defendant to the company prior to what she asserts is the commencement of the consultancy agreement.

12. [191]

    There was no evidence in the proceedings from the company's accountant Michael Wang. The fact he was the accountant was confirmed during the hearing: T24.

13. [192]

    The question arises as to whether there is any inference that might be drawn from the failure to call any evidence from Mr Wang. In In the matter of Harmon International Holdings Pty Ltd [2019] NSWSC 413; (2019) 136 ACSR 94 Rees J addressed the issue of whether the Court on the hearing of an application to set aside a statutory demand could or ought to draw a Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 inference: see [37]–[40].

14. [193]

    Ms Macdonald was also cross-examined on her assertions regarding the claim that the company does not and never has borrowed any monies from the defendant and that the defendant has never advanced any monies to the company as claimed whatsoever: CB 9.

15. [194]

    There are references to loan or loan account in the documentary evidence. They include:

    1. (1)

       26 May 2021 – a text message from Mr Tidy to Ms Macdonald: CB 193

    2. (2)

       October 2021 – a text message from Ms Macdonald to Mr Tidy: CB 254

    3. (3)

       10 December 2021 – the Company’s balance sheet: CB 288

    4. (4)

       20 December 2021 – an email from Mr Tidy to Ms Macdonald: CB 293

    5. (5)

       20 December 2021 – an email from Ms Macdonald to Mr Tidy: CB 294

    6. (6)

       31 December 2021 – an email from Mr Gallagher to Ms Macdonald: CB 305-306

    7. (7)

       4 January 2022 – an email from Ms Macdonald to Mr Gallagher: CB 307-308

16. [195]

    Ms Macdonald was asked (T19) regarding the text message in May 2021 appearing at CB 193.

17. [196]

    Ms Macdonald was asked regarding the text message in October 2021 appearing at CB 254, with particular reference to the use of the words “loan account” (T19-20):

18. [197]

    Ms Macdonald was cross examined regarding the loan account references in the emails at CB 293 and 294 (see T20-21) and lastly regarding the email on 4 January 2022 at CB 307 (T22) as follows:

19. [198]

    I asked Ms Macdonald regarding the balance sheet (CB 288) produced by the company’s accountant. Her evidence was as follows (T22-23):

20. [199]

    Mr Fielder further asked (T23):

21. [200]

    Whilst I am mindful of the nature of the proceedings, I consider that there is no genuine dispute that amounts were advanced from the defendant to the company as loans.

22. [201]

    In this regard I have had regard to the following:

    1. (1)

       The balance sheet referring to $311,375 as a loan (CB 288) is the company’s own document.

    2. (2)

       Ms Macdonald’s affidavit of 27 April 2022 does not seek to address Mr Boxell’s and Mr Tidy’s evidence about the loan agreement. The affidavit does not seek to address and explain the company's balance sheet which provides the basis or foundation for the amount claimed in the demand.

    3. (3)

       The references to loan or loan account in the documentary evidence above including from Ms Macdonald referring to a “loan account” (CB 254); “Z4life loan” (CB 294), “Billing can be taken off the Z4life loan” (CB 308) and failure to qualify messages from Mr Tidy referring to “loan” (CB 193) and “adjust the loan account” (CB 293).

23. [202]

    I have considered the statement of Ms Macdonald in oral evidence that “we have accounts labelled on a balance sheet incorrectly”: T 23. However, in light of the other matters and the absence of evidence from Mr Wang, I do not regard her statement as sufficiently creating a genuine dispute that amounts were advanced from the defendant to the company as loans.

24. [203]

    The more problematic issue is the terms of the advances and whether they were due and payable. I will address this after dealing with the separate debt issue.

Separate debt issue

1. [204]

   Mr Allan submitted the aggregation of the alleged loans into a single amount in the demand, without explanation, was a defect productive of a substantial injustice to the company (as) there was no way for it to know what each supposed loan was about: PWS [41]

2. [205]

   Mr Allan elaborated in oral submissions that if there are several loans you need to break down the loan, each and every one you say is owing, and by not doing so, you create a defect in the demand: T6,44.

3. [206]

   I am not persuaded that there is any lack of clarity regarding the amount claimed as a loan or how it was calculated.

4. [207]

   There is clear reference in the documentary material to a loan account. The complete denial on the company's part of that simply does not fit in any plausible way with the documentary material.

5. [208]

   Mr Allan on behalf the company sought to challenge the amount claimed in a number of ways. Whilst seeking to maintain denial of any loan account (which does not fit comfortably or plausibly with the documentary evidence) he pointed to the wording used in the schedule to the demand and in paragraph 3 of the supporting affidavit "loan amounts" necessarily should be construed as being plural and that traditional contract law would view amounts advanced between parties as being separate and discrete amounts rather than being essentially a loan balance at a given point of time which was going by the company to the defendant.

6. [209]

   Mr Fielder submitted that whilst multiple sums were advanced by the defendant to the company over from January to October 2021, those advances were all pursuant to the one loan agreement and were part of a running loan balance: DWS [35] citing Mr Tidy’s affidavit at CB 47[13].

7. [210]

   The evidence of Mr Tidy regarding the nature of how the loans were advanced was not challenged by Ms Macdonald in her 27 April affidavit (albeit that she had earlier denied the assertion of any loans).

8. [211]

   The way the parties conducted themselves well prior to the alleged consultancy agreements coming into effect appears fairly clearly to have been a form of running loan balance in a similar way as to how a business running account operates.

9. [212]

   It is clear that a loan balance between parties can form the basis for a statutory demand. The same is true of running accounts: e.g. Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in Liq) [2015] VSCA 330.

10. [213]

    I have outlined above how the defendant explains its case regarding the funding and the claimed amount.

11. [214]

    The claimed amount is based on the company’s balance sheet. Accepting the balance sheet is an odd document, it is the company’s document. The adjustments to the $311,375.00 amount being the $34,000 amount and $120,000 amount are the subject of evidence involving Ms Macdonald. I do not accept there was no way for the company to know what the claimed debt related to. I do not accept the amount claimed involved plural debts such as might have required the defendant to separate out every advance in the schedule to the statutory demand.

Due and payable issue

1. [215]

   The issue regarding whether amount claimed was due and payable is another intriguing aspect of the evidence.

2. [216]

   Mr Allan directed attention to wording in paragraph 4 of the affidavit accompanying the demand stating that "the loan amounts would be repaid on demand or upon a dissolution of a partnership between the Creditor and the Debtor Company".

3. [217]

   Mr Allan submitted that Mr Boxell did not mention any specific demand made nor any partnership dissolution date did not outline how loan arrangements might operate between partners, given that dissolution of the partnership could instantly create offsetting claims to a partnership’s various assets: PWS [13].

4. [218]

   There is an issue as to whether this ground can be raised. The affidavit filed with the originating process must support the application: s 459G(3)(a). It has been said that an applicant cannot rely on any ground for setting aside that demand which was not raised in the initial affidavit filed within that 21 day limit: Assaf at [5.41]-[5.45] discussing inter alia Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452. The Court has cautioned against describing this as the “Graywinter principle”: Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60 at [40] per Bell P. However, it is accepted that an applicant may supplement an initial affidavit in support of an application to set aside a statutory demand by leading further evidence relevant to matters raised by the initial affidavit: Assaf at [5.48].

5. [219]

   In relation to the company's submission that the alleged debt was not "presently due and payable." Mr Allan directed my attention to the decision of Finkelstein J in NT Resorts Pty Ltd v Deputy Commissioner of Taxation (1998) 16 ACLC 957 at 964:

6. [220]

   Ms Macdonald’s initial affidavit asserted the company does not and has never borrowed any monies from the defendant and that the defendant has never advanced any monies to the company as claimed whatsoever: CB 9.

7. [221]

   Having regard to s 459G(3)(a), I do not consider that it is open to the company to assert that the claimed debt, which it denies, is not due and payable. Nonetheless, if I am wrong about that, I address the matter below.

8. [222]

   Mr Allan cross examined Mr Boxell on the statement in paragraph 9 of the affidavit accompanying the demand to indicate that the wording "Despite demand, failed to remit repayment of the balance of the Loan Sum…" was not right in the sense that apart from the statutory demand no demand had been made. The questioning included the following (T52):

9. [223]

   In the context of s 459E, a debt is said to be due and payable when it is ascertainable, immediately payable and presently recoverable or enforceable by action: Assaf at [3.44] page 167 citing In the matter of Elgar Heights Pty Ltd (No 1) [1985] VR 657.

10. [224]

    Generally, where monies are advanced from one party to another the monies are regarded as being instantly owing without necessity to actually make a formal demand. The law in this regard was explained by Fullagar J in Ogilvie v Adams [1981] VR 1041 at 1043.

11. [225]

    In order to prevent a cause of action for recovery arising instantly, the parties must expressly contract out of that situation by words clearly inconsistent with it: Ogilvie v Adams at 1043.

12. [226]

    It then becomes necessary to look at the arrangements between the parties said to give rise to the loan agreement.

13. [227]

    As I have outlined above, the discussion which was the genesis for funds being advanced took place as between Mr Tidy and Ms Macdonald prior to the company commencing what Mr Tidy describes as the Stage One Works: CB 46.

14. [228]

    The initial discussion according to Mr Tidy followed a request from Ms Macdonald for the sum of approximately $85,000, which he states she indicated (CB 47[10]):

15. [229]

    Ms Macdonald in her 27 April affidavit did not deny that such a conversation occurred nor otherwise respond to it.

16. [230]

    Mr Tidy indicated, as I have noted above, the project timeline and projected costs were broken into three stages, and that under the first stage of works the work done was to be completed by 30 March 2021: CB 46[7].

17. [231]

    He stated that the reason that the Stage One Works was so important was because once this was completed, the App would be ready to launch and start generating income for Z4Life: CB 46[8]. He further indicated that the company has not completed the Stage One Works, because there are critical bugs in the Apps which have not been fixed: CB 46[9].

18. [232]

    Mr Tidy states the project never launched and was seemingly abandoned (CB 46[9]). Mr Fielder submitted that the project had failed at that time, and the monies became then payable: T77-78.

19. [233]

    Mr Allan directed my attention to the email from Mr Gallagher to Ms Macdonald dated 31 December 2021 (CB 306, paragraphs 10 and 13 of the email) submitting Mr Gallagher was “saying the app has been approved” and “both parties to agree on a sign over date, some future date in 2022, not yet arrived, for the existing website, an app and platform as well as messaging to coin holders”: T86.27-87.2. Mr Allan submitted that “I would say don’t readily accept the idea that the project failed and that created a situation for a debt to be due and payable”: T88.1-.2.

20. [234]

    However, the responsive email from Ms Macdonald (CB 307-308) does not indicate any agreement as suggested but does conclude with the statement “Billing can be taken off the Z4life loan”.

21. [235]

    In any event, the further discussions between Mr Tidy and Ms Macdonald by which she requested that the defendant loan the company further funds to pay wages, invoices and other expenses were according to Mr Tidy later separate requests for the lending of money apart from the $85,000 amount (CB 47[12]). Mr Tidy describes the advances as forming part of a running loan balance, which he calls the “Loan Agreement”: CB 47[13].

22. [236]

    The further monies lent as claimed by Mr Tidy are 11 payments totalling $443,000 lent as between 24 March 2021 and 20 July 2021 and further sums of $40,000 on 29 July 2021 and $100,000 on 29 October 2021.

23. [237]

    Ms Macdonald in her 27 April affidavit did not deny that such conversations occurred nor otherwise respond to Mr Tidy’s evidence regarding those sums.

24. [238]

    Under conventional loan law those further sums were instantly repayable.

25. [239]

    I do not accept the submission that some form of formal demand was required before the defendant could issue the statutory demand.

26. [240]

    I do not accept that the argument that the claimed amount was not due and payable because there was no demand and made the demand a nullity.

27. [241]

    In relation to Mr Allan’s submission regarding dissolution of partnership, it is understandable as to why he has raised this matter.

28. [242]

    This is the wording that Mr Boxell uses in paragraph 4 of the affidavit accompanying the statutory demand.

29. [243]

    There was some discussion between myself and counsel regarding this: T64.30-65.9, 78.1-.30.

30. [244]

    Having regard to s 459G(3)(a) and noting that an applicant cannot rely on any ground for setting aside that demand which was not raised in the initial affidavit, I do not consider that it is open to the company to assert that the claimed debt is not due because of the existence of a partnership relationship such that the recovery of it would be precluded until there had been a formal termination of partnership and taking of accounts. Nonetheless, if I am wrong about that, I address the matter below.

31. [245]

    If there had been what might be conventionally or properly described as a form of partnership between the defendant and the company that might assume some significance.

32. [246]

    Ordinarily, where a partnership agreement has been terminated and the balance of the partnership agreement has not been ascertained or agreed-upon, any outstanding balance is not a debt capable of supporting a statutory demand. Rather, the respective parties have a right for the taking of an account: Assaf at [3.69] page 184.

33. [247]

    However, apart from that curious reference in the affidavit accompanying the statutory demand, few of the objective materials before the Court explain how the relationship between the parties was in any way a partnership.

34. [248]

    Mr Boxell whilst cross examined on not issuing a demand, was not cross examined on the expression “dissolution of a partnership”.

35. [249]

    Subject to the following, there is really nothing in any of the documentary material suggestive of any conventional or even ad hoc partnership.

36. [250]

    The consultancy agreement put forward by Ms Macdonald (but disputed by Mr Boxell and Mr Tidy) contains mixed and confusing references to partnership.

37. [251]

    Clause 19 at CB 200-201 negates a partnership relationship between the parties:

38. [252]

    On the other hand, clause 28 at CB 202 refers to terms being to “the Business Partnership covered in this Agreement” and “the affiliate partnership” neither of which terms are defined in the document:

39. [253]

    Importantly, none of the materials prior to the consultancy agreement refer to a partnership.

40. [254]

    There is limited reference by Ms McDonald to “partnership” in an email dated 8 December 2021 (CB 283) as follows:

41. [255]

    In none of the body of Ms Macdonald’s four affidavits does she ever describe the nature of the relationship between the company and the defendant as one of partnership.

42. [256]

    In cross examination of Mr Tidy by Mr Allan on the question of payment of $40,000 a month (as referred to in the evidence of Ms Macdonald), Mr Allan put to Mr Tidy that Mr Tidy’s assertion that the amount ($40,000 a month) was delay damages was wholly incorrect - which he denied. He further put that it was by way of sales retainer.

43. [257]

    The questions were:

44. [258]

    The reference above by Mr Tidy to "I paid well above the $45,000 that was agreed because we went into a full partnership" is intriguing.

45. [259]

    Mr Fielder submitted (T78) that “I think that word might have been used by the witnesses without the intent for it to carry its full legal meaning. They were certainly involved in a project together but I don't say to your Honour that this is a case that involved a dissolution of a partnership.”

46. [260]

    I accept that submission. I do not think the comment provides a plausible basis for considering that the relationship between the parties was truly that of partnership or for finding that the amount claimed in the demand ought properly be viewed as being monies owed and referable to a partnership context, such that a balance between the company and the defendant could only ever be worked out following a formal termination of partnership and taking of accounts.

47. [261]

    In oral submissions after the various deponents had been cross examined Mr Allan took up the point as follows:

48. [262]

    However, there was a distinct lack of clarity regarding how it might be genuinely asserted that there was a partnership.

49. [263]

    In the passage above Mr Allan talked about it almost in hypothetical terms submitting:

50. [264]

    The impression that I have is that the company has for the purpose of challenging the demand focussed upon the reference to dissolution of a partnership but without ever seriously making an assertion that there was such a partnership.

51. [265]

    If this was a case of a partnership one would have expected Ms Macdonald to have made that evident in at least one of the four affidavits she put before the Court in support of the application. She did not. In the above context, I am not persuaded that the amount claimed as a loan balance is plausibly referable to a partnership relationship such that the recovery of it would be precluded or stymied until there had been a formal termination of partnership and taking of accounts.

52. [266]

    I am not persuaded that the date on the demand being 2021 was a defect such as to amount to a substantial injustice or to render the demand a nullity. There is no evidence that the company was misled or confused by the date issue.

Interstate address and misleading effect issues

1. [267]

   In relation to the issue regarding the interstate address in the statutory demand, the defendant accepted that it was obviously a defect: DWS [24]. However, the defendant stated that it caused no injustice to the company.

2. [268]

   The defendant argued that the company did not suffer any prejudice or injustice by reason of the address specified in the statutory demand because the company knew exactly where to send the documents and that it sent the documents by post to the registered offices of both the company and the company's solicitor.

3. [269]

   Further, the defendant submitted that it did so after the expiry of the 21 day period and also without attaching the required SEPA notice: DWS [24] & [25]. It submitted that the company's lateness in sending the documents was caused by its own doing and the attempt to serve by post at the time that it did, even to an address in New South Wales, would have been impossible by that time: DWS [26].

4. [270]

   Mr Allan submitted that the non-compliance with paragraph 6 of the PF was positively misleading referring to the decision of Lander J in Players Pty Ltd v Interior Projects Pty Ltd (1996) 133 FLR 265 at 269 and the decision of Brereton J in ITM at 367 [16]: PWS/27, 29, 49. Mr Fielder in the DWS submitted as follows:

5. [271]

   Mr Allan in oral submissions submitted that the misleading character of the demand document is not altered by anything that the company or its solicitor did at the time, rather misleading character is inherent in the document itself: T5.20–.23.

6. [272]

   As noted above I consider I should apply the principles in Leasing Holdings and consider whether the company was misled and focus on whether the defect was causative of the company’s failure to make an effective application to set aside the demand, as distinct from some fault of the company.

7. [273]

   I accept that the misstatement of the address is, as acknowledged by the defendant, a defect.

8. [274]

   I also acknowledge that the interstate address listed was not the company’s registered office.

9. [275]

   However, I am not satisfied that the defect was such a fundamental or misleading character as to render the statutory demand as a nullity.

10. [276]

    There was no evidence by the company or Ms Macdonald that the company had been misled. Even on the company's own evidence when one looks at the disputed consultancy agreement and the disputed termination document, both documents indicate that the company and Ms Macdonald were well aware of the registered office of the defendant long before the demand was served: CB 198, 202 and 259.

11. [277]

    Further, I am not satisfied that there was such substantial injustice as would provide a reason for setting aside the demand.

Verification issue

1. [278]

   The company claimed the demand and the supporting affidavit was that it was said that it lacked appropriate verification.

2. [279]

   Mr Allan cross examined Mr Boxell regarding the amount in the statutory demand and how that was calculated by reference to the figure of $311,375 in his affidavit of 6 April 2022 and the affidavit in support of the statutory demand. In particular cross examination focused on paragraph 9 of Mr Boxell's 6 April affidavit that the loan amounts were advanced in the period from November 2020 to December 2021.

3. [280]

   The cross examination confirmed (as the affidavit had indicated) that the information had been given to Mr Boxell by Mr Tidy. The cross examination then proceeded to explore that fact by reference to questions as to whether the first loans were made in November 2020 and then in December 2020 to which Mr Boxell indicated that they were: T46. His answer is at odds with the schedule produced by Mr Tidy at CB 48 which indicates the amounts advanced in particular with the initial $85,000 loan amount occurred first in January 2021.

4. [281]

   The tenor of the cross examination on this and in relation to the affidavit supporting the demand was that Mr Boxell was reliant upon Mr Tidy for the information therein and that accordingly the amounts were not appropriately verified. The cross examination proceeded for some time: see T46–51.

5. [282]

   Whilst I am not convinced that Mr Boxell was, at the time of the cross examination precisely or correctly across the calculation of the amount in the statutory demand and the figures for the detail in his affidavit supporting the demand, he did state that he "went through every bank statement and had a look at them": T51.1.

6. [283]

   When it was put to him that he did not look at the statements at the time of the January 2022 supporting affidavit he accepted that "I probably didn't at that time": T51.16–.18.

7. [284]

   Accepting that, I was left with the impression that Mr Boxell had at least at some time prior looked at the bank statements. In any event, I accept his evidence that both from the affidavit accompanying the demand and oral evidence that he relied upon information received from Mr Tidy.

8. [285]

   Mr Allan by reference to the decision of Barrett J in Faji (Australia) Constructions Pty Ltd v AC Professional Accounting Pty Ltd [2009] NSWSC 180 (Faji) submitted that the claimed amount in the demand had not been appropriately verified. Barrett J at [23]–[29] stated the following:

9. [286]

   Mr Fielder submitted that the decision of Barrett J was not an obstacle in the case.

10. [287]

    He noted that in Faji the demand had been verified by a solicitor who did not identify the source of his knowledge.

11. [288]

    He further noted that in this case Mr Boxell is the sole director of the company and as most directors would obtained at least some of their information from their executives and employees: T80–81.

12. [289]

    I am satisfied that on the facts of this matter the affidavit was appropriately verified for the purposes of the statutory provisions by Mr Boxell relying partly by his own inquiries and partly on Mr Tidy who was clearly involved in the dealings between the company and the defendant.

Effective service issue

1. [290]

   The only method of service in the case which was claimed to be arguably effective was email service.

2. [291]

   In 2020, the Corporations Act was amended by the Corporations Amendment (Corporate Insolvency Reforms) Act 2020 (Cth) with effect from 16 December 2020 (the 2020 Reforms). The 2020 Reforms expanded the scope for electronic communication of documents required or permitted to be given under Chapter 5 dealing with External Administration.

3. [292]

   I was referred to the decision of Cheeseman J in In the matter of Bioaction Pty Ltd [2022] FCA 436 (Bioaction) dealing with the 2020 Reforms.

4. [293]

   Section 600G was amended as part of the 2020 Reforms.

5. [294]

   The 2020 Reforms introduced ss 105A and 105B into the Corporations Act which establish statutory presumptions in respect of the time and the place where electronic communications are sent and received: Bioaction at [52].

6. [295]

   The company relied upon provisions in ss 105A, 105B and 600G Corporations Act to establish effective service of the originating process. Those provisions are relevantly as follows:

7. [296]

   It was submitted that where s 600G(2) permits that a document may be given to the recipient by means of an electronic communication that that provision applies because the provisions regarding statutory demands sit within Ch 5 of the Corporations Act dealing with external administration: s 600G(1)(c).

8. [297]

   Section 105A(4) provides that an electronic communication is received when the electronic communication becomes capable of being retrieved by the addressee at the addressee’s nominated electronic address.

9. [298]

   The expression "nominated electronic address" in relation to the addressee of an electronic communication is defined in s 9 Corporations Act:

10. [299]

    The defendant submitted that Ms Behlau’s email address was not a nominated electronic address because the address was not nominated by Ms Berlau as "addressee" to "the originator" (said to be Mr Sarai). I accept that that is technically correct, having regard to paragraph (a) of the definition.

11. [300]

    However, Mr Allan in his written submissions in particular relied upon paragraph (b) of the definition to the effect that the nominated address can be an electronic address that the originator believes on reasonable grounds to be a current electronic address for the addressee for receiving electronic communications: PWS [17].

12. [301]

    The letter from SGL dated 20 January 2022 to the company clearly indicates that contact regarding the matter should be directed to Ms Berlau and provided an email address for Ms Berlau: CB 398.

13. [302]

    The company and more particularly Mr Sarai in his email communication with Ms Berlau on 17 February 2022 (CB 329) and more particularly on 21 February 2022 in serving the originating process (CB 356, 359) had, I find reasonable grounds to believe that the email address was a current electronic address for the company for receiving electronic communications – particularly when Mr Sarai referenced the defendant's solicitor's letter dated 20 January 2022 in his email dated 17 February 2022.

14. [303]

    In those circumstances, I am satisfied that, subject to the SEPA issue, service by email was a permissible and effective form of service in order to engage the statutory provisions for the service to be effected within a 21 day period.

SEPA notice issue

1. [304]

   It is common ground that the company failed to attach the requisite SEPA notice to its originating process.

2. [305]

   There is authority to the effect that failure to comply with SEPA means that service has not been affected regardless of whether the originating process was received within the prescribed 21 day period. Mr Fielder (DWS [53]) cited Elan Copra Trading Pty Ltd v JK International Pty Ltd [2005] SASC 501; (2005) 56 ACSR 416 at [46].

3. [306]

   The comments of White J in Elan at [46] appears directed to the issue of prejudice.

4. [307]

   Nonetheless White J at [27] does indicate that by reason of s 16 of SEPA service is effective only if copies of such notices as are prescribed are attached to the process served.

5. [308]

   Reference was made to the decision of Brereton J in IMT. His Honour does not expressly deal with s 16 of SEPA. However, from his Honour's discussion of the submissions in relation to SEPA at [5]-[9], there is nothing in that discussion suggestive that the provisions of s 16 are not mandatory or that failure to comply with them is not required. White J in Elan in discussing the SEPA provisions confirms that the provisions, in particular the requirement in s 16 for the attachment of a prescribed notice, are mandatory and failure to comply with them renders service ineffective: at [27]-[31].

6. [309]

   There is no suggestion in the evidence that there was any agreement between the parties to the effect that compliance with s 16 of SEPA was not required and no suggestion that any such term could properly be implied.

7. [310]

   In Elan White J (with whom Doyle CJ and Perry J agreed) rejected any argument of waiver on the facts: [34]–[43].

8. [311]

   White J also found that the appellant was unable to establish any detrimental reliance necessary to support the waiver or election argument: at [41].

9. [312]

   The company argued that in the event that the Court was satisfied that the statutory demand was a valid document (i.e. not a nullity), and that it did not attach the relevant SEPA notice, that the Court should in its equitable jurisdiction consider that the defendant was estopped from taking the point, or alternatively, it seems argued that under the provisions of s 459J it should be otherwise set aside.

10. [313]

    Is appropriate to set out the written submissions in this respect from the company’s submissions as follows:

11. [314]

    In oral submissions Mr Allan stated that T88:

12. [315]

    During the course of the oral argument I asked Mr Allan about how the equitable jurisdiction would operate. The discussion proceeded as follows:

13. [316]

    Mr Fielder in his written submissions addressed the estoppel argument at [54]-[59].

14. [317]

    Essentially, he indicated that based on the decision in Elan the requirements of SEPA cannot be waived or outflanked.

15. [318]

    He further argued that there was no detrimental reliance sufficient to support the estoppel argument because the company served the documents to the defendant's registered office, albeit out of time and without attaching the SEPA notice: PWS [56].

16. [319]

    Mr Fielder argued that the decisions in Joe Mangraviti Pty Ltd v Lumley Finance Ltd [2010] NSWSC 61 and Woodgate v Garard Pty Ltd [2010] NSWSC 508; (2010) 239 FLR 339 both concerned cases of setting aside a statutory demand where "fair notice" of the demand had not come to the attention of the debtor and indicated that that did not arise on the facts here: DWS [57]. I accept that.

17. [320]

    Mr Fielder further stated that a recent decision of Black J had considered a principle from Mangraviti, and expressly found that he should not follow it, citing In the matter of LDW Constructions Pty Ltd [2019] NSWSC 1159 at [12]. In LDW Constructions, Black J stated at [6]-[14]:

18. [321]

    I accept the analysis of Black J above and I am not satisfied that there is any argument that fair notice of the demand had not come to the attention of the company.

19. [322]

    I am not satisfied that there is any sufficient basis for arguing that was any unconscionable conduct engaged in by the defendant because of the operation of SEPA (or otherwise for that matter).

20. [323]

    All of the company’s arguments regarding unconscionable conduct really come back to the form of the demand. There was no evidence by the company or Ms Macdonald that the company had been misled in responding to the demand.

Conclusion

1. [324]

   In the above circumstances I am not satisfied that the statutory demand, as argued by the company, was so fatally defective or caused such substantial injustice or was misleading as to amount to a nullity.

2. [325]

   Mr Allan also submitted that the cumulative effect of the matters complained of regarding the demand and affidavit in support and the cumulative effect of the prejudice constitutes the demand as a nullity: T70.27–.36.

3. [326]

   However, I do not accept that that is the case.

4. [327]

   Although I accept that the originating process, together with the supporting affidavit was effectively served by email on the defendant by service to the email addressed to Ms Berlau, the failure to annex the SEPA notice was fatal.

5. [328]

   I am not satisfied that the defendant was estopped or that there was any unconscionability in the defendant’s conduct such that the defendant could not argue that the failure to annex the SEPA notice was fatal.

6. [329]

   For the reasons I have given, I am not satisfied that the “some other reason” bases argued should prevail.

7. [330]

   In the circumstances I make the following orders:

   1. (1)

      Dismiss the Amended Originating Process filed on 20 April 2022.

   2. (2)

      Order the plaintiff to pay the defendant's costs of the proceedings.