In the matter of 47 Industrial Pty Ltd

1. [1]

   By Originating Process filed 26 March 2024, the Plaintiff, 47 Industrial Pty Ltd, applies under s 459G of the Corporations Act 2001 (Cth) (the Act) to set aside a creditors’ statutory demand dated 5 March 2024 (the Statutory Demand) which was issued by the Defendants, Stuart and Karen Herne. The Statutory Demand demanded payment of an amount of $1,565,000 which was claimed to be owing pursuant to a loan provided by the Defendants to 47 Industrial.

2. [2]

   In the Originating Process, 47 Industrial sought orders setting aside the Statutory Demand pursuant to s 459H or, alternatively, s 459J of the Act.

3. [3]

   As regards s 459H of the Act, 47 Industrial contended that there was a genuine dispute regarding the existence of the debt to which the demand relates, on the basis that:

   1. (1)

      the amount claimed was provided as an equity or investment contribution toward capital, and not as a loan;

   2. (2)

      if the amount was advanced as a loan, it has not yet fallen due for repayment; and

   3. (3)

      if any amount is owed, it is not owed to the Defendants jointly.

4. [4]

   As regards s 459J(1)(b) of the Act, 47 Industrial submitted that it was an abuse of process for the Defendants to maintain the Statutory Demand in circumstances where the Defendants have commenced proceedings in the Supreme Court of Queensland for recovery of the same alleged indebtedness that is the subject of the Statutory Demand.

Background

1. [5]

   On 12 August 2021, 47 Industrial was registered. The directors of 47 Industrial are Mr Jordan Biviano and his mother, Ms Nancy Biviano, each of whom holds 50% of its shares.

2. [6]

   On 13 August 2021, a unit trust named the “74 Group Unit Trust” was formed with 47 Industrial as the trustee (the 74 Trust). Initially, all of the 20 units in that trust were held by Ms Biviano and her husband, Bryan Mackney, as trustees for the BivMack Family Trust.

3. [7]

   In 2021, there were discussions between Mr Biviano, Ms Biviano, Mr Herne and Ms Herne about investment in a project involving the construction of a storage facility (the Project). It is unnecessary to go into the detail of those discussions.

4. [8]

   On 26 August 2021, Ms Herne deposited $2,000,000 into the trust account of Bernays Lawyers, who were the solicitors acting for 47 Industrial in relation to the purchase of a property in Charlton, Queensland, which was to be used for construction of the Project.

5. [9]

   On 7 October 2021, five of the units in the 74 Trust were transferred to Mr Biviano as trustee of the Bivest Trust.

6. [10]

   On 18 January 2022, five of the units in the 74 Trust were transferred to Ms Herne.

7. [11]

   In June 2022, development consent was granted for the Project.

8. [12]

   In approximately October 2022, works commenced on the Project.

9. [13]

   On 18 November 2022, a further sum of $2,020,000 was paid into the Bernays Lawyers trust account for 47 Industrial (the November 2022 Payment).

10. [14]

    There is conflicting evidence from Mr Biviano, Ms Biviano and Mr Herne regarding the terms of the conversation which preceded the November 2022 Payment. For present purposes, it is sufficient to note that the Defendants contend that the substance of the conversation was that the November 2022 Payment would be advanced to 47 Industrial as a loan, whereas 47 Industrial contends that the November 2022 Payment was made on the basis that 47 Industrial could, at its discretion, treat the money either as a capital contribution or as a loan. There is also a dispute regarding what was said about the circumstances in which the November 2022 Payment would be repayable and what was said about any interest or return on the November 2022 Payment.

11. [15]

    In February 2023, 47 Industrial entered into a building contract to commence construction of the Project.

12. [16]

    Between about March and May 2023, 47 Industrial obtained a loan from National Australia Bank for approximately $5,750,000.

13. [17]

    During 2023, 47 Industrial made a number of payments to the Defendants. The Defendants asserted that these payments were repayments of the principal owing under the loan in respect of the November 2022 Payment. 47 Industrial asserted that these payments were withdrawals by the Defendants of the capital which they had contributed to the Project.

14. [18]

    The Defendants claimed that a total of $455,000 was repaid to them, reducing the principal of their loan to $1,565,000 (being the amount of the Statutory Demand). 47 Industrial claimed that a slightly higher amount of $461,621 was paid to the Defendants. The Defendants indicated, in oral address, that they were content to proceed, for the purposes of the present application, on the basis that 47 Industrial’s assertion as to the total sum paid to them is correct.

15. [19]

    On 1 February 2024, Mr Herne sent an email to Ms Biviano demanding the repayment of the balance of the November 2022 Payment.

16. [20]

    On 19 February 2024, the solicitors for Mr Herne wrote to a letter to the solicitors for Mr Biviano and Ms Biviano, demanding, among other things, that by 21 February 2024, the amount of $1,565,000 be repaid to Mr Herne. The solicitors for Mr Herne advised that they were “instructed to foreshadow taking legal action without further notice,” if his demands were not met.

17. [21]

    On 5 March 2024, the Defendants issued the Statutory Demand. The Statutory Demand stated that the amount of $1,565,000 was owed to Mr Herne and Ms Herne, who together were defined as “the Creditor”. In the supporting affidavit, Mr Herne deposed that the debt arose “from money lent by my wife, Mrs Karen Herne, and I to the Debtor which the Debtor orally agreed to pay the Creditor upon demand”. It follows that the Statutory Demand asserted that the amount demanded was owed to the Defendants jointly.

18. [22]

    On 26 March 2024, 47 Industrial filed the application to set aside the Statutory Demand and supporting affidavits of Mr Biviano and Ms Biviano. In those affidavits, each of the deponents gave evidence of the disputed conversation with Mr Herne which was claimed, by the Defendants, to give rise to the oral loan agreement in respect of the November 2022 Payment.

19. [23]

    On 22 April 2024, Mr Herne and Ms Herne commenced proceedings in the Supreme Court of Queensland against 47 Industrial as trustee of the 74 Trust by filing a Statement of Claim (the Queensland Proceedings).

20. [24]

    The relief sought by Mr Herne and Ms Herne in the Statement of Claim includes “$1,565,000 as a debt due and owing pursuant to the Working Capital Loan Agreement” (prayer 4) and the interest said to be payable pursuant to the terms of that agreement (prayer 5).

21. [25]

    The Statement of Claim includes the following allegations:

22. [26]

    It is apparent, when read in context, that the term “Construction Loan Agreement” in paragraphs 39 and 40 of the Statement of Claim is used to refer to the Working Capital Loan Agreement pleaded in paragraph 30.

23. [27]

    It follows that the Defendants in the present proceedings are, in the Queensland Proceedings, suing for recovery of the same alleged indebtedness as is the subject of the Statutory Demand.

24. [28]

    On 7 June 2024, 47 Industrial as trustee for the 74 Trust filed a Defence in the Queensland Proceedings. The Defence included, relevantly, the following responses to the allegations in the Statement of Claim:

25. [29]

    On 6 July 2024, the Defendants filed their evidence in these proceedings.

Abuse of Process

1. [30]

   47 Industrial contended that it was an abuse of process for the Defendants to maintain the Statutory Demand after 22 April 2024, when they filed the Queensland Proceedings.

2. [31]

   The Defendants, in written submissions, contended that it was not open to 47 Industrial to pursue any such argument, because it was not raised in the Originating Process or supporting affidavits as a ground for setting aside the Statutory Demand. In that regard, the Defendants referred to Homeward Bound Export Cherry Project Pty Ltd v Farm Working Hands Pty Ltd [2012] NSWCA 447 and MNWA Pty Ltd v Deputy Commissioner of Taxation [2016] FCAFC 154.

3. [32]

   In Homeward Bound at [5]-[6], Allsop P referred with approval to the following statement of principle by the primary judge (Black J):

4. [33]

   As the Defendants acknowledged, it was impossible for 47 Industrial to have raised the issue of the Queensland Proceedings in its Originating Process or supporting affidavits, since the Queensland Proceedings were commenced around 4 weeks after the Originating Process and supporting affidavits were filed and served.

5. [34]

   I do not accept the submission that, in the circumstances described above, 47 Industrial is precluded from submitting that the maintenance of the Statutory Demand following the commencement of the Queensland Proceedings is an abuse of process.

6. [35]

   Section 459J(1)(b) of the Act provides as follows:

7. [36]

   The Court’s power to set aside a creditor’s statutory demand under s 459J(1)(b) exists to maintain the integrity of the process provided under Pt 5.4 of the Act: In the matter of Modern Wholesale Jewellery Pty Ltd; In the matter of Global Austral Pty Ltd; In the matter of Modern Wholesale Jewellery Pty Ltd [2017] NSWSC 236 at [24] (Black J) and the cases there cited.

8. [37]

   As Barrett J observed in Roberts v Wayne Roberts Concrete Constructions Pty Ltd [2004] NSWSC 734 at [57], it was, before the advent of Part 5.4, an abuse of process to initiate winding up proceedings as a means of attempting to enforce payment of a disputed debt. In that regard, his Honour referred to the following statement of principle by Vaughan Williams J in In Re a Company [1894] 2 Ch 349:

9. [38]

   There was some doubt expressed, following the introduction of Part 5.4, as to whether the statutory procedures provided an exclusive code for the resolution of proceedings brought as a result of a statutory demand. However, in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 279; [1995] HCA 43, Gummow J, with whom the other members of the High Court agreed, observed that:

10. [39]

    In Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 at [49], Martin CJ (with whom Owens and Miller JJA agreed) referred these passages from Roberts and David Grant, and observed that since the decision in David Grant:

11. [40]

    The Defendants did not dispute the proposition that this Court has a residual jurisdiction to restrain reliance on the statutory demand procedure on the ground of an abuse of process.

12. [41]

    However, the Defendants submitted, relying on Createc, that this residual jurisdiction would only be exercised where the abuse of process had an element of bad faith. There is no such statement in Createc. Nor is there anything in the decision to suggest that abuses of process can be divided into different categories, and that some are apt to be restrained and not others. Abuse of process is a broad and flexible principle which is capable of application in any circumstances in which the use of the court’s procedures would be unjustifiably oppressive to a party or would bring the administration of justice into disrepute: Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507; [2015] HCA 28 at [25] per French CJ, Bell, Gageler and Keane JJ.

13. [42]

    Further, this Court has exercised the residual jurisdiction to restrain reliance on the statutory demand as an abuse of process in circumstances closely analogous to those which arise in the present case, namely, where proceedings have been brought by a creditor for recovery of the same alleged indebtedness as is the subject of the statutory demand.

14. [43]

    In In the matter of Zarzar Pty Ltd [2017] NSWSC 93, the following situation arose:

    1. (1)

       on 28 June 2016, a statutory demand was served by the defendant, Evton, on Zarzar;

    2. (2)

       on 6 July 2016, Zarzar filed its application to set aside the statutory demand;

    3. (3)

       on 16 August 2016, Evton asserted the claim which was the subject of the statutory demand by way of a claim for set-off in its defence to proceedings brought by Zarzar in the Local Court;

    4. (4)

       on 6 September 2016, Evton brought a cross-claim in the Local Court in relation to the alleged indebtedness which was the subject of the statutory demand; and

    5. (5)

       on 12 September 2016, Zarzar joined issue in respect of that indebtedness.

15. [44]

    Barrett AJA held that the maintenance by Evton of the statutory demand, after the date when a claim in respect of the same alleged indebtedness was asserted in the Local Court, was an abuse of process. At [22]-[23], his Honour said as follows:

16. [45]

    Significantly, the issue of abuse of process by reason of parallel proceedings could not have been raised by Zarzar in its affidavit in support of the application to set aside the statutory demand, because that affidavit was filed (as in the present case) more than a month before the claim was asserted by Evton in the Local Court proceedings.

17. [46]

    Justice Barrett’s observations in Zarzar were quoted with approval by Black J in Modern Wholesale Jewellery at [30]. His Honour said (at [31]) that there was substantial force in those observations and continued:

18. [47]

    His Honour held (at [32]) that:

19. [48]

    The Queensland Proceedings bring a claim for recovery of same alleged indebtedness as is the subject of the Statutory Demand. It is oppressive for 47 Industrial to be facing, at the same time, proceedings in two courts brought by the same claimant in respect of the same debt. In particular, 47 Industrial faces the cost and inconvenience of having to deal, at the same time, with a proceeding in which the Defendants assert that there is no genuine dispute regarding the existence of the oral loan agreement and the $1,565,000 debt, and a proceeding in which a dispute regarding those same matters has been raised for determination.

20. [49]

    Given that is so, issues arise as to whether one proceeding should be deferred pending the hearing of the other, which will inevitably increase costs. As Justice Black commented in Modern Wholesale Jewellery, scarce judicial resources are expended on the procedural difficulties created by such a course.

21. [50]

    The Defendants submitted that “there is a recognisable value in having both a summary procedure and a substantive procedure for dealing with the same issue”, and that if the Court declined to set aside the Statutory Demand, “it's unlikely … that the Queensland proceeding would go through to finality”. It may be accepted that there is value in a creditor being able to issue a statutory demand in respect of a debt or to commence proceedings for recovery of the debt. However, the issue is whether the creditor should be permitted to issue or maintain a statutory demand in circumstances where a recovery proceeding has been commenced in respect of the same debt. It is necessary to weigh, against any private interest which the creditor might have in asserting the alleged indebtedness in parallel proceedings, the public interest in the timely and efficient resolution of claims within the integrated Australian legal system of which this Court and the Supreme Court of Queensland each form part (see UBS AG v Tyne (2018) 265 CLR 77; [2018] HCA 45 at [75] per Gageler J).

22. [51]

    The Defendants raised a number of other matters in written submissions on this issue. In particular, they submitted that:

    1. (1)

       the Queensland Proceedings involve a wider range of issues than the present proceedings;

    2. (2)

       47 Industrial’s management of the 74 Trust has been irregular (referring to various matters raised in their submissions); and

    3. (3)

       if the Queensland Proceedings are an abuse of process, then it is open for 47 Industrial to raise this issue in those proceedings, and in fact this is the appropriate course for 47 Industrial to take.

23. [52]

    These submissions are beside the point. It is not the commencement or maintenance of the Queensland Proceedings that constitutes an abuse of process. It does not therefore matter that other claims are brought in the Queensland Proceedings. There is no criticism of the Defendants for making those claims, which will be determined in those proceedings.

24. [53]

    Instead, for the reasons I have set out above, it is the maintenance of the Statutory Demand in circumstances where the same alleged indebtedness is the subject of a claim to be determined in the Queensland Proceeding that constitutes an abuse of process.

25. [54]

    These matters require that the Statutory Demand be set aside pursuant to s 459(1)(b).

Genuine Dispute

1. [55]

   As I have noted above, 47 Industrial submitted, in the alternative, that there was a genuine dispute about the existence of the debt, on a number of alternative bases including, first, that the November 2022 Payment was made as a capital contribution and not as a loan; secondly, that if it was made as a loan, it was only repayable on the happening of certain events (which have not yet occurred); and thirdly, that if it is repayable, it is not a joint debt of Mr Herne and Ms Herne.

2. [56]

   The parties’ submissions on those issues addressed the evidence of three different persons regarding the content of the same disputed conversation, which was alleged by the Defendants to give rise to the oral loan agreement. In addition, the parties’ submissions addressed evidence regarding the source of the funds used to make the November 2022 Payment, the treatment of the funds upon receipt, and the amounts subsequently paid back to the Defendants and the basis for those payments. The parties advanced competing contentions as to the legal conclusions which could be drawn based on this evidence.

3. [57]

   Having determined that it is an abuse of process for the Statutory Demand to be maintained following the commencement of the Queensland Proceedings, and therefore that the Statutory Demand should be set aside, I do not consider that I should proceed to determine the alternative basis on which the application was advanced. In circumstances where the Queensland Proceedings are on foot, where those proceedings raise a dispute about the existence and terms of the debt, where issue has been joined on this dispute, and where this dispute will be determined by the Supreme Court of Queensland, I consider that it is unnecessary and undesirable for this Court to make any findings about the genuineness of this dispute.

Costs

1. [58]

   Given that 47 Industrial has been successful, costs should follow the event.

2. [59]

   47 Industrial sought its costs of the proceedings on an indemnity basis.

3. [60]

   In Modern Wholesale Jewellery at [48], Black J set out principles relevant to the award of indemnity costs, including that “if a defendant is put on notice of an ‘obvious and irremediable weakness in its position’ and does not withdraw a statutory demand, it may well be appropriate for the court to award costs to the plaintiff on an indemnity basis” (referring to CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728 at [19] per Barrett J); and that “creditors are often ill-advised to proceed with a statutory demand once plausible grounds for a dispute are asserted, and they risk an order for indemnity costs if they do so” (referring to Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772 at [4]-[5] per White J).

4. [61]

   47 Industrial sought costs on an indemnity basis by reference to correspondence sent shortly prior to commencing this proceeding. Not surprisingly, given that the Queensland proceedings had not been filed by that point in time, the issue of abuse of process was not raised.

5. [62]

   Instead, the issues raised by this correspondence were issues regarding the genuineness of the dispute. For the reasons given above, I have determined I should not make any findings regarding the genuineness of the dispute which is currently being litigated in the Supreme Court of Queensland. In those circumstances, I do not make any finding regarding whether it was unreasonable for the Defendants to accept, on receipt of this correspondence, that there was a genuine dispute about the debt.

6. [63]

   47 Industrial sought, in the alternative, its costs on an indemnity basis from the date that the Queensland proceedings were filed (22 April 2024). There is no evidence that, at any point from when 47 Industrial was served with the Statement of Claim in the Queensland Proceedings until it served its written submissions in this proceeding, 47 Industrial raised any issue of abuse of process, or suggested that the statutory demand was liable to be set aside on that basis.

7. [64]

   When those submissions were served on 23 August 2024, 47 Industrial drew the Defendants’ attention to authorities of this Court, namely, Zarzar and Modern Wholesale Jewellery, and identified, based on those authorities, that the maintenance of the Statutory Demand after the Defendants commenced the Queensland Proceedings seeking recovery of the same alleged indebtedness was an abuse of process. In their submissions in reply, the Defendants acknowledged that, having regard to those authorities, 47 Industrial’s contention was “highly arguable”.

8. [65]

   I consider that it was unreasonable for the Defendants to maintain the Statutory Demand from the point in time when 47 Industrial, by its written submissions, drew this issue to their attention.

9. [66]

   Accordingly, I will order costs on the ordinary basis until 23 August 2024, and costs thereafter on the indemnity basis.

10. [67]

    For those reasons, I make the following orders.

    1. (1)

       The statutory demand issued by the Defendants to the Plaintiff on 5 March 2024 be set aside.

    2. (2)

       The Defendants pay the Plaintiff’s costs: