The MCF Group Pty Ltd v G.J.B. Legal Pty Ltd trading as Byles Anjos Lawyers

1. [1]

   HER HONOUR: This is an application to set aside a statutory demand by reason of an offsetting claim said to render the substantiated amount of the debt to nil. The application is brought by the plaintiff (MCF) against a firm of solicitors (the Firm) who acted for MCF in proceedings in New South Wales and Queensland. The undisputed debt is a judgment debt of $19,186.84 for the Firm’s unpaid fees. The offsetting claim is said to be damages sought in professional negligence proceedings recently commenced against the Firm.

2. [2]

   I have had the benefit of detailed and careful submissions by counsel for MCF, Mr Holmes, and for the Firm, Mr Davis. The parties were largely agreed as to the relevant principles. Section 459H of the Corporations Act 2001 (Cth) defines “offsetting claim” as:

3. [3]

   The authoritative statement as to how the Court should consider offsetting claims is that of the Court of Appeal in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344, at [30]-[31]:

4. [4]

   The Court of Appeal added, in the context of the standard of evidence required in such an application, at [36]-[37]:

5. [5]

   The Court, at [48], also approved the following statement of Thomas J in Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601, on which both parties relied:

6. [6]

   The standard of proof was put in similar terms by the Victorian Court of Appeal in TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; [2008] VSCA 70, by Dodds-Streeton JA (with whom Neave and Kellam JJA agreed), at [71]:

7. [7]

   The plaintiff on such an application bears the onus, albeit a relatively light one, in relation both to the genuineness of the offsetting claim and to its quantum: In the matter of XSRE Pty Ltd [2011] NSWSC 1147 at [34]; Earthwave Corporation Pty Ltd v Starcom Group Pty Ltd [2011] NSWSC 694; Royal Premier Pty Ltd v Taleski [2001] WASCA 48 at [57]; Beauty Health Group Ltd v Sholl [2011] NSWSC 77 at [23]; Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd (2005) 23 ACLC 1266; [2005] NSWSC 638. It is not for the Court to engage in an assessment of a deponent’s credit on such an application (Britten-Norman at [46]). Nonetheless, McLelland CJ in Eq’s explanation of “genuine dispute” in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; (1994) 12 ACLC 669 (approved in Britten-Norman at [46]) remains apposite. At 787 (citations omitted):

8. [8]

   Whilst the parties were agreed as to the evidentiary requirements which plaintiffs must satisfy in establishing an offsetting claim, the question is whether the requirements were met in this case. Two further issues arose which I will address in due course:

9. [9]

   The following facts have been gleaned from some 260 pages annexed to MCF’s affidavit filed in support of the application. The documents were not arranged in any particular order. Many documents only had every second page. Several documents were illegible. Copies of affidavits were included without annexures. From these documents, it appears that the undisputed debt and the alleged offsetting claim arose out of a fierce dispute between Michael Coleman and his cousin David Coleman, from Ireland.

10. [10]

    Michael Coleman was the sole director and shareholder of MCF, which is part of the Coleman Group of companies. He remains the sole shareholder of MCF. Another company in the group was Coleman’s Group (Aust) Pty Ltd, of which Michael Coleman was also the sole director.

11. [11]

    In 2012, Michael Coleman entered into a business arrangement with David Coleman. The arrangement was differently described by each of them. No court has determined whose description of the arrangement is correct, and it seems unlikely that a court will ever determine this.

12. [12]

    According to David Coleman, in 2012 there was a recession in Ireland. David Coleman was a director of Coleman’s Quarry Ltd, which owned excavating equipment that was sitting idle. In April 2012, David Coleman obtained a temporary work visa to work in Australia for Coleman’s Group (Aust) Pty Ltd. As mentioned, Michael Coleman was a director of that company and sponsored David Coleman’s visa. In about August 2013, the excavating equipment was shipped to Australia for David Coleman to use in undertaking civil works with Coleman’s Group (Aust) Pty Ltd. Apparently, in order to ship the equipment to Australia, the shipping company needed a commercial invoice selling the machines to an Australian company. Invoices were issued by Coleman’s Quarry Ltd for the excavators but not paid as the invoices were for the purpose of importing the equipment to Australia only. David Coleman became the sole director and shareholder of an Australian corporation, Fleetcon Pty Ltd.

13. [13]

    Michael Coleman’s description of the business arrangement, as summarised by the Queensland Court of Appeal in The MCF Group Pty Ltd v Coleman & Ors [2015] QCA 268, was, at [5]-[6]:

14. [14]

    Either way, in August 2014, MCF began to issue invoices of $49,500 a month to Fleetcon for hire of the excavators. Whether these invoices were payable depended largely on whether Michael Coleman or David Coleman had correctly described the business arrangements and thus whether MCF owned the excavators and was entitled to charge for their use. David Coleman obviously didn’t think MCF was so entitled. Fleetcon ceased trading. David Coleman returned to Ireland. MCF continued to issue invoices, but to David Coleman and Coleman Quarry Ltd. In March 2015, Michael Coleman sent an email to David Coleman demanding payment of $297,000 for hire of the excavators and that David Coleman instruct Euro Auctions (UK) Ltd to release the excavators, saying “I will pursue you for every cent you owe me.”

MCF commences proceedings in Parramatta and Brisbane

1. [15]

   On 24 March 2015, MCF commenced proceedings in the District Court of New South Wales at Parramatta (Parramatta proceedings) against Fleetcon seeking payment of $297,000 with interest and costs. Michael Coleman did not initially retain solicitors to act in the Parramatta proceedings. MCF served the statement of claim on Fleetcon at an address later given by Michael Coleman in an affidavit of debt sworn in support of an application for default judgment in the proceedings as being his address.

2. [16]

   On 7 April 2015, MCF also commenced proceedings in the District Court of Queensland at Brisbane (earlier referred to as the Brisbane proceedings) against David Coleman, Coleman’s Quarry Ltd, Fleetcon and Euro Auctions (UK) Ltd. MCF was represented by Pattison Law. MCF sought damages of $518,880 from Fleetcon for conversion of the excavators and alleged breach of the agreement under which Fleetcon had hired the excavators. On 9 April 2015, MCF filed an ex parte application for an interlocutory injunction restraining the defendants from dealing with or disposing of the excavators until further order of the Court. An interlocutory injunction was granted by Judge Rackermann, extended until 28 April 2015 by Judge Bowskill, and further extended to 14 May 2015 by Judge Dorney. On 22 April 2015, MCF also filed an interlocutory application seeking possession of two excavators until final hearing of the matter.

3. [17]

   On 14 May 2015, Judge Samios declined to further extend the interlocutory injunction, dismissed MCF’s application for possession of the excavators until trial and ordered MCF to pay the defendants’ costs: The MCF Group Pty Ltd v Coleman & Ors [2015] QDC 130. Judge Samios expressed doubt about the claim by MCF to have paid for the excavators but accepted that there was a serious question to be tried. However, Judge Samios considered that the balance of convenience favoured the defendants as his Honour was not satisfied that the usual undertaking as to damages was supported by assets.

4. [18]

   Also on 14 May 2015, MCF obtained default judgment against Fleetcon in the Parramatta proceedings in the amount of $298,918.01. As already noted, Michael Coleman’s address in the affidavit of debt in support of the application for default judgment was the same address as that at which Fleetcon had been served with the statement of claim. It would appear that MCF did not inform Fleetcon, at the hearing that day in the Brisbane proceedings, of its application for default judgment.

5. [19]

   On 15 May 2015, Fleetcon filed a defence in the Brisbane proceedings.

Monies obtained by MCF under garnishee order

1. [20]

   On 26 May 2015, the Local Court at Parramatta formally issued the default judgment and MCF served the order and a garnishee notice on Coleman’s Group (Aust) Pty Ltd. As later explained by Michael Coleman, Fleetcon undertook work for Coleman’s Group (Aust) Pty Ltd pursuant to an agreement between MCF and Fleetcon. Coleman’s Group (Aust) Pty Ltd thereby became indebted to Fleetcon. The garnishee order was issued by MCF to Coleman’s Group (Aust) Pty Ltd in respect of this indebtedness. On 26 May 2015, Fleetcon’s solicitors wrote to Coleman’s Group (Aust) Pty Ltd demanding that it not pay the monies to MCF under the garnishee notice. The demand was in vain.

2. [21]

   On 11 June 2015, MCF filed an application for leave to appeal against the decision of Judge Samios. On 19 June 2015, MCF received $92,090.60 from Coleman’s Group (Aust) Pty Ltd pursuant to the garnishee order.

3. [22]

   In August 2015, Fleetcon applied to set aside the default judgment in the Parramatta proceedings. David Coleman swore an affidavit in support of the application, saying that the excavating equipment was never owned by MCF but was owned by Coleman’s Quarry Ltd. David Coleman said that the statement of claim had never been served on Fleetcon. On 12 October 2015, consent orders were made setting aside the default judgment in the Parramatta proceedings. As was submitted in these proceedings, where a party has paid monies in satisfaction of a judgment or court order, that party is entitled to repayment of the money with interest once the judgment is reversed, either as monies had or received or in restitution: Windsor v Sydney Medical Service Co-operative Limited (No 3) [2010] FCA 364 at [66]-[67]; Lee v Mallam (1910) 10 SR (NSW) 876; Proprietors of Strata Plan 5399 v Feehan (1996) 8 BPR 16,211. As such, MCF thereby became liable to repay the $92,090.60 received from Coleman’s Group (Aust) Pty Ltd pursuant to the garnishee order together with interest. MCF did not repay the monies.

Application for leave to appeal refused

1. [23]

   On 16 November 2015, MCF’s application for leave to appeal was heard by the Court of Appeal of the Supreme Court of Queensland. MCF was represented by Dare Lawyers. At the hearing, MCF accepted that the respondents no longer owned the excavators and there was no point pursuing the application for leave to appeal except in respect of costs.

2. [24]

   On 4 December 2015, MCF discontinued the Parramatta proceedings. MCF agreed to pay Fleetcon’s costs, but apparently did not do so.

3. [25]

   On 8 December 2015, MCF’s application for leave to appeal was dismissed by the Court: The MCF Pty Ltd v Coleman & Ors [2015] QCA 268. Boddice J, with whom Fraser and Morrison JJA agreed, held the MCF’s contention was without merit; the relief sought before the primary judge was misconceived; and, the primary judge’s assessment of the value of the undertaking as to damages was entirely supported by the evidence. MCF was ordered to pay the respondents’ costs, but apparently did not do so.

4. [26]

   Michael Coleman says that he did not then further prosecute the Brisbane proceedings as he did not think it was commercially viable to do so. He did not believe that he would be able to recover any monies from Fleetcon as David Coleman had returned to Ireland, Fleetcon had ceased trading and, to his knowledge, Fleetcon had no assets in Australia. Michael Coleman considered that MCF was unlikely to recover any judgment against Fleetcon. In April 2016, MCF’s solicitors ceased to act in the Brisbane proceedings. In August 2016, Fleetcon was deregistered.

Sydney proceedings

1. [27]

   On 8 September 2016, Fleetcon commenced proceedings against MCF in the Local Court of New South Wales in Sydney claiming the $92,090.60 paid by Coleman’s Group (Aust) Pty Ltd under the garnishee notice (Sydney proceedings). Fleetcon was re-registered soon after commencing the Sydney proceedings.

2. [28]

   On 26 September 2016, the Firm was instructed to act for MCF in the Sydney proceedings and counsel was briefed. MCF filed a defence and cross-claim pleading, in short, that MCF had validly obtained the monies under the garnishee notice at the time and, at all relevant times, MCF had a valid claim against Fleetcon for $297,000 against which it was entitled to set-off the amount thereby obtained.

3. [29]

   On 14 February 2017, MCF filed a motion in the Sydney proceedings seeking to dismiss the statement of claim. Michael Coleman swore an affidavit in support of the motion, deposing that the issues raised in the Sydney proceedings were the same as those raised in the Brisbane proceedings, which “should be finally determined this year”. I think it is accepted that there was no basis to make that remark, as the Brisbane proceedings had been dormant for some time. Michael Coleman said the proper forum to determine the issues in the Sydney proceedings was Brisbane. On 14 March 2017, Michael Coleman swore a further affidavit, deposing that the Brisbane proceedings “are still in progress” and that he had appointed the Firm as its solicitor in those proceedings. On 15 March 2017, MCF instructed the Firm to act in the Brisbane proceedings.

4. [30]

   On 20 March 2017, Fleetcon’s solicitor swore an affidavit opposing the dismissal of the Sydney proceedings. Fleetcon’s solicitor noted that Coleman Group (Aust) Pty Ltd, which had paid $92,090.60 to MCF in discharge of a debt owed to Fleetcon, was a company of which Michael Coleman was the sole director. Fleetcon’s solicitor noted that the Brisbane proceedings were against three defendants other than Fleetcon and concerned matters beyond those raised in the Sydney proceedings. Fleetcon’s solicitor noted that Fleetcon had the benefit of three costs orders in its favour in the Queensland proceedings and the Parramatta proceedings, none of which had been paid.

5. [31]

   On 30 March 2017, the Firm wrote to Fleetcon’s solicitors advising that MCF would consent to a judgment in favour of Fleetcon in the Sydney proceedings but, as MCF sought to set-off that amount against monies that it alleged were owing by Fleetcon as claimed in the Brisbane proceedings, proposed that the judgment be stayed pending final determination of the Brisbane proceedings. On 1 April 2017, Fleetcon responded by filing a motion seeking summary judgment in the Sydney proceedings. On 13 April 2017, the Firm wrote again, this time seeking Fleetcon’s consent to transfer the Sydney proceedings and the Brisbane proceedings together to the District Court of New South Wales for expeditious determination.

6. [32]

   On 10 May 2017, a member of the Firm swore an affidavit filed in the Sydney proceedings setting out the result of enquiries made of the Brisbane Court Registry, which was that it would be necessary to file an application to re-list the Brisbane proceedings before seeking to transfer it or to obtain a hearing date. The deponent concluded that the Brisbane proceedings “will be finally determined this year.”

7. [33]

   On 11 May 2017, the Sydney proceedings were listed before Magistrate Curran, I assume, on return of either MCF or Fleetcon’s motions. Fleetcon’s solicitor informed MCF’s counsel that Fleetcon did not agree to transfer the Brisbane proceedings to New South Wales. Consent orders were made as follows:

8. [34]

   Fleetcon’s costs in the Sydney proceedings have been assessed at $13,740. MCF has yet to pay the costs or the judgment sum.

Transfer or progress the Brisbane proceedings?

1. [35]

   On 19 May 2017, MCF retained counsel in Queensland in the Brisbane proceedings to advise about transferring the Brisbane proceedings to New South Wales. Counsel advised that such an application was unlikely to succeed if opposed by Fleetcon because MCF had commenced the proceedings in Queensland; the defendants had retained solicitor and counsel in Queensland to represent them and, if the proceedings were transferred to New South Wales, it would be usual to retain solicitors in New South Wales and this could result in significant duplication of costs; further, there would be delay and expense in making such an application as there were three defendants. The Firm then sought advice from Queensland counsel as to how to progress the Brisbane proceedings and was informed that it was necessary, in the first instance, to obtain a set of the documents which had been filed with the Court for counsel, essentially so that counsel had a proper brief, and then to notify the parties that it was proposed to relist the matter together with proposed orders. The Firm proceeded to obtain the file in respect of the Brisbane proceedings.

2. [36]

   On 1 June 2017, the hearing of MCF’s application to stay the enforcement of the consent judgment in the Sydney proceedings was adjourned to 20 July 2017. On 13 July 2017, the Firm wrote to Fleetcon’s solicitor proposing consent orders to progress the Brisbane proceedings by participating in a mediation and, failing resolution at the mediation, for a directions hearing to be held in September 2017.

3. [37]

   On 18 July 2017, a member of the Firm swore an affidavit in the Sydney proceedings setting out the steps taken to re-activate the Brisbane proceedings. On 20 July 2017, Magistrate Price stayed enforcement of judgment in the Sydney proceedings until 14 September 2017. Magistrate Price informed the parties that no further extension of the stay would be granted unless appropriate progress had been made in the Brisbane proceedings in the meantime.

4. [38]

   On 27 July 2017, Fleetcon’s solicitor advised that the first, second and third defendants in the Brisbane proceedings did not agree to mediate. On 8 September 2017, the Firm wrote to Fleetcon’s solicitors in the Brisbane proceedings seeking consent to filing an amended statement of claim.

5. [39]

   On 12 September 2017, MCF filed a motion in the Sydney proceedings seeking to extend the stay of the judgment pending determination of the Brisbane proceedings. In support of the application, a member of the Firm explained that they had been awaiting a response to their request for consent to the filing of an amended statement of claim before approaching the District Court in Brisbane to list the matter for directions. The solicitor deposed that the Brisbane proceedings “would be finally determined this year or early next year.” The motion was set down for hearing on 5 October 2017. On 13 September 2017, MCF filed a motion in the Sydney proceedings seeking an interim stay pending the determination of the motion filed on 12 September 2017. Registrar Evans made an order staying enforcement of the consent judgment until 5 October 2017. On 18 September 2017, Michael Coleman swore an affidavit in support of the stay application in the Sydney proceedings. He explained the reason why he had not prosecuted the Brisbane proceedings until recently, that he had not considered it commercially viable.

6. [40]

   On 4 October 2017, Fleetcon’s counsel served submissions opposing a further stay in the Sydney proceedings. Amongst other matters, Fleetcon pointed to the fact that the Brisbane proceedings had not progressed in any meaningful way in the 2½ years since commencement. Nor had the Brisbane proceedings progressed since the stay was first granted by the Local Court on 20 July 2017. Further, there was no financial disadvantage to be occasioned to MCF if the stay was not granted as Fleetcon accepted that MCF was entitled to plead a set off in the Brisbane proceedings in respect of the garnisheed monies.

7. [41]

   On 5 October 2017, the Local Court dismissed MCF’s application to stay enforcement of the consent judgment in the Sydney proceedings. The same day, MCF terminated the Firm’s retainer in the Brisbane proceedings. The Brisbane proceedings remain on foot “but in abeyance”. MCF has not retained other solicitors in the Brisbane proceedings.

Liverpool proceedings

1. [42]

   On 20 December 2017, the Firm filed a statement of claim against MCF in the Local Court of New South Wales at Liverpool seeking unpaid fees for legal services provided in the Sydney proceedings and Brisbane proceedings. On 25 January 2018, the Firm obtained default judgment in the amount of $19,186.84.

2. [43]

   On 31 January 2018, for reasons unknown to me, Michael Coleman was replaced as sole director and secretary of MCF by Scott Selby. Michael Coleman remains the sole shareholder of MCF.

These proceedings

1. [44]

   In June 2018, the Firm issued a statutory demand which the parties agree was served on 4 July 2018. On 23 July 2018, MCF filed an originating process seeking to set aside the statutory demand.

2. [45]

   On 25 July 2018, MCF filed a motion in the Liverpool proceedings to set aside the default judgment. On 2 August 2018, the motion was dismissed with costs. On 13 September 2018, MCF filed a second motion to set aside the default judgment. On 5 October 2018, the second motion was dismissed with costs.

3. [46]

   On 19 December 2018, MCF filed a statement of claim against the Firm claiming damages for professional negligence in respect of the Firm’s retainer in the Sydney proceedings and the Brisbane proceedings (professional negligence proceedings), the details of which will be considered shortly.

4. [47]

   Section 459G(2) provides that an application to set aside a statutory demand may only be made within 21 days after the demand is served, and section 459G(3)(a) provides:

5. [48]

   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, but cannot rely on any ground for setting aside that demand which was not raised in the affidavit filed within that 21 day limit: Austin and Black, Australian Corporations Legislation at 589-90 (2019 edition, LexisNexis Butterworths) citing Process Machinery Aust v ACN 057 260 590 [2002] NSWSC 45 at [21]-[22]; Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) (2004) 185 FLR 130; Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 at [7]; Re Attard (2013) 96 ACSR 581. This is referred to as the “Graywinter principle”, from Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452.

6. [49]

   As Ward J explained in Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd (2011) 87 ACSR 1; NSWSC 1343 at [36] (citations omitted):

7. [50]

   More recently, in Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330, Barrett AJA, with whom McColl and Meagher JJA agreed, confirmed at [10]:

8. [51]

   In the last mentioned case, Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq), the authorities in respect of the extent to which an applicant can rely upon supplementary affidavits filed after 21 day period are perhaps best collated, at [52]-[65], and are well illustrated by the facts of that case. The Court noted the following learned observations:

9. [52]

   The facts in Malec Holdings are illustrative. Malec operated a transport company and had a fleet of trucks. Scotts supplied Malec with fuel. Scotts served a statutory demand in the amount of $603,367.94 for fuel sold and delivered. Malec filed three affidavits in support of an application to set aside the statutory demand on the basis of a genuine dispute or an offsetting claim, only the first of which was within the 21 day period.

10. [53]

    The first affidavit raised the issue of overcharging on the ground that Scotts charged for fuel which it could not have delivered on specific days where the total fuel allegedly delivered exceeded the safe fuel capacity of the tankard. The ground was sufficient to raise an offsetting claim for charges related to those deliveries.

11. [54]

    The third affidavit sought to raise an issue of overcharging, not on the basis of fuel that was delivered to Malec on any particular days, but on the basis of fuel that was used by Malec between 1 January 2012 and 3 June 2014. The third affidavit alleged that the fuel which Malec had used was vastly less than the quantity for which it had been charged. The Court agreed that the applicant was not entitled to rely on the allegation contained in the third affidavit as it constituted a different ground for the purposes of the Graywinter principle, being of a different character or type from the offsetting claim in the first affidavit. At [105]:

12. [55]

    Further, there was nothing in the first affidavit that was capable of conveying to Scotts that Malec would seek to raise an offsetting claim based on fuel decanted from the tankard by Malec’s drivers as distinct from the impossibility of Scotts’ drivers having filled the tankard by more than its safe fuel capacity on any particular day. Malec has been followed numerous times at first instance and in Courts of Appeal in Goconnect Ltd v Sino Strategic International Ltd (in liq) [2016] VSCA 315 at [40],Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212; [2017] NSWCA 300 at [17] and, as noted above, in Ligon 158 Pty Ltd.

First affidavit in support of the application

1. [56]

   In this case, the application to set aside the statutory demand was supported by an affidavit sworn by the new director of MCF, Mr Selby, who deposed on 23 July 2018:

2. [57]

   There is no suggestion, in the material annexed to Mr Selby’s affidavit, of any “misconduct” by the Firm and the basis for the belief which Mr Selby says he held is not set out in his affidavit. Nor was it correct to say that, at the time consent orders were made in the Sydney proceedings, that the Brisbane proceedings “were ongoing”. The Brisbane proceedings were dormant and had to be re-activated.

3. [58]

   The ground upon which the offsetting claim was being asserted was that, by reason of the Firm’s negligence, Fleetcon obtained judgment in the Sydney proceedings. In short, the Firm failed to ‘stave off’ entry of judgment, or enforcement of judgment, by staying or transferring the Sydney proceedings to Brisbane. MCF thereby suffered a potential loss, being an inability to pursue the Brisbane proceedings. If the loss was realised, MCF would lose the benefit of the legal fees expended thus far in the Brisbane proceedings together with the damages it may otherwise be awarded on its causes of action pleaded in those proceedings.

4. [59]

   There are two problems with such an offsetting claim. First, MCF was already obliged to pay Fleetcon the garnisheed monies and interest by reason of the consent judgment entered in the Parramatta proceedings on 12 October 2015. Second, the Brisbane proceedings remain on foot, although apparently inactive. There is nothing to stop MCF re-activating those proceedings to recover the damages sought from the defendants and, if successful, its costs of the proceedings less the costs orders which have already been made in the defendants’ favour. Mr Selby does not say why MCF cannot do this, nor do the documents annexed to his affidavit shed any light on any reason why MCF cannot do this.

Further affidavits in support of application

1. [60]

   On 25 October 2018, Michael Coleman swore an affidavit annexing a statement of claim which he had instructed MCF’s solicitors to file in the District Court against the Firm. The statement of claim was not signed, verified or certified. Beyond annexing the statement of claim, Mr Coleman said nothing about its contents.

2. [61]

   On 27 February 2019, MCF’s new solicitor, Mr Spedding, swore an affidavit annexing the statement of claim as filed, together with a request for further and better particulars, and the particulars provided. Mr Spedding certified the pleading as he was required to do under the Legal Profession Uniform Law Application Act 2014 (NSW). The statement of claim was verified by Mr Selby, who deposed that he believed that the allegations of fact in the statement of claim were true. As Mr Selby became a director of MCF on 31 January 2018, he did not have personal knowledge of the matters referred to in the pleading, nor did he refer to the source of his belief but simply that he held one.

3. [62]

   The cross-referencing within the statement of claim contains some errors which were remedied by a request for further and better particulars, and the answer to that request. MCF says that on 28 March 2017, the Firm advised MCF in relation to the Sydney proceedings:

4. [63]

   MCF says it accepted the Firm’s advice in consenting to a judgment being entered in the Sydney proceedings and filing an application to stay the consent judgment. MCF says that the Firm’s advice was wrong and not in MCF’s interest because, it is said, a consent judgment would crystallise a judgment debt to Fleetcon in respect of the garnisheed monies and, once entered, a stay of the judgment would depend upon the uncertainty of the Court exercising its discretion in MCF’s favour. Further, it is said that it might have prejudiced MCF’s ability to maintain its claim against Fleetcon in the Brisbane proceedings because of the judgment’s potential to create a res judicata, issue estoppel or Anshun estoppel. The basis of the latter contention is unclear to me.

5. [64]

   It is said that the Firm should have advised MCF instead.

6. [65]

   MCF says that on 13 April 2017, MCF instructed the Firm to apply for a transfer of the Brisbane proceedings to the District Court of New South Wales in order to expedite their progress. These instructions were conveyed in a telephone conversation between Michael Coleman and Mr Byles, who was instructed to do whatever was necessary to transfer the Brisbane proceedings to the New South Wales District Court. MCF alleges that the Firm breached its duties under its retainer to act for MCF in the Brisbane proceedings when it:

7. [66]

   It is said that the Firm’s breach of duty under its retainer in respect of the Brisbane proceedings caused the consent judgment to be entered in the Sydney proceedings on 11 May 2017. This contradicts MCF’s allegations that the Firm breached its retainer in respect of the Sydney proceedings by giving wrong advice on which MCF says it relied in agreeing to the consent judgment.

8. [67]

   Further, it is said in the alternative that the Firm’s breach of its duties in respect of the Brisbane proceedings caused the Local Court in the Sydney proceedings to dismiss the stay application on 5 October 2017 “by reason of the lack of progress in the Brisbane proceedings caused by the breach of the Firm’s duty.” The stay of execution of the consent judgment in the Sydney proceedings thereby lapsed “with the result that MCF incurred a judgment debt to Fleetcon in the amount of $102,347.95 (including interest) and that judgment debt crystallised.”

9. [68]

   MCF claims that by reason of the Firm’s breach of duty, MCF has suffered loss and damage particularised as follows:

10. [69]

    The particulars of loss and damage do not include any loss referable to an inability to prosecute the Brisbane proceedings, unlike Mr Selby’s affidavit in support of the application. The invoices issued by the Firm on 3 April 2017, 8 April 2017 and 24 August 2017 are not in evidence, nor do the particulars in the statement of claim indicate what those invoices relate to. Nor are the invoices which formed the basis of the statutory demand, although I know from the statement of claim filed by the Firm in the Liverpool proceedings that the invoices were rendered in respect of legal work done by the Firm in respect of the Sydney proceedings and Brisbane proceedings.

11. [70]

    Before considering whether the supplementary affidavits concern the same ground notified in Mr Selby’s affidavit, it is necessary to consider was the supplementary affidavits establish on this application.

12. [71]

    The Firm submitted that the statement of claim relied upon by MCF should not be received as evidence of the facts said to underlie the alleged offsetting claim, relying on Bhagat v Global Custodians Limited [2002] FCA 223 and ICM Agriculture Pty Ltd v Young [2009] FCA 109. MCF submitted that the verified statement of claim could be admitted as evidence, citing Crowe-Maxwell v Frost (2016) 91 NSWLR 414; [2016] NSWSC 46. It is necessary to examine these authorities.

13. [72]

    In Bhagat v Global Custodians Limited, Mr Bhagat applied to set aside a bankruptcy notice founded upon a judgment debt obtained by Global Custodians Ltd before Young J in this Court. It was necessary for Mr Bhagat to satisfy the Court that he had a reasonable ground for bringing his action to set aside the judgment against him. Mr Bhagat contended that the judgment was obtained by the fraud of Global Custodians and tendered the statement of claim in this Court seeking such relief, together with the summons for leave to appeal to the Court of Appeal from the judgment of Young J. The Full Court of the Federal Court of Australia (per O’Loughlin, Whitlam and Marshall JJ) observed (at [53]):

14. [73]

    In ICM Agriculture Pty Ltd v Young, ICM obtained judgment against Mr Young in the District Court of New South Wales and issued a bankruptcy notice based upon it. Mr Young applied to set aside the bankruptcy notice by reason of a counter-claim for unliquidated damages sought in separate proceedings commenced by Mr Young in the District Court. The only evidence supporting the quantum of the counter-claim was an affidavit verifying the statement of claim in which the deponent stated that he believed that the allegations of fact in the statement of claim were true. The affidavit verifying the claim was not read although the statement of claim and accompanying affidavit were tendered and admitted. For that reason alone, Lindgren J considered that there was no evidence of quantum before the Court. Lindgren J noted at [76]:

15. [74]

    His Honour continued at [78]-[79]:

16. [75]

    In Crowe-Maxwell v Frost, a liquidator sought to recover unreasonable director-related transactions from directors, Mr and Mrs Frost, under section 588FE of the Corporations Act 2001 (Cth). Mr Frost appeared at the trial in person. The trial judge read into evidence the verified defence filed by Mr Frost. The liquidator submitted that the defence was not evidence, citing Bhagat and ICM. President Beazley, with whom Macfarlan and Gleeson JJA agreed, noted that Bhagat was concerned with the use to which pleadings in one proceeding may be put in another, and in particular, with the interaction between the proceedings in question and a second set of proceedings or the claim underlying those proceedings, whilst ICM Agriculture concerned using verified averments in a pleading filed in the same proceedings: at [29]-[30]. I am unsure as to the distinction drawn, as the facts in ICM Agriculture appear to be relevantly the same as Bhagat in that respect.

17. [76]

    The President noted that, in the latter situation, ICM Agriculture was authority that, in a given case, depending upon the terms of the pleading, verified pleadings may constitute evidence of a person’s belief in the matters asserted, although in ICM Agriculture the averments in the pleadings were conclusory only unlike the verified defence in Crowe-Maxwell v Frost which contained a detailed explanation that would have been admissible if given by way of formal affidavit or oral evidence: at [30], [34]. At [30].

18. [77]

    Here, MCF seeks to rely in these proceedings on a statement of claim filed in another proceeding. Applying Crowe-Maxwell v Frost strictly, therefore, there is no reason to depart from Bhagat. But, following the approach suggested by Beazley P, I am entitled to examine more closely the statement of claim in the professional negligence proceedings. The statement of claim was verified by Mr Selby. The affidavit verifying the statement of claim was not read in these proceedings, but even if it had been, Mr Selby was not a director of MCF at the time of the events in question and thus had no first-hand knowledge of the facts pleaded. His affidavit verifying the claim stated only that he believed that the allegations of fact were true but did not identify the source of his belief. If Mr Selby had sworn an affidavit in these proceeding replicating the contents of the statement of claim in the professional negligence proceedings, it would have been inadmissible unless he had done so.

19. [78]

    Whilst I can understand why the trial judge in Crowe-Maxwell v Frost may have treated a detailed, verified pleading as, effectively, an affidavit sworn by Mr Frost, who was appearing in person, the situation here is quite different. Mr Selby doesn’t know about the facts pleaded but believes the allegations to be true. Michael Coleman, who does know about the facts pleaded, did not depose to the truth of the facts stated or otherwise depose to the facts at all. Accordingly, I do not consider that the statement of claim in the professional negligence proceedings is evidence of the underlying facts asserted in those proceedings.

20. [79]

    If the statement of claim annexed to the second and third affidavits is not taken as evidence of the underlying facts, then the affidavits are only evidence that MCF has commenced the professional negligence proceedings. This amounts to a mere assertion that an offsetting claim exists but does not supplement the affidavit filed in support of the application. It is not necessary, therefore, to consider whether the supplementary affidavits go to the same ground identified in Mr Selby’s affidavit or embark upon new territory. It also follows that MCF is effectively relying on Mr Selby’s affidavit and its compendious annexure in support of the application, together with the fact that professional negligence proceedings have been commenced, to support its offsetting claim. For the reasons already given, those facts alone are insufficient for MCF to succeed.

21. [80]

    I am not satisfied to the requisite standard that MCF has an offsetting claim within the meaning of section 459H of the Corporations Act. The offsetting claim asserted in Mr Selby’s affidavit filed in support of MCF’s application is utterly hopeless for the two reasons already stated. There is no issue deserving of a hearing. The offsetting claim is not arguable on the basis of facts that were asserted. There is no plausible contention requiring investigation. There is no genuine offsetting claim in the required sense, but rather mere bluster and assertion. The supplementary affidavits filed by MCF do not change this position, but simply annex a statement of claim in separate proceedings.

22. [81]

    For these reasons, I make the following orders:

    1. (1)

       Application dismissed.

    2. (2)

       Plaintiff to pay the defendants’ costs.