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[2024] NSWSC 753
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In the matter of Platypus Impact Housing Australia Limited [2024] NSWSC 753 (20 June 2024)
Last Updated: 6 August 2024
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Supreme Court
New South Wales
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Case Name:
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In the matter of Platypus Impact Housing Australia Limited
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Medium Neutral Citation:
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Hearing Date(s):
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22 April 2024
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Date of Orders:
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20 June 2024
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Decision Date:
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20 June 2024
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Jurisdiction:
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Equity - Corporations List
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Before:
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McGrath J
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Decision:
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Statutory demand set aside subject to plaintiff commencing proceedings in
pursuit of offsetting claim within 28 days (see [181])
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Catchwords:
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CORPORATIONS — winding up — creditor’s statutory demand
— application to set aside statutory demand —
Corporations Act 2001
(Cth) ss 459H and 459M — admissibility of document — where
Graywinter principle does not prevent plaintiff from supplementing evidence
—
where plaintiff can elect between equitable compensation and an account
of profits and need not do so until point of judgment —
whether there is a
genuine offsetting claim arising from breach of director’s statutory
and/or fiduciary duties — where
the offsetting claim is seriously arguable
and bona fide and delay in bringing it is explicable — where the poor
financial
position of the plaintiff does not undermine the genuineness of the
claim — where appropriate for court to impose condition
pursuant to s 459M
— HELD — genuine offsetting claim — statutory demand set aside
subject to condition
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Legislation Cited:
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Cases Cited:
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Category:
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Principal judgment
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Parties:
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Platypus Impact Housing Australia Limited (ACN 654 195 445)
(Plaintiff) Jack Elsegood (Defendant)
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Representation:
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Counsel: E Ball (Plaintiff) F Assaf SC and B Hord
(Defendant)
Solicitors: McLachlan Thorpe (Plaintiff) Legacy Legal
(Defendant)
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File Number(s):
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2023/00336359
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Publication Restriction:
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Nil
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JUDGMENT
INTRODUCTION
- By
this application under section 459G of the Corporations Act
2001 (Cth) the plaintiff, Platypus Impact Housing Australia Ltd
(PIHA), seeks to set aside the statutory demand dated 28 September
2023, which was issued by the defendant, Jack Elsegood, to PIHA on 4 October
2023 pursuant to s 459E of the Corporations Act demanding payment of the
amount of $200,000.
- PIHA
is a registered charitable organisation that aims to develop affordable housing.
PIHA is not a registered Community Housing Provider
(CHP) but works
alongside CHPs in relation to particular developments.
- From
4 October 2021, Colin Curran became the Chief Executive Officer of PIHA. Mr
Curran provided two affidavits in support of the
application.
- From
4 October 2021 until his resignation on 10 March 2023, Mr Elsegood was a
director of PIHA. Mr Elsegood was also a real estate
agent of Domain
Residential Northern Beaches Pty Ltd. Mr Elsegood did not read any of the
affidavits which were filed and served in support of his
opposition to the
application and did not tender any of the documents contained in the exhibits to
those affidavits. Instead, he
tendered a small number of documents in support of
his case.
- I
permitted PIHA to tender an excerpt of the affidavit of Mr Elsegood affirmed 11
November 2023 in support of the application.
- PIHA
admits the existence and the amount of the debt of $200,000 owing by PIHA to Mr
Elsegood for the repayment of a loan but says
that it has an offsetting claim
against Mr Elsegood within the meaning of s 459H(1)(b) and (5) of the
Corporations Act which provide the basis for the setting aside of the
statutory demand. Whether there is such an offsetting claim is the principal
issue that I am required to determine.
- Mr
E Ball appeared as counsel for PIHA, instructed by McLachlan Thorpe. Mr F Assaf
SC with Mr B Hord appeared as counsel for Mr Elsegood,
instructed by Legacy
Legal.
RELEVANT FACTS
Mr Curran’s credibility
- There
was a relatively short cross-examination of Mr Curran on limited issues
(T46–63).
- Mr
Curran was previously a bankrupt between 20 October 1997 and 24 July 2001 and
between 7 March 2011 and 6 April 2014. According
to the records maintained by
the Australian Securities and Investments Commission (ASIC), Mr Curran
was also a “person disqualified from managing corporations” under s
206B(3) of the Corporations Act between 7 July 2010 and 6 July 2013.
- Mr
Curran placed his curriculum vitae in evidence. In Mr Curran’s curriculum
vitae he described himself as “2009 –
2013 Retired”, which
covers the period in which he was bankrupt and a “person disqualified from
managing a corporation”
by ASIC . As the word “retired” is
commonly understood, Mr Curran was not “retired” in that period. Mr
Curran
was evasive at first in cross-examination on this topic
(T48.5–10):
Q. I repeat the question. Is there some other reasons, Mr
Cu[r]ran, that there’s a gap in your affidavit between 2009 to
2013?
A. Not that I recall.
Q. Are you sure about that?
A. Yes.
- When
confronted with the evidence of his bankruptcy and disqualification, Mr Curran
readily admitted to them (T48.12–49.46).
The topic of his
“retirement” was then raised again in the following exchange
(T50):
Q. --you see that statement, 2009-2013, that’s not
entirely correct is it?
A. Well, I was retired. I couldn’t do anything.
Q. You weren’t retired were you, Mr Cu[r]ran?
A. I couldn’t be a - a director. I didn’t do
anything. I was retired.
...
Q. But more importantly, Mr Cu[r]ran, you’ve represented
to this Court that between 2009 and 2013 you were retired. Didn’t
you?
A. Yes
Q. And what I’m saying to you is this, in fairness to
you, I’m saying that that statement is untrue.
A. Well, I think - I don’t agree.
...
Q. Because what you’re saying, Mr Curran, is you’re
asserting that the reason why there’s a gap in your CV is
because you were
retired. And what I’m suggesting to you is that statement is wrong.
A. I disagree.
- While
I consider that Mr Curran was not entirely candid in this exchange, I consider
that the entry on his CV as “retired”
was probably borne of his
embarrassment at being made a bankrupt and disqualified by ASIC. I think it is
entirely plausible that
Mr Curran felt that he was forcibly
“retired” in that period.
- But
I do not consider Mr Curran’s answers on that topic undermine his credit
generally on the subjects on which he came under
attack during cross-examination
during the hearing. Mr Curran rejected the proposition that he was prone to make
things up as and
when it suited him (T50.49–51.8). I conclude that Mr
Curran did his best to give his answers honestly. This is especially the
case
when none of his evidence about the relevant events was the subject of challenge
from any competing version from Mr Elsegood
or anyone else who might have been
called by Mr Elsegood.
CCD Developments and the Christensen Ridge
development land
- On
18 November 2020, CCD Developments Pty Ltd was registered. Since then,
the directors of CCD Developments have been Christopher Zenonos, Daniel Cuda and
Constantinos
Vorkas. The equal shareholders of CCD Developments are companies
associated with each of Messrs Zenonos, Cuda and Vorkas.
- There
are two adjoining parcels of land located in Nikenbah, Hervey Bay, Queensland,
the registered proprietor of which was Betty
Joan Christensen – one parcel
located at 238–272 Maryborough Hervey Bay Road, Nikenbah (Stage I
Christensen Ridge development land) and the second located at 44 Chapel
Road, Nikenbah (Stage II Christensen Ridge development land).
- I
will refer to the Stage l Christensen Ridge development land and the Stage II
Christensen Ridge development land collectively as
the Christensen Ridge
development land.
- When
Betty Joan Christensen died, control of dealing with the Christensen Ridge
development land passed to her personal representatives,
Joan Hiscock and Bevan
Christensen.
- At
some time prior to September 2021, CCD Developments entered into call option
deeds with Joan Hiscock and Bevan Christensen to purchase
both parcels of the
Christensen Ridge development land, subject to development approval (CCD Call
Options).
PIHA, Mr Elsegood’s role with PIHA,
PIHA’s board and development process
- On
4 October 2021, PIHA was registered as an unlisted Australian public company
limited by guarantee and Mr Curran became its Chief
Executive Officer for which
services he is paid. Also on that date, the initial directors of PIHA were
appointed, being Ian Hopkins
(who was and remains the Chair of PIHA), Hari
Krishna Sallakonda (a real estate agent from Legend Real Estate) and Mr
Elsegood. None
of the directors of PIHA receive remuneration. The proceedings at
the PIHA board meetings were confidential and none of the development
opportunities raised at those meetings were made available to the public.
- Mr
Elsegood’s role with PIHA was to source opportunities and to consider the
merit of these opportunities as well as those that
were introduced by others. Mr
Elsegood was asked to source funds and investments for PIHA as well as source
and pursue potential
joint venture partners to assess projects coming to
fruition. The directions Mr Curran gave Mr Elsegood were to assist with and run
feasibility studies on sites and projects, pursue joint venture partners and
investors, negotiate bulk purchases of apartments with
numerous developers, and
to cold call developers, agents and brokers to source deals.
- PIHA
has only undertaken housing developments in New South Wales and Queensland.
- The
development process generally followed by PIHA involves these steps:
(1) An introduction and tabling of a housing development opportunity to the PIHA
board, usually by Mr Curran.
(2) The consideration by the PIHA board whether to act on the development
opportunity, including whether it would be commercially
viable and suitable for
a CHP.
(3) PIHA and the vendor negotiate and exchange a contract for put and call
options in relation to the relevant parcel of land, followed
by a due diligence
period of about 60 to 90 days and then settlement within 12 months.
(4) PIHA and a CHP enter into a non-binding heads of agreement in advance of a
contract for put and call options between them.
(5) PIHA submits an application for development approval to the local council
for the proposed development.
(6) PIHA commences preparatory documentation to obtain an operational works
certificate which takes about six months and involves
liaising with an
architect, surveyor, a geo-technician and electrical and civil engineers.
(7) PIHA exercises the option to call with the vendor.
(8) PIHA exchanges the contract for a put and call option with the CHP.
(9) The CHP exercises the call option with PIHA once funding is secured.
(10) PIHA appoints an engineer to oversee works and serve as superintendent.
(11) The appointed engineer invites about three contractors to submit tenders to
perform the civil works, with the tender process
taking about three weeks.
(12) PIHA selects the contractor at the end of the tender process.
(13) The selected civil contractor performs the civil works, including
connecting roads, erecting lights, installing sewers, curbs,
gutters and
drainage, which takes about 18 months for 100 residential allotments.
(14) The relevant council certifies the development is complete according to the
development approval, after which the council lodges
the certificate of
registration with New South Wales Land Registry Services or Titles Queensland
(as the case may be) who issue the
registered title for each residential
allotment.
(15) The CHP settles, paying the contract price usually within 21 days after
registration.
PIHA, CCD Developments and the Christensen Ridge development land
- In
about September 2021, James Doyle (a real estate agent) telephoned Mr Curran and
told him about an opportunity to purchase 100
residential allotments from a
larger parcel of land of 230 residential allotments to be developed on the Stage
I Christensen Ridge
development land. Mr Doyle told Mr Curran that CCD
Developments had an option to purchase the land from the registered proprietors,
who were the personal representatives of Betty Joan Christensen, subject to
development approval.
- On
18 January 2022, Mr Doyle sent an email to Mr Curran to which he attached
photographs and a link to a video of the Stage l Christensen
Ridge development
land.
- On
22 March 2022, Mr Curran introduced the Stage l Christensen Ridge development
land opportunity at a PIHA board meeting at which
Messrs Hopkins, Sallakonda and
Elsegood were also present. Ms Toni David took the minutes of the meeting, which
state:
Harvey Bay - develop site w/l site after DA (James = agent)
300 – 400 subdivision
- At
about this time, Mr Curran called Mr Elsegood and told him there was a potential
deal in Nikenbah, Hervey Bay, which he subsequently
knew to be the Christensen
Ridge development land. Mr Elsegood was driving to Yeppoon at the time. At the
request of Mr Curran, Mr
Elsegood went to Nikenbah to inspect the site to
conduct some due diligence. Mr Elsegood concluded that the Christensen Ridge
development
land was attractive for an investment. Mr Elsegood attended to the
initial due diligence, including considering values, sales projections,
costs of
the development and a feasibility study.
- About
one month later, Mr Curran had a telephone call with Mr Doyle in which he said
that, subject to board approval, PIHA preferred
to purchase the whole Stage l
Christensen Ridge development land rather than just 100 hundred residential
allotments within it. Mr
Doyle subsequently told Mr Curran that he had contacted
CCD Developments to see if they were interested in selling the entire Stage
l
Christensen Ridge development land, for a price of $15.5 million including
GST.
- The
Stage II Christensen Ridge development land had the potential for 310
residential allotments. The development approval application
was, however, not
ready to be lodged for the Stage ll Christensen Ridge development land. The
price of the Stage ll Christensen Ridge
development land was about $20.77
million, subject to a price reduction if the development approval was for less
than 310 residential
allotments.
- On
1 April 2022, Mr Doyle sent an email to Mr Curran which attached a plan for the
Christensen Ridge development land.
- At
about this time, Mr Elsegood flew up to inspect the Christensen Ridge
development land.
$200,000 loan to PIHA
- In
August 2022, Mr Curran told the PIHA directors that the initial deposit under
the anticipated sale contract in respect of the Stage
l Christensen Ridge
development land would be $100,000 and the initial call option fee under the
anticipated contract for put and
call options for the Stage II Christensen Ridge
development land was a further $100,000.
- At
the same time, Mr Elsegood said to Mr Curran that he would loan PIHA the
$200,000 from his share of the sale of the Domain rent
roll, but ultimately that
transaction did not proceed.
- On
about 20 August 2022, Mr Curran asked Gregory Pace, a real estate salesperson
and personal acquaintance of Mr Curran, to advance
$200,000 as a loan to PIHA
for both the initial deposit and the initial call option fee, with interest of
3% per month. Mr Curran
told Mr Pace that Mr Elsegood would pay him $200,000
within about a month from the sale of his share in the Domain rent roll and
that
PIHA would then pay $200,000 to Mr Elsegood after the successful settlement of
the anticipated sale contracts for the Christensen
Ridge development. Mr Pace
agreed to that proposed course.
- On
about 22 August 2022, Mr Curran telephoned each of the PIHA directors in turn to
inform each of them that Mr Pace had agreed to
loan $200,000 to PIHA. In Mr
Curran’s telephone call with Mr Elsegood, Mr Elsegood confirmed that the
arrangement was acceptable
and would give him time to sell his share of the
Domain rent roll.
- On
22 August 2022, Mr Pace electronically transferred $200,000 into Mr
Curran’s bank account, who then transferred that amount
to PIHA in
increments across three transactions on 22 and 23 August 2022.
- On
29 August 2022, the PIHA board met by video with Messrs Curran, Hopkins,
Elsegood and Sallakonda present. The minutes of the meeting
were taken by Ms
David. During the course of the meeting it was noted that the initial deposits
of $100,000 for each stage of the
Christensen Ridge development had been paid by
PIHA, exchange was expected before 31 August 2022 and the PIHA board proposed to
appoint
Mr Pace as a consultant.
Christensen Ridge development
land contracts exchanged
- On
25 August 2022, CCD Nikenbah Pty Ltd was registered with Messrs Zenonos,
Cuda and Vorkas as the directors and companies associated with them as the equal
shareholders.
As a result, CCD Developments and CCD Nikenbah had the same
directors and the same shareholders.
- On
28 August 2022, CCD Developments and CCD Nikenbah entered into nomination
agreements pursuant to which CCD Developments nominated
CCD Nikenbah to exercise
the call options in the CCD Call Options.
- On
2 September 2022, CCD Nikenbah and PIHA exchanged a contract for the sale of the
Stage l Christensen Ridge development land for
the sale price of $15.5 million
including GST (Stage l Sale Contract), with the initial deposit of
$100,000 payable that day and the balance of the deposit of $400,000 payable
five days after the unconditional
development approval was obtained in respect
of that land.
- On
2 September 2022, CCD Nikenbah and PIHA exchanged a put and call option deed for
the Stage II Christensen Ridge development land
for the total sale price of
$20.5 million including GST (Stage ll Option Deed), with the initial call
option fee of $100,000 payable that day and the balance of the call option fee
payable of $400,000 when the
Stage l Sale Contract settled.
- Performance
of the Stage l Sale Contract and the Stage ll Option Deed depended on the CCD
Call Options and also the obtaining of an
unconditional development approval by
30 March 2023.
- On
2 September 2022, PIHA transferred $200,000 into the trust account of the
solicitors acting for CCD Nikenbah, $100,000 of which
was the initial deposit
under the Stage l Sale Contract and $100,000 of which was the initial call
option fee under the Stage II
Option Deed.
- On
3 September 2022, Mr Curran telephoned Mr Elsegood and informed him about the
exchanges of the Stage l Sale Contract and the Stage
II Option Deed and that
each contract could be terminated if an unconditional development approval was
not obtained by 30 March 2023.
- On
13 September 2022, Gadens sent an email to Mr Curran, which was copied to Messrs
Hopkins, Sallakonda and Elsegood, summarising
the terms of the Stage l Sale
Contract and the Stage II Option Deed and confirming that the $200,000 had been
transferred.
Mr Elsegood makes transfers to Mr Pace
- Between
about 26 September 2022 and 21 October 2022, Mr Elsegood made a total of six
bank transfers to Mr Pace in the sum of $200,000
in accordance with the
arrangements made on about 20 August 2022. These transfers gave rise to the
$200,000 debt owing from PIHA
to Mr Elsegood which is the subject of the
statutory demand.
PIHA takes steps concerning the Christensen
Ridge development land
- On
29 September 2022, a meeting of the PIHA board took place by video which was
attended by Messrs Hopkins, Elsegood, Sallakonda and
Curran, with the minutes
taken by Ms David. At the meeting it was resolved that PIHA would pay a 5.5%
commission to each of Messrs
Elsegood and Sallakonda to act as agents in the
sale of the Christensen Ridge development land and it was noted that Mr Pace had
been appointed as a consultant to PIHA.
- On
18 October 2022, Mr Elsegood and Mr Curran flew from Sydney to the Sunshine
Coast where they met Mr Pace and then they all drove
to Hervey Bay to visit the
Christensen Ridge development land. On 20 October 2022, Mr Elsegood and Mr
Curran flew back from the Sunshine
Coast to Sydney.
- On
18 November 2022, PIHA created a document titled “Feasibility: Christensen
Ridge, Hervey Bay - 18 November 2022” which
forecasted a total profit
after tax of $34,375,235 for the Stage I Christensen Ridge development land. Mr
Curran was cross-examined
about this amount but did not resile from it
(T60–63).
- On
23 November 2022, CCD Developments obtained development approval in relation to
the Stage l Christensen Ridge development land.
Heads of
Agreement
- On
10 December 2022, Mr Elsegood sent an email to Mr Curran which attached a
Heads of Agreement between PIHA and what was described as “[a]n
entity comprising Trevor Groeneveld, Biagio Abignano and (Jacks Entity) or their
nominees (‘Developer’)” which had been signed by Messrs
Elsegood and Sallakonda on behalf of PIHA and also by Messrs
Groeneveld and
Abignano. In summary, the Heads of Agreement provided for the joint development
of the Stage I Christensen Ridge development
land.
- Mr
Elsegood had sourced Mr Groeneveld and Mr Abignano as joint venture partners to
assist with the acquisition and development of
the Christensen Ridge development
land, which he progressed to the Heads of Agreement.
- On
10 December 2022, Messrs Curran and Elsegood had a meeting at which Mr Curran
told Mr Elsegood that he had breached his fiduciary
obligations to act in the
best interests of PIHA by entering into the Heads of Agreement and that Mr
Curran intended immediately
to seek legal advice from Shaun McGushin of Ash
Street Law.
- On
15 December 2022, Mr McGushin sent an email to Mr Elsegood, which was copied to
Messrs Curran and Hopkins, which stated that Mr
Elsegood clearly has a conflict
of interest in his role as a director of PIHA because he has a material personal
interest in the
“Developer” and the proposed development of the
Stage I Christensen Ridge development land. Amongst other things, Mr
McGushin
stated that the Heads of Agreement had not been agreed by PIHA and had not been
approved by the PIHA board as required under
its constitution, that no PIHA
board meeting had been held and that PIHA was not bound by the Heads of
Agreement. Mr McGushin further
said that because of Mr Elsegood’s material
personal interest, he was not able to be present at the PIHA board meeting to
consider
the matter or vote in relation to it. Mr McGushin concluded by saying
that notwithstanding this and without prejudice to PIHA’s
rights, PIHA was
still prepared to consider proceeding with the development but on terms that
needed to be agreed.
- Mr
Curran was cross-examined about PIHA still being prepared to consider proceeding
with the development under the Heads of Agreement.
He said it would have to be
on terms that needed to be agreed, which was why the Heads of Agreement did not
go ahead, and that there
needed to be a proper meeting and agreement of the
board of PIHA, which is the process of PIHA as a public company and a charity
(T57).
Christensen Ridge development land sales and
funding
- In
mid-December 2022, Mr Curran asked Mr Doyle to arrange for surveys of 50
residential allotments of the Stage I Christensen Ridge
development land, so
that solicitors could prepare put and call, and sale, contracts to enable PIHA
to proceed to sell the residential
allotments “off the plan”.
- Between
January and March 2023, PIHA exchanged about 25 contracts for put and call
options over residential allotments of the Stage
I Christensen Ridge development
land with a 5–10% deposit, subject to registration of the new title in
respect of the respective
residential allotments.
- PIHA
also exchanged a heads of agreement subject to finance approval on 70
residential allotments of the Stage I Christensen Ridge
development land for
about $27 million with a CHP.
- Sometime
in 2022, PIHA retained Stephen Hodgkinson to apply for funding approval for it
in respect of the Christensen Ridge development
land. Subsequently, Mr
Hodgkinson sought funding approval from Balmain Commercial and Benchmark in
respect of the Christensen Ridge
development land, which progressed to an
advanced stage.
Appeal of development approval for Stage I
Christensen Ridge development land
- On
9 January 2023, the owners of the golf driving range neighbouring the Stage I
Christensen Ridge development land, Hayley Brooks
and Stephen Taylor, filed a
notice of appeal in the Queensland Planning and Environment Court against the
development approval which
CCD Developments had obtained for the Stage I
Christensen Ridge development land (DA Appeal).
- In
March or April 2023, Mr Curran believes that CCD Developments approached Ms
Hiscock and Mr Christensen as vendors of the Stage
I Christensen Ridge
development land to extend the time for obtaining the unconditional development
approval beyond 30 March 2023.
Mr Elsegood requests repayment of
$200,000
- On
15 February 2023, Mr Elsegood sent an email to Mr Hopkins, amongst others, in
which he said he had funded the two option deeds
for the Christensen Ridge
development land for $200,000 in total and that he now found himself in a
“poor cash flow position”
with a number of debts to both the
Australian Taxation Office and ASIC. Mr Elsegood requested repayment of those
funds, saying “I
simply cannot wait any further”.
- On
16 February 2023, Mr Hopkins sent an email to Mr Elsegood in reply saying that
the $200,000 was contributed as equity for which
the return is assumed to come
from the project. Mr Hopkins also stated:
At the moment PIHA does not have the funds to repay you. But I would have
thought that Trevor [Groeneveld] or Biagio [Abignano] would
be the logical
source of funds in this situation.
I can empathise with your situation. If PIHA’s ability to repay you
changes I will let you know.
- On
16 February 2023, Mr Elsegood responded by email to Mr Hopkins, copied to Messrs
Curran and Sallakonda, stating that the funds
for the option fee were loans, not
equity, and that he intended to still have funds to contribute into the joint
venture entity.
Mr Elsegood also said:
PIHA has funds available and I simply require them so, please make these funds
available to repay.
PIHA has made loans to non-directors due to circumstance and it wasn’t an
issue then, therefore I demand that these loans are
repaid.
Establishment of Fraser Coast Projects Pty Ltd
- On
16 February 2023, Fraser Coast Projects Pty Ltd was incorporated, with
Messrs Zenonos and Cuda as directors and companies associated with each of them
as equal
shareholders. Unlike CCD Developments and CCD Nikenbah, Mr Vorkas was
not included in the management and ownership of Fraser
Coast.
Resignation of Mr Elsegood as a director of PIHA
- On
10 March 2023, Mr Elsegood tendered his resignation as a director of PIHA to
avoid any conflict between PIHA and a joint venture
company to enter into an
arrangement with PIHA to develop the Christensen Ridge development land.
- On
14 March 2023, Mr Pace became a director of PIHA.
- On
15 March 2023, the PIHA board comprising Messrs Hopkins, Sallakonda and Pace
resolved to accept Mr Elsegood’s resignation
as a director with effect
from 10 March 2023.
Fraser Coast involvement in Christensen Ridge
development land
- On
22 March 2023, Fraser Coast, Ms Hiscock and Mr Christensen entered into new call
option deeds for the Stage I Christensen Ridge
development land and the Stage II
Christensen Ridge development land, with a purchase price of $6.35 million plus
GST and $6.6 million
plus GST respectively (Fraser Coast Call Options).
The terms of the Fraser Coast Call Options permitted Fraser Coast to nominate a
third party to exercise the call option.
- At
the time that the Fraser Coast Call Options were executed, Mr Curran was not
aware of them.
No development approval and Mr Curran’s
visit to Christensen Ridge development land
- On
30 March 2023, no unconditional development approval for the Christensen Ridge
development land had been obtained. This meant that
the condition precedent to
the Stage I Sale Contract and the Stage II Option Deed had not occurred.
- On
30 March 2023, Mr Curran flew from Sydney to Hervey Bay where he met Simon
Power, a civil contractor, with whom he visited the
Christensen Ridge
development land along with Mr Doyle. On 31 March 2023, Mr Curran returned to
Sydney.
Fraser Coast offer nomination to PIHA
- On
11 April 2023, Mr Zenonos sent an email to Mr Curran, copied to Mr Cuda, which
referred to an earlier discussion, stated that Fraser
Coast was looking to
nominate PIHA as the buyer for the Stage I Christensen Ridge development land
and attached the draft nomination
agreement and the Fraser Coast Call Option
that had been signed for each of the Stage I Christensen Ridge development land
and the
Stage II Christensen Ridge development land. Mr Zenonos set out a
summary of the Fraser Coast Call Options saying (quoted below exactly
as
written):
Stage I contract price is currently $6.35 million and there is a reference in
the deed to us getting a $250,000 plus Gst discount
to this price from our
sellers. We have successfully negotiated with the owners to pay half of the
$500, 000 plus gst required to
the appellants to drop the appeal and this will
be deducted from the contract price on stage 1 contract. Therefore stage 1
contract
will be reduced to $6.1 million plus GST. ( Total inc GST $6710 000
)
The total price of the contract for stage 1 and the nomination fee will be $15.5
million inc of GST.
Therefore the total nomination fee will be $8 765 000 inclusive of Gst.
- This
demonstrates that PIHA was aware of Fraser Coast’s involvement with the
Christensen Ridge development land from that time.
- On
23 April 2023, Mr Curran sent an email to Mr Hopkins and Warren Denny of Piper
Alderman (solicitors for PIHA) which forwarded the
email received on 11 April
2023 from Mr Zenonos. Mr Curran said that he had spoken to Mr Zenonos the
previous day, and that Mr Zenonos
had said that if PIHA did not sign the new
nomination deed they would sell to another party. Mr Curran commented (quoted
below exactly
as written):
You will note which I overlooked initially the new option deed is a different
entity to CDC Nikenbah Pty Ltd.
Apparently they executed this new agreement with the Christensen the vendors.
Surely they are bound as directors of both entities to honour the original
contracts ?
This situation is extremely worrying, your opinion would be greatly appreciated.
CCD Developments terminate Stage I Sale Contract and Stage II Option
Deed
- On
25 April 2023, Mr Cuda on behalf of CCD Developments sent an email to Mr Denny
advising that the Stage I Sale Contract was terminated
as the Stage I call
option deed had come to an end and the Stage II Option Deed was terminated as
the Stage II call option deed had
also come to an end. Mr Cuda said that the
initial deposit under the Stage I Sale Contract and the initial call option fee
under
the Stage II Option Deed would be refunded to PIHA.
- On
26 April 2023, Mr Denny forwarded to Mr Curran the email of 25 April 2023 from
Mr Cuda.
- On
26 April 2023, on the instructions of Mr Curran, Mr Denny sent a letter to the
directors of CCD Nikenbah, Fraser Coast and CCD
Developments stating that PIHA
considered there was no proper basis to terminate the Stage I Sale Contract and
the Stage II Option
Deed. The letter alleged that CCD Nikenbah was in breach of
its implied duty to act in good faith, CCD Nikenbah deprived PIHA of
the
intended benefit of those contracts, CCD Nikenbah was in breach of its implied
undertaking to use all reasonable endeavours to
enable fulfilment of the
conditions contained in those contracts and that Messrs Zenonos and Cuda had
engaged in unconscionable conduct
by entering into the Fraser Coast Call
Options.
- On
26 April 2023, Mr Curran rang Mr Hodgkinson to tell him that CCD Developments
had wrongly terminated the Stage I Sale Contract
and the Stage II Option Deed,
but that PIHA intended to undo that purported termination and he wanted Mr
Hodgkinson to continue to
arrange funding approval in respect of the Christensen
Ridge development land.
Mr Curran meets with Mr Zenonos and Mr
Elsegood
- On
4 May 2023, Mr Curran met Mr Zenonos for lunch in Parramatta. Mr Curran says
that at the lunch Mr Zenonos threatened not to sign
a contract for PIHA to
acquire put and call options for a development in Ipswich if Mr Curran did not
agree that Fraser Coast should
have the Christensen Ridge development, free of
any legal proceeding. Mr Curran also said that Mr Zenonos then offered to pay $2
million to PIHA for Fraser Coast to have the Christensen Ridge development land
and not sue it or any of its directors. Mr Curran
also said that Mr Zenonos
caused him to understand that Fraser Coast had nominated Nikenbah
Developments Pty Ltd under the Fraser Coast Call Options and that settlement
would be on the purchase price of $15.5 million including GST.
- Messrs
Curran and Zenonos then agreed that Mr Elsegood could join them. Mr Elsegood
then met Messrs Curran and Zenonos at another
venue. There is no evidence about
what took place in the meeting between Messrs Curran, Zenonos and Elsegood at
the other venue.
- On
5 May 2023, Mr Curran met Mr Elsegood at the Richmond Club in Richmond, New
South Wales. Mr Elsegood then handed Mr Curran a document
which Mr Curran
understood to be a series of the following demands made by Mr Elsegood to Mr
Curran:
(1) Mr Curran to procure the release of $500,000 for each stage of the
Christensen Ridge development land from CCD Developments to
Mr Elsegood;
(2) Mr Curran to procure from the PIHA board a letter instructing Messrs Zenonos
and Cuda to release $200,000 directly to Mr Elsegood;
(3) Mr Curran to procure a transfer of the 25 exchanged sales which PIHA held in
respect of the Stage I Christensen Ridge development
land from PIHA to CCD
Nikenbah;
(4) Mr Curran to cause PIHA to acknowledge resignation payment terms;
(5) Mr Curran to provide to Mr Elsegood all information on the Christensen Ridge
development land and the operational works particularly;
(6) Mr Elsegood to be paid $200,000;
(7) Mr Elsegood to be reimbursed $50,000 which he lost to Maxlife Properties
Australia Ltd;
(8) Mr Elsegood to be reimbursed $50,000 for the outstanding marketing for
Goulburn in relation to Maxlife Properties Australia Ltd;
(9) $185,000 which Mr Elsegood claimed in relation to a deal in Frenchs Forest;
and
(10) Payment of commission of 5% plus GST in relation to the Christensen Ridge
development which Mr Elsegood wanted transferred to
CCD Nikenbah, with various
splits depending on who made the sales.
- Mr
Curran says that he rejected these demands, having formed the view that Mr
Elsegood was asking Mr Curran to assist him in breaching
fiduciary obligations
to PIHA. Mr Elsegood submits that this purported breach of fiduciary duty can
only be a reference to Mr Elsegood’s
involvement in Nikenbah Developments.
Mr Elsegood also says that these “demands” were specifically
referable to Mr Elsegood’s
ongoing role in the Christensen Ridge
development land with Nikenbah Developments and Fraser Coast. But there was no
mention of either
entity at the meeting on 5 May 2023, which is unsurprising in
the case of Nikenbah Developments, as it had not even been registered
as a
company at that time. For this reason, I find that PIHA was not aware of Mr
Elsegood’s involvement with Nikenbah Developments
at that time.
- In
cross-examination (T59.1–29), it was put to Mr Curran that his statement
that he formed the view that Mr Elsegood was asking
Mr Curran to assist him in
his breaches of fiduciary obligations to PIHA was not a view that he formed in
May 2023. It was also put
to Mr Curran that he included this in his evidence to
try to corroborate an offsetting claim for the purposes of responding to the
statutory demand. Mr Curran rejected these suggestions. I accept his rejection,
particularly in light of there being no contrary
version of the meeting which
challenges the recollection of Mr Curran.
Nikenbah
Developments
- On
11 May 2023, Nikenbah Developments was registered. The directors of Nikenbah
Developments are Messrs Groeneveld and Abignano and
one of its shareholders is
Elsegood Holdings Australia Pty Ltd, a company of which Mr Elsegood is
the sole director, secretary and shareholder. Elsegood Holdings is recorded
as
holding 10,600 D class shares in Nikenbah Developments, out of Nikenbah
Developments’ total paid up capital of $100,000.
- On
26 May 2023 at 6:54am, Mr Zenonos received an email which attached a notice of
discontinuance of the DA Appeal.
- On
26 May 2023 at 10:54am, Mr Zenonos sent an email to Messrs Groeneveld, Abignano
and Elsegood, copied to Mr Cuda, which forwarded
them the notice of
discontinuance of the DA appeal and said as follows:
Hi Boys,
See below and attached email from the appellants lawyer. It should happen pretty
quickly now.
Dan and I had a discussion yesterday regarding the 400k for Jack. We are happy
to assist in keeping this deal moving quickly but
ask that you pay the 4.5mill
as quick as you can so we can nominate you as the buyer as soon as the DA is
lifted. My understanding
after my discussion with Trevor yesterday was that you
are in the process of finalising your internal shareholders agreement and
will
be ready to go straight after that if we assist with Jacks funds.
Can you please give us an indication of when this will be and we will then
confirm Jacks 400k coming from the 4.5 mill nomination
fee.
- On
26 May 2023 at 3:24pm, Mr Groeneveld sent an email to Messrs Zenonos, Abignano
and Elsegood, copied to Mr Cuda, which stated:
Chris, Jack, Biagio and I have discussed this. I have also spoken about it with
yourself and Dan. We are as motivated as you are
to get this contract exchanged,
but we need to have the proper agreements setup prior as we have external
parties coming in as part
of Jack group and we will also need to have the DA
formally lifted and confirmed by Council. We have instructions given to our
accountants
and lawyers and they understand we want it done ASAP. The funds are
there and ready to go so we will move on this as quickly as we
can. And as if we
are going to put our 1.5 mil at risk. We have our 2 brokers (one of them yours,
so you can check with him) confirming
they have funders willing to put forward
offers to fund, and this is in addition to the one we already have sitting there
ready to
go. We have 60 days to lockdown funding. Mate, get on the plane and go
to Vegas. Bring us back some $100,000 chips. This is all going
to happen.
- All
of these three emails of 26 May 2023 are contained in the same email string
within one document (together, 26 May emails). Mr Elsegood took objection
to the admission of the 26 May emails into evidence. I consider that the 26 May
emails should be admitted
into evidence for the reasons set out in detail under
the heading “Admissibility of the 26 May emails”
below.
Further feasibility forecast by PIHA
- On
26 May 2023, PIHA created a document titled “Feasibility: Christensen
Ridge, Hervey Bay – 26 May 2023” which
forecasted a total profit
after tax of $14,000,317 for the Stage I Christensen Ridge development land.
This was considerably reduced
from the total profit after tax of $34,375,235
which had been forecast as at 18 November 2022 (which is referred to above). Mr
Curran
was cross-examined about this reduction, accepting that he did not refer
to the 23 May 2023 forecast in his affidavit
(T63.1–13).
Federal Court proceedings against Messrs
Zenonos and Cuda and Fraser Coast
- On
24 July 2023, by leave of the court, Mr Vorkas brought proceedings in the name
of CCD Developments and CCD Nikenbah in the Federal
Court of Australia against
Messrs Zenonos and Cuda and Fraser Coast in relation to the Christensen Ridge
development land (CCD Proceedings). In the CCD Proceedings, it was
alleged that each of Messrs Zenonos and Cuda breached the statutory and
fiduciary duties they owed
to CCD Developments and CCD Nikenbah by:
(1) failing to cause CCD Developments to exercise the CCD Call Options on or
before 30 March 2023 which had the effect that they
lapsed, so that CCD Nikenbah
was precluded from buying the Christensen Ridge development land for $12.6
million and selling it to
PIHA for $36 million; and
(2) diverting the opportunity of the Christensen Ridge development land to
themselves through Fraser Coast.
- In
the CCD Proceedings, it was alleged that Fraser Coast was a person involved in
the breaches of statutory duties and knowingly assisted
Messrs Zenonos and Cuda
in their breaches of fiduciary duties as part of a dishonest and fraudulent
design.
Dealings with the Christensen Ridge development land
- On
18 August 2023, Fraser Coast withdrew the caveat on the title to the Stage I
Christensen Ridge development land it had lodged on
5 June 2023.
- On
18 August 2023, Ms Hiscock and Mr Christensen transferred title to the Stage I
Christensen Ridge development land to Nikenbah
Developments.
PIHA’s acceptance of the end of Stage I Sale
Contract and the Stage II Option Deed
- In
about August 2023, Mr Curran telephoned Mr Hodgkinson and told him he could no
longer see any realistic prospect of PIHA taking
control of the Christensen
Ridge development land and asked him to immediately stop any work to obtain
funding approval for PIHA
in respect of it.
Service of statutory
demand
- On
4 October 2023, the statutory demand was served on
PIHA.
PIHA’s response to statutory demand
- On
19 October 2023, the solicitors for PIHA wrote to the solicitors for Mr Elsegood
stating that PIHA relied on three of the grounds
in ss 459H and 459J of the
Corporations Act, being that there was a genuine dispute about the
existence or amount of the debt to which the statutory demand related, PIHA had
an offsetting claim and there was some other reason why the demand should be set
aside. In the letter, the basis of the alleged offsetting
claim was said to be
breaches of Mr Elsegood’s directors’ duties owed to PIHA under ss
182 and 183 of the Corporations Act and breaches of his fiduciary
obligations to PIHA in preferring his own interests to PIHA’s interests in
relation to the Stage
I Christensen Ridge development land. It was asserted
that:
Our client intends to issue proceedings against your client in respect of the
loss of a chance to earn the development profit, and
will seek at a minimum
damages of $27,000,000, plus interest and costs. The damages amount is 90% of
the budgeted forecast development
profit. Our client reserves its right to seek
a higher amount of damages from your client.
- The
letter of 19 October 2023 attached an ASIC search of Nikenbah Developments dated
21 August 2023. Mr Elsegood says that this demonstrates
that PIHA was aware of
Mr Elsegood’s involvement with Nikenbah Developments at that time. I agree
that I can infer that from
21 August 2023, PIHA was aware of that fact.
- The
solicitors for PHIA concluded the letter by demanding that Mr Elsegood withdraw
the statutory demand by 4:00pm on 20 October 2023,
failing which PIHA would file
and serve an application in this court to set aside the statutory demand.
- This
was the first time that PIHA raised an alleged claim against Mr Elsegood in
relation to his involvement with Fraser Coast and
Nikenbah Developments.
- Mr
Curran admitted in cross-examination that the statement contained in the 19
October 2023 letter, that there is a genuine dispute
between PIHA and Mr
Elsegood about the existence or the amount of the debt owed to Mr Elsegood, was
wrong (T51.43–53.4).
- Mr
Curran asserts that PIHA’s wasted expenditure on the Christensen Ridge
development land totals $225,913.08, including legal
costs, commissions,
variable expenses, joint venture agreement costs and conveyancing costs.
- There
is no evidence that PIHA has commenced proceedings against Mr Elsegood in any
forum in connection with the purported offsetting
claim, which Mr Curran deposed
on 23 October 2023 that PIHA intends to pursue.
- In
cross-examination, Mr Curran maintained that at the time of the letter of 19
October 2023 and since (T53.20–54.16 and T55.1–36):
(1) there was an intention by PIHA to issue proceedings against Mr Elsegood in
respect of the loss of chance;
(2) PIHA has taken steps to advance the offsetting claim but it is waiting for
the result in the CCD Proceedings before any action
is started against Mr
Elsegood; and
(3) the claim against Mr Elsegood has been discussed at board level by PIHA,
legal advice obtained on it and it has been in PIHA’s
accounts for months.
- I
accept this evidence.
Financial position of PIHA
- The
profit and loss statement of PIHA for the year ended 30 June 2022 demonstrates
that it made a loss of $58,762.66. The profit and
loss statement of PIHA for the
year ended 30 June 2023 demonstrates that it made a loss of $230,002.94. In each
of those years, the
balance sheet of PIHA reveals that PIHA had a deficiency of
assets to liabilities of $58,762.66 and $288,765.60
respectively.
ADMISSIBILITY OF THE 26 MAY EMAILS
- The
26 May emails referred to above were the subject of challenge to their
admissibility by Mr Elsegood.
- On
the argument about admissibility, PIHA relied on the affidavit of Jesse Samuel
Gibson (a solicitor for PIHA) sworn 19 April 2024
(Gibson affidavit) to
establish that:
(1) on 16 January 2024, PIHA caused a subpoena to produce to be issued to and
served on Mr Vorkas (Subpoena); and
(2) on 1 February 2024, Mr Vorkas (by his solicitors) produced documents to PIHA
in response to the Subpoena which included the 26
May emails.
- PIHA
also relied on the terms of a notice to produce dated 22 November 2023
(Notice to Produce) which was issued to Mr Elsegood seeking the
production of documents falling within the following categories (noting the
misspelling
of “Nikenbah” as “Nikenbar”):
1 This notice to produce.
2 The shareholders agreement of Nikenbar Developments Pty Ltd
ACN 667 910 607 (Nikenbar Developments).
3 The term sheet, and/or the option agreement, and/or the
contact, for the sale of 238-272 Maryborough Hervey Bay Road, Nikenbah
QId 4655
and/or 44 Chapel Road Nikenbah QId 4655 (Christensen Ridge development)
from Joan Betty Hiscock and Bevan Roy Christensen as personal representatives of
Betty Joan Christensen (deceased) (together, Vendors) to Nikenbar
Developments (Nikenbar Agreement).
4 All emails to and from you, Jack Elsegood (Jack) and:
(a) Trevor Groeneveld; and/or
(b) Biagio Abignano; and/or
(c) both and/or either of the Vendors,
during January to June 2023, concerning or relating to:
(d) the Nikenbar Agreement; and/or
(e) the Nikenbar Development's shareholder agreement;
and/or
(f) the appointment of a sales agent of Nikenbar Developments
as alleged in paragraph 99 of the affidavit of you, Jack, affirmed
on 11
November 2023 (Jack's Affidavit); and/or
(g) the offer to you, Jack, to become a shareholder in Nikenbar
Developments as alleged in paragraph 99 of Jack's Affidavit; and/or
(h) the offer to third parties to become shareholders in
Nikenbar Developments as alleged in paragraph 99 of Jack's Affidavit.
- PIHA
also relied on the terms of the two affidavits of Mr Curran.
- In
summary, in opposition to the admissibility of the 26 May emails, Mr Elsegood
contended as follows:
(1) The 26 May emails were only provided to Mr Elsegood as an annexure to the
Gibson affidavit three days in advance of the hearing
and are not in conformity
with the order made on 4 March 2024 by Black J which stated:
Note that all evidence has been filed no further evidence to be relied on
without leave.
There was no application for leave and, if one were made, then it should be
rejected on the basis that Mr Elsegood would be prejudiced
by the adducing of
the evidence because he has approached the application to set aside the
statutory demand on the basis that it
is a claim for loss. If Mr Elsegood had
known that it was not put in that way, he would have taken a different direction
in his evidence.
Further, there was no explanation for the delay of PIHA since
at least 1 February 2024 when the 26 May emails were produced in answer
to the
Subpoena.
(2) The evidence is not relevant because PIHA is seeking to articulate a new
claim or a new ground for setting aside the statutory
demand outside the 21 days
in contravention of the Graywinter principle, as affirmed in Infratel
Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd (2012) 91 ACSR
170; [2012] NSWSC 943 (Infratel (No 1)) by Black J and Infratel
Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd (2012) 297 ALR
372; [2012] NSWCA 365 (Infratel (No 2)) by the Court of Appeal.
While the relevant parts of the affidavits of Mr Curran set out a claim for
breach of fiduciary duty resulting
in loss, expressed as wasted expenditure and
loss of profits, until the days immediately before the hearing it had never been
articulated
or quantified by PIHA as an account of profits claim, which is a
different claim.
(3) The 26 May emails have been obtained in contravention of the implied
undertaking to the Federal Court of Australia and the documents
produced in
response to the Subpoena have never actually been produced to the court. The 26
May emails did not fall within the terms
of the Notice to Produce.
- PIHA’s
argument in response ran as follows:
(1) A leave application was made at the hearing. The explanation for the delay
in providing the 26 May emails is that they were required
to be produced in
accordance with the terms of the Notice to Produce, but Mr Elsegood did not
comply with them. In light of this,
there can be no prejudice to Mr Elsegood as
the 26 May emails are contained in his own document.
(2) The 26 May emails constitute an important document because they quantify at
least one fixed sum that Mr Elsegood appears to have
received in alleged breach
of his director’s duties to PIHA. The Graywinter principle as
applied to Mr Curran’s affidavit does not prevent PIHA from relying on
further evidence which seeks to quantify
the claim for breach of
director’s duties seeking a compensation order under s 1317H of the
Corporations Act. The decision of the Western Australian Court of Appeal
in Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd
(No 3) (2014) 46 WAR 483; [2014] WASCA 132 makes it clear that the amount of
an offsetting claim for the purposes of s 459H is to be decided at the date of
the hearing of the application to set aside, and not at some earlier time.
Further, the 26 May emails
were not in the possession of PIHA within the 21 day
statutory period within which the supporting affidavit was required to be
provided,
which explains their absence from that affidavit.
(3) The undertaking gives way to production of the 26 May emails on the Subpoena
in this court, which was informally produced to
PIHA and Mr Elsegood by Mr
Vorkas. This has been remedied by the production of all documents provided in
answer to the Subpoena to
this court during the hearing on the authority of Mr
Vorkas.
- During
the hearing (T10.43–11.44) I gave Mr Elsegood an opportunity to cure any
prejudice to him by the admission of the 26
May emails into evidence by seeking
an adjournment of the hearing on terms that PIHA pay the costs thrown away of
doing so. I adjourned
the hearing for five minutes to enable Mr Elsegood to
provide instructions. At the resumption of the hearing, I was told that Mr
Elsegood had made the decision to press on whilst maintaining that the only way
to cure the prejudice to him was to reject the tender
of the 26 May emails.
- In
my opinion, the 26 May emails fell within the categories required to be produced
by Mr Elsegood under the Notice to Produce. The
26 May emails were emails to Mr
Elsegood during the period from January to June 2023 concerning or relating to
Nikenbah Developments’
shareholders agreement. The email of 26 May 2023 at
10:54am explicitly states:
My understanding after my discussion with Trevor yesterday was that you are in
the process of finalising your internal shareholders
agreement and will be ready
to go straight after that if we assist with Jacks funds.
- As
a result, the document containing the 26 May emails should have been produced by
Mr Elsegood in November 2023. Instead, the 26
May emails did not come to the
attention of PIHA until 1 February 2024 when Mr Vorkas produced documents to
PIHA in response to the
Subpoena. This explains a significant amount of the
delay in PIHA indicating that the 26 May emails were sought to be relied upon
as
evidence by PIHA in these proceedings.
- As
for the delay between 1 February 2024 and 19 April 2024 (when the Gibson
affidavit was sworn with the 26 May emails annexed to
it), I do not consider
that Mr Elsegood has been prejudiced by that delay. The purpose of the Gibson
affidavit is to set out the
provenance of the 26 May emails. The 26 May emails
are contained in Mr Elsegood’s own document. The suggestion that Mr
Elsegood
may have taken a different tack in his evidence if he had known that
the 26 May emails would be relied upon is not supported by any
reasoned
argument. Mr Elsegood made the forensic choice not to go into evidence at the
hearing. Mr Elsegood did not state any basis
for why he might have taken a
different course if he had known that the 26 May emails would become evidence in
the proceedings. I
also gave Mr Elsegood the opportunity to adjourn the hearing
to cure any prejudice that he considered he may suffer by reason of
the 26 May
emails becoming evidence in the proceedings and on terms that PIHA would have to
pay the wasted costs. Mr Elsegood decided
not to apply for an adjournment.
- As
for the application of the Graywinter principle, it has its origins in
Sandberg J’s observations in Graywinter Properties Pty Ltd v Gas &
Fuel Corporation Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452; (1996) 21 ACSR 581
concerning the requirements under the statutory regime established by s 459G of
the Corporations Act.
- Section
459G of the Corporations Act provides:
(1) A company may apply to the Court for an order setting aside
a statutory demand served on the company.
(2) An application may only be made within the statutory period
after the demand is so served.
(3) An application is made in accordance with this section only
if, within that period:
(a) an affidavit supporting the application is filed with the
Court; and
(b) a copy of the application, and a copy of the supporting
affidavit, are served on the person who served the demand on the company.
- In
Re ABA Villawood Place Pty Ltd [2023] NSWSC 952, Black J at [31] stated
that the essential requirement of s 459G that the Graywinter principle
emphasises is:
... whether an affidavit in support of an application to set aside a
creditor’s statutory demand in fact supports that application
...
- The
authorities concerning the Graywinter principle (which I will outline and
discuss in greater depth below) indicate that the threshold requirement
is:
(1) a matter going to the court’s jurisdiction to consider material filed
beyond the statutory 21 day period; and
(2) met where the affidavit filed with the court within the relevant period
raises expressly, or by necessary or reasonably available
inference, the
existence of a genuine dispute.
- The
principal authorities addressing the scope and operation of the
Graywinter principle are set out below.
- In
NA Investments Holdings Pty Ltd v Perpetual Nominees Ltd (2010) 79 ACSR
544; [2010] NSWCA 210, the Court of Appeal of this court considered whether an
affidavit in support of an application under s 459G in fact supported that
application. In that case, the affidavit was directed to an offsetting claim,
but also served to put in evidence
the document (a facility agreement) upon
which the debtor company ultimately wished to advance a particular construction,
which was
at the heart of the alleged dispute. After listing the many cases that
had discussed the Graywinter principle (at [78]), Lindgren AJA (with whom
Beazley JA and Handley AJA agreed) at [86] stated:
... Whatever may be the outer limits of the concept of “supporting”
in s 459G(3), in my view the requirement is met where, as here, the only issue
sought to be raised by the company is one of construction within
the four
corners of the provision on which the statutory demand depends, and the document
in question, albeit with other documents,
is put into evidence by the affidavit
filed and served within the 21-day period.
- In
Hopetoun Kembla Investment Pty Ltd v JPR Legal Pty Ltd (2011) 286 ALR
768; 87 ACSR 1; [2011] NSWSC 1343, Ward J (as her Honour the President then was)
at [35]–[38] said:
[35] In Graywinter, Sundberg J said (at [587]):
“In order to be a 'supporting affidavit', an affidavit must say something
that promotes the Company's case ... The affidavit
need not detail, in
admissible form, all the evidence that supports the contention of genuine
dispute ... The affidavit must...disclose
facts showing there is a dispute
between the parties. A mere assertion that there is a genuine dispute is not
enough, nor is a bare
claim that the debt is disputed sufficient. (my
emphasis)”
[36] There need not be an explicit articulation in the
supporting affidavit of the ground(s) on which the application to set aside
is
to be raised, provided the ground is raised expressly or by necessary or a
reasonably available inference (POS Media Online Ltd v B Family Pty Ltd
(2003) 21 ACLC 533; [2003] NSWSC 147 per Austin J; Hansmar Investments Pty
Ltd v Perpetual Trustee Ltd (2007) 61 ACSR 321; [2007] NSWSC 103 per White
J).
[37] Barrett J in Saferack Pty Ltd v Marketing Heads
Australia Pty Ltd (2007) 25 ACLC 1392; 214 FLR 393; [2007] NSWSC 1143,
noting that what was required was that the grounds of objection be evident on
the face of the affidavit, nevertheless considered
that where the ground of
challenge was a defect by reason of an omission from the creditor's accompanying
affidavit, it would be
sufficient if this omission was discernible on the face
of a document annexed to the affidavit in support accompanying the statutory
demand, even though attention had not been drawn to the point sought to be
raised thereby (approving Callite Pty Ltd v Adams [2001] NSWSC 52, where
an available inference from the documents annexed to the relevant affidavit that
a particular ground of challenge had been
raised was held to be sufficient).
[38] Lindgren AJA in NA Investment Holdings Pty Limited v
Perpetual Nominees Limited (2010) 79 ACSR 544; [2010] NSWCA 210 held that
there is no requirement that the party seeking to set aside a statutory demand
draw to the attention of the defendant the
particular issue on which reliance
will be sought to be placed (observing that such a submission confused the
concept of "support"
in the requirement for an affidavit in support with natural
justice considerations). ...
- In
Infratel (No 1), Black J considered the Graywinter principle as it
applied to an affidavit made in support of the application to set aside a
statutory demand which was challenged on
the basis that it did not quantify the
amount of the costs and expenses said to form part of the offsetting claim. In
Infratel (No 1), Black J collected the authorities on what is sufficient
to meet the Graywinter principle for the quantification of an offsetting
claim, saying at [29]–[31]:
[29] There is authority that an offsetting claim will be
sufficiently raised by an affidavit filed within the 21 day period required
by s
459G of the Corporations Act where that affidavit states that the amount
of that claim is greater than the amount of the debt, even if it does not
provide further
indication of the quantum of that claim, and this will be
sufficient to allow further evidence to be led outside the 21 day period
to
supplement the evidence contained in the initial affidavit: Zenaust Imports
Pty Ltd v Alembic Chemicals Works Co Ltd (1998) 28 ACSR 465; Endeavour
Film Management Pty Ltd v Fox Studios Australia Pty Ltd [2003] NSWSC 1056 at
[10]- [11]. In Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd, Gzell J
noted that an initial affidavit which stated that the company had suffered loss
due to defective wine and had an offsetting
claim but said nothing about the
quantum of that claim or whether it exceeded the debt and did not satisfy the
requirement in s 459H(2), which "requires evidence to be put on within the
statutory 21 day period enabling the Court to make a determination of the
offsetting
claim" and required that some evidence of quantum must be contained
in the affidavit to enable the Court to take that course. His
Honour there noted
that the initial affidavit would be insufficient "if it does not contain
material from which a Court ... can make
an estimate of the amount of an
offsetting claim", and, while that did not require the party to provide a final
proof of those matters,
it did require:
"sufficient material indicating the nature of the off-setting claim and the way
in which it is calculated to enable the statutory
exercise under Corporations
Act 2001 (Cth), s 459H(2) to be carried out by the Court."
[30] In Kerslake Superannuation Pty Ltd v C
& L Building Pty Ltd [2010] NSWSC 424 at [10], Barrett J observed that:
“This raises a question about the extent to which it is necessary, in
accordance with the Graywinter principle, for the quantum of an
offsetting claim to be established by the affidavit filed and served within the
21-day period. I
have been taken to a statement in one decided case (Broke
Hills Estate Pty Ltd v Oakvale Wines Pty Ltd [above] at [28]) that may be
thought to suggest that a precise quantification is needed at that point. In my
view, that is not the
position. A plaintiff who seeks to set up an offsetting
claim no doubt has the primary aim of obtaining an order under s 459H(3) but
must also be regarded as pursuing a secondary objective of securing exercise of
the s 459H(4) discretion. In order to be a supporting affidavit within s 459G,
the affidavit must raise grounds. In an offsetting claim case, all that is
needed in the initial affidavit is some indication that
the offsetting claim is
of a magnitude that can sensibly be compared with the amount of the statutory
demand. There is room for some
measure of uncertainty, but the uncertainty will,
of course, work to the detriment of the party seeking to establish the
offsetting
claim.”
[31] In 185L6 Pty Ltd v Strata Corporation 07176 Inc
[2011] SASC 164 at [25], Blue J noted that the effect of these decisions was
that:
"Where the deponent of the original supporting affidavit deposed to quantum
exceeding the debt, it was held to be sufficient, and
where he did not, it was
held to be insufficient, to permit the court to receive a subsequent affidavit
on quantum."
This approach is consistent with the requirement for a supporting affidavit
within 21 days under s 459G of the Corporations Act and with the policy
identified by Graywinter and I would follow the approach adopted in these
decisions.
- In
Infratel (No 2), Young JA (with whom Hoeben JA and Ward J agreed) at
[36]–[37] and [42] concluded that Black J’s reasoning in Infratel
(No 1) was unarguably correct.
- Mr
Elsegood argued that Mr Curran’s affidavit in these proceedings was in the
same category as the affidavit in Infratel (No 1), which Black J
described as an affidavit which:
(1) “says nothing as to the amount of the cost and expense incurred in
allowing the sites to be completed, so as to allow any
determination as to
whether that amount is greater than the amount of the debt, nor does it contain
even a conclusory statement that
that amount is greater than the amount of the
debt” (at [28]); and
(2) “neither contained a general statement that the quantum of any
offsetting claim exceeded the debt nor did it provide any
basis for calculation
of the amount of the offsetting claim. In my view, that affidavit does not
satisfy the standard contemplated
by Kerslake, Broke Hills or 185L6
Pty Ltd v Strata Corporation 07176 Inc, since it does not allow any
assessment of the magnitude of the offsetting claim” (at [32]).
- PIHA
argued that the decision in Infratel (No 1) must be read in the light of
the subsequent observations of the West Australian Court of Appeal in
Pravenkav.
- In
Pravenkav, the issue was whether the initial supporting affidavit must
contain evidence sufficient to permit the court to quantify an offsetting
claim.
The court at [44]–[54] conducted a review of Infratel (No 1) and
Infratel (No 2) (including the authorities on which Infratel (No
1) was based) and at [55] also reviewed the following intermediate appellate
decisions to discern the proposition for which they stood:
(1) The Full Court of the Supreme Court of Western Australia in Royal Premier
Pty Ltd v Taleski [2001] WASCA 48, Ipp J at [57] – the evidence as a
whole must be sufficient for the court to make an assessment of the offsetting
claim.
(2) The Western Australian Court of Appeal in Diploma Construction (WA) Pty
Ltd v KPA Architects Pty Ltd [2014] WASCA 91, Pullin JA (Newnes and Murphy
JJA agreeing) at [29]—[36] – no distinction was drawn between the
first affidavit and the
second affidavit in support of the application.
(3) The Full Court of the Federal Court of Australia in Equuscorp Pty Ltd v
Perpetual Trustees WA Ltd (1997) 25 ACSR 675; [1997] FCA 1366, French,
Kiefel and Sundberg JJ at 697 – the amount of the offsetting claim has to
be considered at the time the court is determining
the application under s 459G
and s 459H(4) assumes that the court may vary the amount in the demand, which
necessarily contemplates that the court may take into account variations
in the
debt which have occurred since the service of the demand.
- In
Pravenkav, the court concluded at [56] that these intermediate appellate
court authorities are consistent with the proposition that the amount
of the
offsetting claim for the purposes of s 459H is to be decided at the date of the
hearing of the application to set aside and not at some earlier time. Further,
the court concluded
at [64]–[65]:
[64] In summary, as we have mentioned, the focus on the precise
terms of the statutory duty make it clear that although the initial
affidavit
must ‘support’ the application, the application is not limited to
the initial supporting affidavit. Hence,
a court can consider additional
affidavit evidence filed outside the 21 day period in order to supplement the
initial supporting
affidavit. There is no reason why, in an appropriate case,
that additional affidavit evidence cannot supplement the initial supporting
affidavit by providing evidence of quantum necessary where the basis of the
application is a genuine dispute or offsetting claim
under s 459H.
[65] For these reasons, the evidence from which the Court must
calculate the substantiated amount of a statutory demand, in accordance
with s
459H, need not always be contained in the supporting affidavit filed under s
459G.
- In
my view, the tender of the 26 May emails does not transgress the
Graywinter principle for several reasons.
- First,
the absence of the 26 May emails from the affidavit of Mr Curran sworn 23
October 2023 is obviously explained by the fact that
the 26 May emails were not
in the possession of PIHA until 1 February 2024.
- Secondly,
the affidavit of Mr Curran sworn 23 October 2023 at [112]–[113] makes it
very clear that the offsetting claim against
Mr Elsegood is alleged to be that
Mr Elsegood breached his director’s duties and his fiduciary obligations
owed to PIHA. While
this is expressed as a loss of profits of around $34.375
million and a wasted expenses claim of about $226,000, I do not think that
the
Graywinter principle prevents PIHA from supplementing this evidence in
respect of an offsetting equitable claim which, if brought, provides
for PIHA to
make an election between equitable compensation and an account of profits when
judgment on the liability for that claim
is given.
- The
law on this proposition is clear, deriving from the following authorities.
- In
United Australia Ltd v Barclays Bank Ltd [1941] AC 1; [1940] 4 All ER 20
(a case concerned with an election between actions in tort and
assumpsit), Viscount Simon LC stated at 18–19 (emphasis
added):
No doubt, if the plaintiff proved the necessary facts, he could be required to
elect on which of his alternative causes of action
he would take judgment, but
that has nothing to do with the unfounded contention that election arises when
the writ is issued. There
is nothing conclusive about the form in which the writ
is issued, or about the claims made in the statement of claim. A plaintiff
may
at any time before judgment be permitted to amend. The substance of the matter
is that, on certain facts, he is claiming redress,
either in the form of
compensation—that is, damages as for a tort—or in the form of
restitution of money to which he
is entitled, but which the defendant has
wrongfully received. The same set of facts entitles the plaintiff to claim
either form of
redress. At some stage of the proceedings, the plaintiff must
elect which remedy he will have. There is, however, no reason of principle or
convenience why that stage should be deemed to be recalled until the plaintiff
applies for judgment.
- In
Tang Man Sit v Capacious Investments [1995] UKPC 54; [1996] AC 514; [1996]
1 All ER 193, Lord Nicholls of Birkenhead (delivering the advice of the Privy
Council) at 521 said:
Faced with alternative and inconsistent remedies a plaintiff must choose, or
elect, between them. He cannot have both. The basic
principle governing when a
plaintiff must make his choice is simple and clear. He is required to choose
when, but not before, judgment
is given in his favour and the judge is asked to
make orders against the defendant. A plaintiff is not required to make his
choice
when he launches his proceedings. He may claim one remedy initially, and
then by amendment of his writ and his pleadings abandon
that claim in favour of
the other. He may claim both remedies, as alternatives. But he must make up his
mind when judgment is being
entered against the defendant. Court orders are
intended to be obeyed. In the nature of things, therefore, the court should not
make
orders which would afford a plaintiff both of two alternative remedies.
In the ordinary course, by the time the trial is concluded a plaintiff will know
which remedy is more advantageous to him. By then,
if not before, he will know
enough of the facts to assess where his best interests lie. There will be
nothing unfair in requiring
him to elect at that stage.
- These
principles have been applied by Australian courts in relation to the choice to
be made between equitable compensation and an
account of profits. In GM
& AM Pearce & Co Pty Ltd v Australian Tallow Producers
[2005] VSCA 113, Warren CJ (with whom Chernov JA and Dodds-Streeton AJA agreed)
at [56] held (footnotes omitted):
A plaintiff, where faced with a choice between an account of profits or
equitable compensation, must make a decision as to which
one it will pursue. For
instance, in Tang Man Sit v Capacious Investments, the plaintiff was
awarded an account of profits and compensation in the same suit and sought to
enforce both remedies. However,
in that case the Privy Council reiterated, as
did the High Court in Warman International Ltd v Dwyer, that an account
for profits and an award of damages are alternative and not cumulative remedies.
Normally, where both remedies are
available, a plaintiff must elect between
them. Ordinarily, the election need not be made before the trial starts and may
be delayed
until determination of the cause of action. There is therefore no
difficulty where the plaintiff claims both equitable compensation
and an account
of profits in the prayer for relief, however, election must be made when (but
not before) judgment is given. Where
the plaintiff does not know which remedy is
more favourable at the time of judgment on liability, the court may order
discovery or
other orders designed to give the plaintiff the information it
requires to make the election.
- This
principle has been repeatedly applied in other Australian courts, including in
BCEG International (Australia) Pty Ltd v Xiao (2022) 162 ACSR 601; [2022]
NSWSC 972, Rees J at [416]; Amcor Ltd v Barnes [2021] VSCA 6, Ferguson
CJ, Beach and Whelan JJA at [297]; Du v Georgiadis [2020] VSCA 306,
Kyrou, McLeish JJA and Macaulay AJA at [32]; Edwards v Liquid Engineering
2003 Pty Ltd (2008) 77 IPR 115; [2008] FCA 970, Gordon J at [76].
- In
the affidavit of Mr Curran sworn 23 October 2023, PIHA put forward evidence
within the 21 day statutory period to outline the quantum
of the offsetting
claim expressed as equitable compensation. In accordance with Pravenkav,
I am to assess the quantum of the offsetting claim at the time of the hearing. I
consider that PIHA is entitled to supplement that
evidence with further evidence
in the form of the 26 May emails which were subsequently obtained by PIHA to
demonstrate the quantum
of the offsetting claim should an election be made to
seek an account of profits instead. Given that this election would not have
to
be made until the time that judgment on the liability of that claim is given, I
do not think that PIHA should be limited on this
application to only being able
to express the quantum as though it had already made an election to seek
equitable compensation.
- In
accordance with the application of the Graywinter principle as expressed
in Infratel (No 1) at [29], I think that this is a case in which Mr
Curran’s affidavit within the statutory period states that the amount of
that
claim is greater than the amount of the debt, and even if this does not
provide further indication of the quantum of that claim,
it will be sufficient
to allow further evidence in the form of the Gibson affidavit to be led outside
the 21 day period to supplement
the evidence contained in the initial affidavit.
Or to use the words expressed in Kerslake at [10], in an offsetting claim
case, all that is needed in the initial affidavit is some indication that the
offsetting claim is
of a magnitude that can sensibly be compared with the amount
of the statutory demand. This was done in the present case.
- Finally,
I do not consider that the 26 May emails were tendered in breach of the implied
undertaking to the court pursuant to which
Mr Vorkas had possession of them.
PIHA obtained the 26 May emails from the production by Mr Vorkas in answer to
the Subpoena. Mr
Vorkas was therefore compelled to provide them to the court.
The documents provided in answer to the Subpoena were ultimately produced
to the
court during the hearing on the authority of Mr Vorkas (T8).
- For
these reasons, I consider that the 26 May emails should be received into
evidence and I accept their tender by PIHA.
LEGAL
PRINCIPLES
Statutory provisions
- Section
459H(1) of the Corporations Act is in the following
terms:
This section applies where, on an application under section 459G, the Court is
satisfied of either or both of the following:
(a) that there is a genuine dispute between the company and the
respondent about the existence or amount of a debt to which the
demand
relates;
(b) that the company has an offsetting claim.
- Section
459H(5) provides that “offsetting claim”:
means a genuine claim that the company has against the respondent by way of
counterclaim, set-off or cross-demand (even if it does
not arise out of the same
transaction or circumstances as a debt to which the demand relates).
Authorities
- In
Re Libdy Developments Pty Ltd [2023] NSWSC 647, Williams J at
[10]–[11] collected the applicable principles from the authorities for
determining whether there is a genuine
“offsetting claim” within s
459H(1)(b) of the Corporations Act as defined in s 459H(5), saying
(footnotes omitted):
[10] In Grandview Ausbuilder Pty Ltd v Budget
Demolitions Pty Ltd (2019) 99 NSWLR 397; (2019) 136 ACSR 563; [2019] NSWCA
60 at [61]–[65], Bell P (as the Chief Justice then was) addressed what is
required in order to demonstrate the existence of a genuine
offsetting claim:
[61] ...it is desirable to say something as to the meaning of
the word ‘genuine’ in the context of the definition of
‘offsetting claim’ in s 459H(5) of the Corporations
Act and how it has been interpreted in the case law. ...
[62] In Ozone Manufacturing Pty Ltd v DCT (2006) 94 SASR
269; [2006] SASC 91 at [46]–[49] per Debelle J (with whom Besanko and
Layton JJ agreed) said:
[46] The meaning of the expression ‘offsetting
claim’, like the meaning of ‘genuine dispute’ has been
illuminated
by analogies found in applications for injunctions to restrain the
commencement, advertisement and prosecution of winding-up proceedings
pre-dating
the enactment of s 459G and in the opposing of a notional application by the
person who has served the statutory demand for summary judgment against the
company for the debt the subject of the demand: Chase Manhattan at 136.
Thus, when deciding whether an offsetting claim exists, the test is whether the
court is satisfied that there is a serious
question to be tried that the person
on whom the demand has been served has an offsetting claim: Scanhill Pty Ltd
v Century 21 Australasia Pty Ltd [1993] FCA 618; (1993) 12 ACSR 341 at
357, or that the claim is not frivolous or vexatious: Chadwick Industries
(South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37, or
that it is not fictitious or merely colourable: Edge Technology Pty Ltd v
Lite-on Technology Corporation [2000] NSWSC 471; (2000) 156 FLR 181 at
184–5 , citing Jesseron Holdings Pty Ltd v Middle East Trading
Consultants Pty Ltd (No 2) (1994) 13 ACSR 787 .
[47] The test whether an offsetting claim exists is the same as
for a genuine dispute, that is to say, the claim must be bona fide
and truly
exist in fact and that the grounds for alleging the existence of the dispute are
real and not spurious, hypothetical, illusory
or misconceived. The issue is
whether the offsetting claim is bona fide, real and not spurious: Edge
Technology per Santow J at [25].
[48] I do not think that the test identified by Santow J
imposes a more onerous task on the party disputing the statutory demand
than the
serious question test. The expression ‘good faith’ means arguable on
the basis of facts asserted with a sufficient
particularity to enable the court
to determine that the claim is not fanciful: Macleay Nominees Pty Ltd v
Belle Property East Pty Ltd [2001] NSWSC 743 per Palmer J. McPherson JA
expressed the same concept in these terms in JJMMR Pty Ltd v LG International
Corporation [2003] QCA 519 at [18]:
Anyone can make a claim to a right of setoff against a creditor. What the
definition in s 459H(5) requires, however, is that it be ‘genuine’.
The same word in s 459H(1) has already elicited so many synonyms and shades of
meaning that it will not help to add more. Its antithesis is to be seen in the
word ‘artificial’. The claim to set off against the debt demanded
must not have been manufactured or got up simply for
the purpose of defeating
the demand made against the company. It must have an existence that is
objectively demonstrable independently
of the exigencies of the demand that
evoked it.
The observations of Palmer J and McPherson JA were applied by Chesterman J in
Cooloola Dairies Pty Ltd v National Foods Milk Ltd [2004] QSC 308; [2005]
1 Qd R 12.
[63] In addition to these valuable observations, reference
should be made to the judgment of McLelland CJ in Eq in Eyota Pty Ltd v
Hanave Pty Ltd (1994) 12 ACSR 785 at 787 where his Honour, having
characterised the test for whether or not there was a ‘genuine
claim’ in terms of whether
there was ‘a plausible contention which
requires investigation’, went on to say:
‘This does not mean that the court must accept uncritically as giving rise
to a genuine dispute, every statement in an affidavit
‘however equivocal,
lacking in precision, inconsistent with undisputed contemporary documents or
other statements by the same
deponent, or inherently improbable in itself, it
may be’ not having ‘sufficient prima facie plausibility to merit
further
investigation as to [its] truth’. (cf Eng Mee Yong v
Letchunanan [1979] UKPC 13; [1980] AC 331 at 341 ), or ‘a patently feeble legal
argument or an assertion of facts unsupported by evidence’: cf South
Australia v Wall (1980) 24 SASR 189 at 194.’
[64] The Victorian Court of Appeal has spoken of ‘prima
facie plausibility’ in this context: TR Administration Pty Ltd v Frank
Marchetti Pty Ltd [2008] VSCA 70; 66 ACSR 67 at [71]; see
also Britten-Norman Pty Ltd v Analysis and Technology Australia Pty
Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 at [48]–[49].
[65] Most recently, in Re Citadel Financial Corporation Pty
Ltd [2019] NSWSC 65 at [30], White JA said:
‘In judging the sufficiency of the evidence to give rise to an offsetting
claim, the question is not whether the evidence is
sufficient to establish the
offsetting claim or its amount, but whether it is sufficient to establish
that the offsetting claim is
genuine and its genuine level (Re Morris
Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605;
Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (2013)
85 NSWLR 601; [2013] NSWCA 344 at [48] and [49]). It is sufficient if there be a
plausible contention requiring investigation (Britten-Norman Pty Ltd v
Analysis and Technology Australia Pty Ltd at [70]). The offsetting
claim should have a sufficient objective existence and prima facie plausibility
to distinguish it from a
merely spurious claim, bluster or assertion and not be
merely fanciful or futile (TR Administration Pty Ltd v Frank Marchetti Pty
Ltd [2008] VSCA 70; (2008) 66 ACSR 67 at [71] cited with approval in
Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd at
[52]–[53]).’
[11] Bell P had earlier observed that:
[8] “The establishment of an offsetting claim for the
purposes of s 459H does not, of course, constitute a finding that the claim is a
good one, or that it has been made out. It represents nothing more
than a
finding that there is a serious question as to the existence of an offsetting
claim or an issue deserving of a hearing as
to whether the company has such a
claim against the creditor and that a claim is made in good faith and is
arguable and not frivolous
or vexatious: Scanhill Pty Ltd v Century 21
Australasia Pty Ltd [1993] FCA 618; (1993) 47 FCR 451 at 460 , 467 per Beazley J (as her
Honour then was); In the matter of Oztec Pty Ltd [2012] NSWSC 1234
at [22] per Black J...”
CONSIDERATION
Submissions of PIHA
- PIHA
submits that the crux of its offsetting claim against Mr Elsegood is that he has
obtained for himself valuable benefits in the
Christensen Ridge development land
in circumstances where he came into the opportunity to obtain those benefits by
reason of his
being and working as a director of PIHA. It is said that the
benefits Mr Elsegood obtained are analogous (if not equivalent) to a
secret
commission, albeit one bestowed on him after his resignation as a director. PIHA
contends that Mr Elsegood occupied a fiduciary
position and was therefore
prohibited, without the informed consent of PIHA, from:
(1) entering into any engagement in which he had, or could have had, a personal
interest conflicting with that of PIHA (the “no
conflict” rule);
and
(2) retaining any benefit or gain obtained or received by reason of or by use of
his fiduciary position or through some opportunity
or knowledge resulting from
it (the “no profit” rule).
- PIHA
relies on these principles derived from Chan v Zacharia
(1984) 154 CLR 178; [1984] HCA 36, Deane J at 198–199;
Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995]
HCA 18, Mason CJ, Brennan, Deane, Dawson, and Gaudron JJ at 557;
Howard v Commissioner of Taxation (2014) 253 CLR 83; [2014]
HCA 21, French CJ and Keane J at [33].
- PIHA
contends that Mr Elsegood’s conduct in obtaining benefits in and from the
Christensen Ridge development land violated the
“no profit” rule,
and also contravened s 183(1) of the Corporations Act which states that a
person who obtains information because they are or have been a director of a
corporation must not improperly
use the information to gain an advantage for
themselves or someone else.
- PIHA
says that Mr Elsegood as a fiduciary cannot unilaterally absolve himself of
liability by resigning from his office as a director
in order to take a benefit
for which he should otherwise account, relying on Streeter v
Western Areas Exploration Pty Ltd (No 2) (2011) 278 ALR 291; [2011] WASCA
17, Murphy JA, (McLure P and Buss JA agreeing) at [370]–[371], citing
Green & Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1,
Canadian Aero Services Ltd v O’Malley [1974] SCR 592, Ex parte
James [1803] EngR 536; (1803) 8 Ves 337; 32 ER 385, Lord Eldon at 390–1, and Phipps
v Boardman [1964] 1 WLR 993; [1964] All ER 187, Wilberforce J at 1012.
- PIHA
also says that it does not matter whether or not PIHA would or could otherwise
have taken the opportunity comprising the Christensen
Ridge development land but
for Mr Elsegood’s conduct, citing Vadori v AAV
Plumbing (2010) 77 ACSR 616; [2010] NSWSC 274, Ward J (as the President then
was) at [200] to the effect that in applying the no conflict and no profit rule
it does not matter
whether:
(1) the fiduciary acted bona fide and in what the fiduciary thought was in the
best interests of the beneficiaries;
(2) no loss is caused or that a profit was actually made for the beneficiary;
and
(3) the profit is made in circumstances where there is no conflict of interest.
- PIHA
emphasises the low and undemanding threshold for the determination of whether it
has an offsetting claim under s 459H of the Corporations Act — it
needs to be arguable on the facts before me so I can determine the basis for it,
how it is calculated and that it is not
fanciful. The offsetting claim is said
to be the breaches of fiduciary duties and statutory directors’ duties
owed by Mr Elsegood
to PIHA, giving rise to many remedies (constructive trust,
equitable compensation, account or inquiry) and for statutory compensation
under
s 1317H of the Corporations Act. In particular, PIHA says that many of
these remedies will depend either on the production of further evidence that is
peculiarly
within the possession or knowledge of Mr Elsegood or subsequent
procedures being ordered following a successful final hearing on
the merits of
the claim.
- PIHA
says that the breaches of duty alleged against Mr Elsegood are genuine and not
spurious. PIHA contends that all it need do is
indicate some basis upon which
the court could presently quantify the offsetting claim, even though further
quantification might
await a final hearing on the merits.
- PIHA
submits that the evidence which enables me to be satisfied that the amount of
the offsetting claim against Mr Elsegood for his
breaches of duties exceeds the
$200,000 amount sought by the statutory demand is as follows:
(1) Mr Elsegood received $400,000 from Nikenbah Developments in connection with
his participation in the Christensen Ridge development
land, which is a benefit
for which Mr Elsegood must account or pay compensation to PIHA.
(2) Mr Elsegood’s company, Elsegood Holdings, holds 10,600 D class shares
in Nikenbah Developments, representing 10% of its
total paid-up share capital.
Nikenbah Developments owns at least one asset, being the land comprising the
Stage I Christensen Ridge
development land, which has a value of at least
$6,710,000 and up to $15.5 million. Mr Elsegood’s indirect interest in
Nikenbah
Developments therefore has a face value in the order of at least
$671,000 for which he must account or pay compensation to PIHA.
(3) On the latest of PIHA’s internal budget calculations the anticipated
final value of the Christensen Ridge development land
for PIHA was a net profit
position of $14 million (revised down from the amount of $34,375,235 recorded on
18 November 2022).
- PIHA
says that in considering the genuineness of the claim, it must be considered
that by its very nature it is a claim in which PIHA
lacks a great deal of
knowledge because it involves secret commissions and secret profits. PIHA says
that it has done its best with
the information it has to quantify the claim.
PIHA points to the fact that Nikenbah Developments did not acquire the
Christensen
Ridge development land until 18 August 2023, so there was not much
time between the acquisition of that benefit by Mr Elsegood and
the issuing of
the statutory demand. PIHA also says that, as Mr Curran explained during
cross-examination, PIHA is mindful to wait
for the progress of the CCD
Proceedings, the facts of which are heavily bound up and related to these
proceedings, before commencing
the claim against Mr Elsegood. This gives one
explanation as to why there has been a short but explicable delay.
- PIHA
made it clear that it is not pressing the “loss” case against Mr
Elsegood because it accepts that there is a gap
in the evidence between the
termination of the Christensen Ridge development land with CCD Developments and
Nikenbah Developments
arriving on the scene. PIHA emphasised that it is only
seeking to claim against Mr Elsegood to obtain the benefits that he has received
in breach of his duties.
- Finally,
PIHA offered an undertaking to the court that PIHA would commence the
proceedings against Mr Elsegood within 28 days of an
order being made to set
aside the statutory demand.
Submissions of Mr Elsegood
- Mr
Elsegood argued that the offsetting claim is not genuine, that it is a fiction
recently invented in response to the service of
the statutory demand and that
this fact alone is significant for determining the genuineness or otherwise of
the offsetting claim.
Mr Elsegood says that the claim has not been advanced in
good faith, referring in particular to the decisions in Grandview and
Access Solutions International Pty Ltd v Taglieri [2015] VSC 494, Randall
AsJ at [55], the latter of which is to the effect that to be genuine, the
offsetting claim must be demonstrated to have
a sufficient objective existence
and prima facie plausibility to distinguish it from an assertion and that an
offsetting claim made
after the statutory demand is issued suggests that the
alleged offsetting claim is not genuine and that the subsequent steps are
a
contrivance to give weight to an unmeritorious claim.
- Mr
Elsegood says that there has been a failure on the part of PIHA to pursue the
offsetting claim which has been known about since
at least 4 May 2023, when Mr
Curran met Mr Zenonos, and then on 5 May 2023, when Mr Curran met Mr Elsegood
alone. Further, Mr Elsegood
says that there was no evidence that a claim against
Mr Elsegood was raised in any form, prior to the letter of 19 October 2023,
in
response to the statutory demand and there is no evidence that PIHA has
commenced proceedings against Mr Elsegood in any forum
for the purported
offsetting claim.
- Mr
Elsegood also says that the lack of genuineness is also supported by PIHA having
prevaricated and been inconsistent in the arguments
that have been put and
advanced in response to the statutory demand. Mr Elsegood detailed these
prevarications and inconsistencies
as follows:
(1) the assertion that the debt of $200,000 was an equity contribution was
abandoned;
(2) there were inconsistent assertions in relation to the so-called loss of
opportunities, with a $27 million figure contained in
the letter of 19 October
2023, the forecasts of $34.375 million and now the most recent figure of about
$14 million.
(3) there have been claims for expenses of two different amounts with an
assertion in Mr Curran’s affidavit referring to expenses
in the amount of
$225,913.08 and then an amount of $185,757.50 in the list of expenses attached
to the letter of 19 October 2023;
(4) the claim for loss of profits was hopeless and an ambit claim, suffering
from a number of deficiencies, not least of which are
causation issues and it
has now been abandoned; and
(5) at the heal of the hunt there is the more recently invented account of
profits claim.
- Mr
Elsegood says that I should characterise these various claims as ambit claims
which undercut the genuineness of them.
- Mr
Elsegood also says that the financial position of PIHA makes it clear that it is
a loss-making enterprise and so should be characterised
as a desperate claim
made by a company in a desperate financial situation.
- Mr
Elsegood submits that the purported offsetting claim is void of fundamental
integers and is pure assertion. It is said by Mr Elsegood
that PIHA does not
identify the role of Mr Elsegood in the purported scheme; the other participants
in the scheme; where, when or
how the scheme was hatched; whether the scheme was
recorded in writing or whether it was entirely oral; how the scheme was
executed;
how the scheme caused PIHA to lose the opportunity to develop the
Stage I Christensen Ridge development land; and how participation
in the scheme
was a breach of Mr Elsegood’s director’s duties and fiduciary
duties.
- Mr
Elsegood says that PIHA was given multiple opportunities to participate in the
Christensen Ridge development land, which it refused,
while Mr Elsegood had been
open and transparent about his engagement with the other parties and they only
proceeded after it was
clear that PIHA could not take up the opportunity.
- Mr
Elsegood said that if I was satisfied that the statutory demand should be set
aside this is an appropriate case in which I should
impose a condition under s
459M of the Corporations Act in making an order under s 459H, so that
PIHA must commence proceedings in a court of competent jurisdiction in respect
of the offsetting claim within 28 days of
this judgment. Mr Elsegood says that
the non-fulfilment of the condition where a conditional order is made setting
aside the statutory
demand means that the statutory demand will continue to
stand. Mr Elsegood cited the approach taken in Asia Pacific Glass Pty Ltd v
Sindea Trading Co Pty Ltd (No 2) (2003) 47 ACSR 737; [2003] NSWSC 845,
Barrett J at [13] and Asia Pacific Glass Pty Ltd v Sindea Trading Co Pty Ltd
[2003] NSWSC 334, Barrett J at [24].
Determination
- In
essence, PIHA alleges that:
(1) The opportunity of the Christensen Ridge development land came to the
attention and knowledge of Mr Elsegood from March 2022
onwards while he was a
director of PIHA.
(2) Mr Elsegood has subsequently taken advantage of that opportunity for his own
profit or benefit by his involvement in the commercial
arrangements into which
he has entered in relation to Nikenbah Developments, including through the
$400,000 payment apparently made
to Mr Elsegood as evidenced in the 26 May
emails and his shareholding (via Elsegood Holdings) in Nikenbah Developments
which may
be valued at least around $671,000 (if taken as being 10% of the value
of Nikenbah Developments, expressed as what it paid for the
Stage I Christensen
Ridge development land of $6,710,000) for which he must account or pay
compensation to PIHA.
(3) The claim arose on about 18 August 2023 when Nikenbah Developments acquired
the title to the Stage I Christensen Ridge development
land.
- The
claim for breach of fiduciary duties proposed to be brought by PIHA against Mr
Elsegood is one which appears to come within the
well-known principles
established in Chan and Warman, which are summarised in the
following passage from Howard by French CJ and Keane J at [33] (footnotes
omitted):
[33] Fiduciary duties apply beyond the exercise of powers and
discretions flowing from the fiduciary relationship. A fiduciary
cannot in his
or her personal capacity be the subject of a conflict of interest. The general
principle of equity, by reference to
the liability to account, was stated by
Deane J in Chan v Zacharia and was echoed in the unanimous judgment of
the Court in Warman International Ltd v Dwyer:
“A fiduciary must account for a profit or benefit if it was obtained
either (1) when there was a conflict or possible conflict
between his fiduciary
duty and his personal interest, or (2) by reason of his fiduciary position or by
reason of his taking advantage
of opportunity or knowledge derived from his
fiduciary position”.
The objective of the rule is “to preclude the fiduciary from being swayed
by considerations of personal interest and from accordingly
misusing the
fiduciary position for personal advantage”. The appellant’s case was
based upon the first limb of the principle
stated in Warman and later
restated in Pilmer:
“... the fiduciary is under an obligation, without informed consent, not
to promote the personal interests of the fiduciary
by making or pursuing a gain
in circumstances in which there is ‘a conflict or a real or substantial
possibility of a conflict’
between personal interests of the fiduciary and
those to whom the duty is owed.”
- This
claim has its statutory counterpart in s 183(1) of the Corporations Act,
which states:
A person who obtains information because they are, or have been, a director or
other officer or employee of a corporation must not
improperly use the
information to:
(a) gain an advantage for themselves or someone else; or
(b) cause detriment to the corporation.
- The
remedies pressed by PIHA are ones which would have Mr Elsegood account for the
profits he has made, either by way of an account
of profits for breach of
fiduciary duties or compensation under s 1317H of the Corporations Act
for breach of s 183(1). As I stated above, the oft-cited principle stated in
GM & AM Pearce means that as a plaintiff, PIHA would ultimately have
to elect between equitable compensation and an account of profits, but for
the
moment the claim is pressed only as one for an account of profits.
- As
stated in Streeter, the fact that Mr Elsegood had resigned as a director
of PIHA on 10 March 2023 does not absolve him from liability to account for
profits he subsequently made in respect of a claim for breach of fiduciary
duties arising from an opportunity which came to his attention
while he was a
director of PIHA but which he did not act upon until a later time. The fact that
PIHA did not take up the opportunity
of the Christensen Ridge development land
is no answer to a claim for breach of fiduciary duties either, relying on the
principle
as expressed in Vadori.
- Applying
the variously expressed tests for a genuine offsetting claim as stated in
Grandview, and noting the low threshold imposed by these tests, in my
consideration the proposed claim by PIHA is one which:
(1) is seriously arguable, not frivolous, vexatious, fictitious or merely
colourable;
(2) is bona fide and truly existing in fact and the grounds for alleging the
existence of the claim are real and not spurious, hypothetical,
illusory or
misconceived;
(3) is asserted with a sufficient particularity to enable the court to determine
that the claim is not fanciful;
(4) has an existence that is objectively demonstrable independently of the
exigencies of the statutory demand; and
(5) is a plausible contention requiring investigation.
- In
relation to the contentions by Mr Elsegood that the claim is not
“genuine”, in my assessment Mr Elsegood has not made
out that case
for these reasons.
- First,
the suggested delay in PIHA raising the claim is adequately explained. Nikenbah
Developments did not acquire the Stage I Christensen
Ridge development land
until about 18 August 2023. PIHA (either itself or through its solicitors)
conducted an ASIC search of Nikenbah
Developments on 21 August 2023, at which
time it became aware that Mr Elsegood had an indirect financial interest in
Nikenbah Developments.
There is no evidence that PIHA had any idea about the
suggested payment of $400,000 to Mr Elsegood for his involvement in Nikenbah
Developments until the 26 May emails were produced to PIHA on subpoena by Mr
Vorkas on 1 February 2024. Those emails should have
been produced by Mr Elsegood
in November 2023 but were not. As a result, there is an explanation as to why
PIHA did not raise the
prospect of a claim against Mr Elsegood until after the
statutory demand was served on 4 October 2023, when PIHA’s solicitors
responded to it in writing on 19 October 2023.
- Secondly,
while PIHA has not brought the claim against Mr Elsegood, I believe Mr
Curran’s evidence that PIHA has taken steps
to advance the claim and that
PIHA has been waiting for the result in the CCD Proceedings before any action is
started against Mr
Elsegood.
- Thirdly,
while there have been prevarications by PIHA in relation to the nature of its
claim and the quantum of it, I consider that
PIHA made plain at the hearing
before me the elements of the claim that it intends to bring and the range in
the quantum it seeks.
PIHA was clear that, at the very least, the quantum of the
claim would be the $400,000 suggested in the 26 May emails to have been
paid to
Mr Elsegood.
- Fourthly,
I do not consider that the seemingly poor financial position of PIHA is a matter
which undermines the genuineness of the
offsetting claim. There are a myriad of
ways in which a company can bring a claim even though its financial condition
may suggest
that it does not have the ability to fund that claim. It may have
solicitors who are prepared to act on a “no win, no fee”
basis. It
may obtain third party litigation funding. While PIHA will obviously need to
address the means by which it will bring the
claim, in light of the undertaking
that PIHA has given to the court to bring any claim within 28 days, it will need
to be in a position
to do that quickly or otherwise risk the statutory demand
remaining in place.
- I
have determined that PIHA has a genuine offsetting claim which exceeds $200,000,
which provides the basis stated in s 459H(1)(b) of the Corporations Act
for me to make an order under s 459H(3) of the Corporations Act setting
aside the statutory demand.
- I
am, however, persuaded by Mr Elsegood that this is an appropriate case in which
I should make an order under s 459M of the Corporations Act that the
order under s 459H to set aside the statutory demand should be made on the
condition that PIHA commence court proceedings against Mr Elsegood within
28
days. The description used in Asia Pacific Glass v Sindea Trading Co
[2003] NSWSC 334, by Barrett J at [24] is apt to apply to this case:
In Jesseron Holdings Pty Ltd v Middle East Trading Consultants (1994) 12
ACLC 490, Young J pointed out that a finding of offsetting claim is not
necessarily the end of the matter in a case such as this. The court,
in setting
aside the statutory demand (as it is directed by statute to do), may impose
conditions: s 459M. Palmer J considered it appropriate, in Macleay
Nominees (above), to make the order conditional upon the successful
plaintiff pursuing the offsetting claim by commencement of proceedings
within a
specified time. His Honour observed that, at the stage of a s 459G application
for an order setting aside a statutory demand, the case shown by a plaintiff
relying on the offsetting claim ground under
s 459H(1)(b) may fall far short of
that which would ultimately be advanced in pursuing the offsetting claim. That
is the case here, particularly
as to quantum and, like Palmer J in Macleay
Nominees (and as submitted by Ms Sofroniou), I consider this to be an
instance in which the plaintiff should be required to demonstrate further
its
commitment to the genuineness and viability of its claim in an amount exceeding
that in the statutory demand by initiating the
proceedings it has foreshadowed.
Mr Johnson indicated that his client would not seek to resist such a condition
and would indeed
consent to it.
- While
PIHA indicated that it was prepared to give an undertaking to the court to
commence proceedings against Mr Elsegood within 28
days of an order I make
setting aside a statutory demand and did not consent to such a condition of that
order, I consider that the
condition should be imposed. This is particularly so
in a case in which PIHA has expressed a significant range for the quantification
of the offsetting claim and there are suggested doubts about whether PIHA has
the financial capability to bring the proceedings.
- Imposing
the condition would also have the effect of providing Mr Elsegood with a means
by which he could obtain the immediate practical
benefit of the statutory demand
being effective if PIHA did not meet the condition rather than having to seek to
enforce any undertaking
by a contempt application.
- In
Asia Pacific Glass v Sindea Trading Co (No 2) (2003) 47 ACSR 737; [2003]
NSWSC 845, Barrett J at [13] and [16] said:
[13] A condition of the kind with which I am presently
concerned is not, of itself, a source of obligation. The successful plaintiff
is
not, by the conditional order, directed to do the things that make up the
condition. Failure by the plaintiff to do those things
does not entail, in any
sense, disobedience: Talbot v Blindell [1908] UKLawRpKQB 52; [1908] 2 KB 114. It is just that
the plaintiff has not done things the doing of which is, by the terms of the
order, necessary to secure for the plaintiff
the benefit of the order. The
concept underlying a conditional order is that the court, by the condition,
specifies what the successful
party must do in order to have the benefit of the
order; and it is then for that party to decide whether he or she will take the
specified steps and secure that benefit or not take them and thereby forego it.
...
...
[16] In the result, therefore, the position now prevailing must
be that failure of the plaintiff to comply with the condition subject
to which
the order of 23 April 2003 was made means that the beneficial effect of that
order in favour of the plaintiff has ceased,
so that the statutory demand may no
longer be regarded as "set aside" and, in the words of Young J in Australian
Vineyard Management Ltd v Madden (above), "will continue to stand".
- These
paragraphs were approved in Re Wabbits Pty Ltd [2018] NSWSC 532, by
Gleeson JA at [32]–[33].
- I
have determined that if PIHA does not meet the terms of the condition I intend
to impose, then PIHA will lose the beneficial effect
of the order setting aside
the statutory demand such that the statutory demand will continue to
stand.
ORDERS
- For
the reasons stated above, I propose to make the following orders:
(1) Order that the statutory demand dated 28 September 2023 and served by the
defendant on the plaintiff on 4 October 2023 be set
aside on condition that the
plaintiff, not later than 18 July 2024, commences in a court of competent
jurisdiction the legal proceedings
against the defendant described in [164] to
[166] of the judgment in these proceedings by filing and serving the applicable
originating
process.
(2) Order that the defendant pay the plaintiff’s costs of these
proceedings.
**********
Amendments
06 August 2024 - [114] - date corrected (November 2023)
06 August 2024 - [110]-[111] - paragraph numbering fixed
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