S.M. Floreani Pty Ltd v C Tina Pty Ltd [2018] VSC 654 (1 November 2018)

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S.M. FLOREANI PTY LTD (ACN 069 513 266)	Plaintiff

v

C TINA PTY LTD (ACN 161 723 100)	Defendant

JUDICIAL REGISTRAR:	Hetyey JR
WHERE HELD:	Melbourne
DATE OF HEARING:	26 October 2018
DATE OF JUDGMENT:	1 November 2018
CASE MAY BE CITED AS:	S.M. Floreani Pty Ltd v C Tina Pty Ltd
MEDIUM NEUTRAL CITATION:	[2018] VSC 654

CORPORATIONS ACT 2001 (Cth) – Part 5.4 - insolvency – winding up – statutory demand to pay debt – s 459G - application to set aside – s 459H(1)(a) - whether genuine dispute about existence of debt.

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr L Carter	Kearney Guy Legal

For the Defendant	Mr A Muller	Logie-Smith Lanyon Lawyers

1 Mr Simon Floreani, the sole director and shareholder of S.M. Floreani Pty Ltd (“the plaintiff”), is a chiropractor who conducts business in Middle Park, Victoria. His wife, Ms Jennifer Barham-Floreani also works in the chiropractic business. In or around 2000, Mr Floreani commenced treating Mr Nick Vouzas and his mother Ms Christina Vouzas. At some point, Mr Floreani and his wife became friends and business partners with these members of the Vouzas family.

2 In 2014, C Tina Pty Ltd (“the defendant”) and Christina Vouzas on the one hand, and Mr Floreani and his wife on the other, commenced a venture to purchase and redevelop a property at 104 Canterbury Road, Middle Park (“the property”). To that end, a new company, 104 Holdings Pty Ltd (“104 Holdings”), was incorporated with Ms Vouzas and Ms Barham-Floreani as the directors.

3 In the event, what commenced as a joint venture between friends has now resulted in litigation. The defendant alleges that on 5 March 2015, it was agreed between the parties that the defendant would loan the plaintiff $50,417.94 by paying that sum to the BOQ Specialist Bank Limited (“the BOQ”) in order to close out a facility for which the plaintiff was liable (“the loan”). It is said that the loan has not been repaid. A letter enclosing a document titled “notice demand on loan” was sent to the plaintiff by the defendant’s solicitors on 26 June 2018 confirming particulars of the loan and requiring repayment within seven days. It appears that this correspondence was not met with a response. As a consequence, the defendant served the plaintiff with a statutory demand dated 6 July 2018 claiming the sum of $63,877.46 which is specified to comprise the amount advanced under the loan plus interest.

4 By originating process filed on 27 July 2018, the plaintiff seeks to set aside that statutory demand under Part 5.4 of the Corporations Act 2001 (Cth) (“the Corporations Act”). Whilst the originating process is somewhat unclear about the specific ground under Part 5.4 relied upon, having regard to the contents of the plaintiff’s affidavit material, it is clear the plaintiff alleges there is a genuine dispute in relation to the debt referred to in the statutory demand. In particular, the plaintiff asserts that no payment was ever made by the defendant to the BOQ and no loan agreement was ever entered into between the parties.

5 The first return of the proceeding was on 22 August 2018 before Gardiner AsJ. On that day, his Honour made various orders for the filing of further material by each party and the eventual hearing of the application on 26 October 2018.

6 On the same date, Gardiner AsJ made a further order that pursuant to rule 84.04 of the Supreme Court (General Civil Procedure) Rules 2015 (“the Rules”), the originating process be referred to a Judicial Registrar for hearing and determination.

7 One of the timetabling orders made by the Court required the plaintiff to file and serve an outline of submissions by 26 September 2018. This did not occur. The default prompted the Court to list the matter for a telephone mention in the late afternoon of 15 October 2018. Further orders were made on that day extending the time for the filing of the plaintiff’s submissions and providing that in the event those orders were not complied with, the plaintiff would not be permitted to file written submissions without leave of the Court.

8 During the course of the same telephone mention, the plaintiff’s solicitor indicated that his firm may seek leave to cease acting under rule 20.03(3) of the Rules. Given the proximity of the hearing date of 26 October 2018, orders were also made by the Court requiring the plaintiff’s solicitors to file any application for leave to cease acting by 4 pm on 17 October 2018. They did so and the summons was made returnable on 22 October 2018.

9 The summons for leave to cease acting and supporting material was duly served on the plaintiff by email on the morning of 19 October 2018.^[1] Mr Angelatos, the solicitor then acting for the plaintiff, has also deposed to calling Mr Floreani later that day to confirm service of the summons and supporting material.^[2] In addition, Mr Angelatos confirmed the time for the hearing of the summons and explained that Mr Floreani may wish to attend.^[3] Importantly, Mr Angelatos also says he explained to Mr Floreani that if his firm was given leave to cease acting on behalf of the plaintiff, “[Mr Floreani] would need to arrange legal representation at the hearing as directors are not generally permitted to represent a company...without leave of the court...[and]...that [Mr Angelatos] would assist him or his lawyer by providing any documents he required to enable him or his legal representative to run the matter on [26 October 2018].”^[4]

10 In his affidavit in support of the summons,^[5] Mr Angelatos deposed to a number of matters going to the then current state of affairs between his firm and his client. It is not appropriate to set those matters out here. However, it is sufficient to note that the circumstances referred to suggest that the relationship between solicitor and client had irretrievably broken down. As a consequence, on 22 October 2018, the Court granted the plaintiff’s solicitors leave to cease acting. A notice of ceasing to act was then filed by Mr Angelatos’ firm that same day.

11 The final hearing of the matter remained listed for 26 October 2018. On the morning of the hearing the plaintiff made an application for an adjournment on the basis that:

12 Counsel for the plaintiff also confirmed instructions from Mr Floreani, who was in attendance, that the plaintiff had duly received both a copy of the Court’s orders dated 22 October 2018 granting the former lawyers leave to cease acting and the notice of ceasing to act of the same date. Through counsel, Mr Floreani indicated that he would personally pay the defendant’s costs thrown away as a result of the adjournment.

13 The late application for the adjournment was strongly opposed by the defendant. Among other things, it was submitted by the defendant’s counsel that:

14 After hearing submissions, I was not satisfied that an adjournment of the hearing of the application was appropriate. In particular, the plaintiff had not set out in any affidavit why new lawyers were not engaged until the day before the hearing and why the plaintiff did not avail itself of the offer from its former solicitors to obtain copies of any documents required to enable the hearing to proceed. In the circumstances, I was of the view that the application should proceed on the totality of the material filed and without any postponement of the hearing. That was the course most consistent with the Court’s obligation under section 8 of the Civil Procedure Act 2010 (Vic) to give effect to the overarching purpose set out in section 7 of that legislation, namely to “facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute”. It was also the course most consistent with the efficient operation of the legislative scheme contained in Part 5.4 of the Corporations Act pertaining to statutory demands and winding up proceedings. As the majority of the High Court said in Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd,^[8] “[t]he evident purposes of Pt 5.4 of the Act include speedy resolution of applications to wind up companies in insolvency”.^[9] Because a statutory demand is a precursor to a winding up proceeding, it follows that any application to set aside a statutory demand should also be resolved without undue delay.

15 Despite refusing the adjournment application, I stood the matter down and made arrangements for copies of the documents on the court file to be provided to the plaintiff’s new counsel. The hearing then resumed early in the afternoon. The Court is grateful to the plaintiff’s counsel for familiarising himself with the Court documents in the time available to ensure the matter could proceed.

(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 21 days after the demand is so served.

(3) An application is made in accordance with this section only if, within those 21 days:

(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.

(1) 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;

18 The principles concerning what constitutes a genuine dispute for the purpose of s 459H(1) of the Corporations Act are well-established. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd, the Full Court comprising Northrop, Merkel and Goldberg JJ said: “[i]n our view a ‘genuine’ dispute requires ... the dispute be bona fide and truly exist in fact [and] the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived”.^[10]

19 In the Victorian Supreme Court of Appeal case of TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd,^[11] Dodds-Streeton JA (with whom the rest of the Court agreed) explained what a company is required to establish for the purposes of s 459H:

20 The quote relied on by Dodds-Streeton JA in the above passage appears to be drawn from the decision of Young J in the case of John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd^[13] where his Honour also said that: “[s]omething more than mere assertion is required because if that were not so then anyone could merely say it did not owe a debt”.^[14]

21 It is clear that the Court should not uncritically accept statements about an alleged genuine dispute which are “equivocal, lacking in precision, inconsistent with undisputed contemporary documents...or inherently improbable...”: Eyota Pty Ltd v Hanave Pty Ltd.^[15]

22 As was said by Hayne J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia,^[16] when considering an application such as this “it is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute.” His Honour made clear that “[a]ll that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute”.^[17]

23 Put slightly differently, whilst the underlying nature of the dispute about the existence of a debt “must be exposed”, the court will not deal with the merits and nothing of substance will be decided: Quadrant Constructions Pty Ltd v HSBC Bank Australia Ltd.^[18]

24 Finally, a company’s affidavit in support of an application under s 459G of the Corporations Act must contain sufficient evidence to support its case: Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (“Graywinter”).^[19] The affidavit need not detail the evidence supporting the dispute and may assert material facts in the nature of a pleading.^[20] However, there are restrictions on the content of any supplementary affidavits filed outside the 21 day statutory period prescribed by s 459G.

25 In Energy Equity Corporation Ltd v Sinedie Pty Ltd,^[21] the Full Court of the Western Australian Supreme Court held that whilst a plaintiff seeking to set aside a statutory demand is restricted from raising additional grounds in supplementary material filed outside the 21 day-period prescribed under s 459G of the Corporations Act, a supplementary affidavit may expand upon grounds raised in an earlier affidavit filed within the statutory period. However, the supplementary affidavit cannot raise a new ground or grounds to set aside the statutory demand.^[22]

26 In his first affidavit sworn on 26 July 2018, Mr Floreani makes the following important statements in relation to the debt the subject of the defendant’s statutory demand:

27 The defendant relies upon the affidavit of Mr Vouzas sworn 21 August 2018. Whilst not a director of the defendant, he was involved in the business transactions between the parties and has sworn an affidavit going to the circumstances of the loan. Mr Vouzas explains that in or around early March 2015, Mr Floreani had arranged finance of $385,000 (inclusive of GST) with the BOQ through Vitality Health Pty Ltd (“Vitality Health”), another entity connected with Mr Floreani (“the Vitality Health Facility”).^[23] That company was wound up by termination of a Deed of Company Arrangement on 2 March 2018. Mr Vouzas says the Vitality Health Facility was obtained so that Mr Floreani could contribute funds to the relevant venture. An examination of the Vitality Health Facility indicates that it was set to commence on 12 March 2015.

28 In early March 2015, Mr Vouzas deposes to meeting with Hanh Soh, a representative of the BOQ, to inspect works being undertaken at the property. On 4 March 2015, Hanh Soh called Mr Vouzas and informed him that funds could not be advanced under the Vitality Health Facility until Mr Floreani had paid off an existing facility. That same day, Mr Vouzas says he contacted Mr Floreani and informed him of the bank’s position. Mr Floreani apparently indicated he did not have the funds to discharge the existing facility and asked if the defendant could do so on the plaintiff’s behalf. Mr Vouzas says that around the same time, either Mr Floreani or the representative of the BOQ gave him a copy of a tax invoice from the BOQ and addressed to the plaintiff for the sum of $50,417.94 in respect of fixtures and fittings which had been the subject of finance (“the BOQ tax invoice”). The BOQ tax invoice exhibited to Mr Vouzas’ affidavit,^[24] is addressed to the plaintiff and contains details for payment to the BOQ. It also makes numerous references to the designation “E3ACC82185”, the significance of which is explained further below.

29 Mr Vouzas states that after speaking with his mother, he met with Mr Floreani around lunchtime on 5 March 2015 and informed him that the defendant would make the payment to the BOQ by way of a loan but that the plaintiff would need to repay the loan to the defendant with interest at the rate of 8 percent per annum. It is alleged that Mr Floreani agreed to this and suggested that repayment could be made as a result of the plaintiff improving its cash flow. It does not appear that the loan was ever reduced to writing.

30 Later that same afternoon, Mr Vouzas says he went with his mother to the defendant’s bank and transferred the precise sum of $50,417.94 to the BOQ.

31 In response to this evidence, Mr Floreani swore a further affidavit on 6 September 2018. It will be recalled that in his first affidavit, Mr Floreani emphatically states that “[i]n or about 2015, the [p]laintiff did not have any facilities with...[the BOQ]”. He exhibits to his second affidavit a document styled “Master Asset Finance Agreement Escrow Agreement Schedule”^[25] which contains the following salient features:

32 Mr Floreani refers to this document in his affidavit as an “escrow agreement”. Given its features and terms, I am prepared to conclude that this is in fact the same agreement which Mr Vouzas says the BOQ required to be paid out before new funds could be advanced under the Vitality Health Facility.

33 Despite the terms of the S.M. Floreani Facility and without any supporting material, Mr Floreani asserts in his second affidavit of 6 September 2018 that:

34 Counsel for the defendant objected to Mr Floreani’s second affidavit being allowed into evidence on the basis it offended the principle in Graywinter by going beyond the evidence advanced in his first affidavit. On balance, I am prepared to allow this evidence on the basis that it appears to relate to the assertion made in Mr Floreani’s first affidavit that “the [p]laintiff did not enter into an agreement with the [d]efendant on or about 5 March 2015 to pay the sum of $50,417.94 and/or to pay any interest thereon”. In other words, the evidence appears to go to the question of whether there is a genuine dispute as to the existence of the loan.

35 It should be noted that with the exception of the statements extracted above, in his second affidavit Mr Floreani does not directly deny or otherwise contradict Mr Vouzas’ affidavit evidence as it relates to the making of the payment.

36 In addition, there is documentary evidence which supports Mr Vouzas’ account of the defendant making payment on 5 March 2018 to the BOQ in order to pay-out the S.M. Floreani Facility on behalf of the plaintiff.

37 Firstly, documents produced by the BOQ under subpoena and tendered by the defendant reveal that:

38 In his second affidavit, Mr Floreani exhibits an email from Hanh Soh of the BOQ dated 4 March 2015 which is directed to “steven@fadco.com.au” and copied to Mr Floreani in which the bank representative suggests a “payout figure for the escrow” was in the process of being calculated and would be forthcoming.^[29] This is entirely consistent with the preparation of the Escrow Finalisation Sheet of even date and referred to above.

39 Secondly, the BOQ tax invoice^[30] which Mr Vouzas says was provided to him by the BOQ or Mr Floreani is a significant contemporaneous document. The tax invoice is addressed to the plaintiff and is for a sum of $50,417.94 “[a]s per fixtures and fittings financed under Escrow Contract No: E3ACC82185”. The amount in the BOQ tax invoice matches the sum said to be paid by the defendant to the BOQ on the plaintiff’s behalf. The contract number also corresponds with the agreement number used in the S.M. Floreani Facility (which Mr Floreani refers to as the “escrow agreement”).

40 It should be noted that in his second affidavit Mr Floreani appears to dispute the authenticity of the BOQ tax invoice. He says he contacted the bank and was advised that the tax invoice is “not part of their business records”. Unfortunately, this significantly overstates the position. Instead, an email communication from Ms Jessica Nguyen of the BOQ dated 30 August 2018 relevantly states:

41 It is plain from this email that the bank had confirmed the material details in the BOQ tax invoice to be correct. It should also be noted that the BOQ subsequently located and produced its own copy of the BOQ tax invoice under subpoena.^[31] In the absence of compelling evidence to the contrary, I must proceed on the basis that the BOQ tax invoice is a genuine document.

42 Thirdly, a BOQ statement for the S.M. Floreani Facility shows a payment of $50,417.94 on 5 March 2015 that reduced the balance of the S.M. Floreani Facility to zero (allowing for adjustments made on 9 March 2015).^[32]

43 Fourthly, the BOQ statement recording the receipt of the payment of $50,417.94 on 5 March 2015 directly correlates with a bank statement exhibited to Mr Vouzas’ affidavit which shows a payment made by the defendant from its own bank account on the same date.^[33]

44 In light of all this evidence, and following his review of the documents during the brief adjournment, counsel for the plaintiff properly conceded that there was no genuine dispute that on 5 March 2015 the sum of $50,417.94 was paid by the defendant to the BOQ on account of the S.M. Floreani Facility.

45 Were I required to do so, I would find, on the totality of the evidence, that there is no genuine dispute about the making of the payment on 5 March 2015 by the defendant to the BOQ on the plaintiff’s behalf. The plaintiff’s initial statements in this regard appear to be nothing more than mere spurious claim, bluster or assertion. The contemporaneous documentary evidence, together with Mr Vouzas’ affidavit, strongly suggest the payment was made. Moreover, the statements made in Mr Floreani’s first affidavit (which themselves appear to be at odds with the matters and documents referred to in his second affidavit) are simply inconsistent with the contemporaneous documents.

46 I am also not convinced there is a genuine dispute that the defendant made the payment to the BOQ on the plaintiff’s behalf pursuant to a loan agreement.

47 It will be recalled that the alternative claims made in Mr Floreani’s second affidavit about the purpose of the payment were that: a) the S.M. Floreani Facility was used to cover GST on the purchase of the property and was not used for fixtures and fittings; b) the resulting GST input tax credit was directed to be paid to the defendant; and c) the input tax credit “should have been used to discharge the escrow agreement [the S.M. Floreani Facility], which occurred”. Unfortunately, this narrative is vague, imprecise and lacking in sufficient objective existence and prima facie plausibility to rise above anything more than mere assertion.

48 Mr Floreani’s suggestion that the S.M. Floreani Facility was taken out to cover GST on the purchase of the property is contradicted by the plain terms of the S.M. Floreani Facility (the document expressly states it was for fixtures and fittings) and how it was used in practice. It is also undermined by a document produced by the BOQ under subpoena.^[34] The document is a facility dated 6 November 2014 entered into between 104 Holdings and Bank of Queensland Specialist Pty Ltd as agent of BOQ. The stated purpose of the facility is “[t]o assist with the GST portion of the purchase of the [c]ommercial [p]roperty”. I am prepared to infer that this is a reference to the property in question.

49 In his submissions, the plaintiff’s counsel suggested an apparent transfer of the sum of $200,000 from 104 Holdings into the defendant’s bank account on 20 January 2015^[35] was consistent with Mr Floreani’s evidence that the defendant had received an input tax credit which was then used to pay out the S.M. Floreani Facility several weeks later. This appears to be nothing more than speculation. The circumstances and purpose of that particular transfer from 104 Holdings into the defendant’s account were not addressed by either party in any of the affidavit material and the Court is not prepared to draw the inference now suggested.

50 In addition, it is appropriate to record that Mr Floreani’s evidence was inherently unreliable in places. Notwithstanding the existence of the S.M. Floreani Facility (which is exhibited to Mr Floreani’s second affidavit of 6 September 2018), Mr Floreani has offered no proper explanation for why he made the statement in his first affidavit that “[i]n or about 2015, the [p]laintiff did not have any facilities with...[the BOQ]”. At best, that statement involves a significant omission and is misleading.

51 Mr Floreani has also mischaracterised a number of communications with the BOQ. For example, in his first affidavit of 26 July 2018, Mr Floreani says that an email dated 26 July 2018 from the BOQ^[36] confirms that aside from a facility transferred from Vitality Health in or around 2018, “the [p]laintiff has not had any other facilities with them from 1 January 2015 to current”. In fact, the email simply clarifies that the plaintiff “does not hold any accounts with [the BOQ]”. That may be entirely correct as at the date of the email but nothing is said about the historic position. Further, it is clear from the foregoing that the plaintiff held the S.M. Floreani Facility with the BOQ at the time the payment was made by the defendant on 5 March 2015. As previously observed, Mr Floreani also mischaracterised the BOQ’s email of 30 August 2018 regarding the provenance of the BOQ tax invoice.^[37]

52 The defendant’s characterisation of the payment being made on account of a loan should therefore be preferred over any alternative and belated explanation for the payment proffered by Mr Floreani in his second affidavit.

53 In light of the above reasons, the originating process filed on 27 July 2018 should be dismissed. I will hear the parties on the question of costs.

^[1] See affidavit of Mr Sam Angelatos sworn 22 October 2018 and exhibit SAM-3 to that affidavit.

^[10] [1997] FCA 681; (1997) 76 FCR 452, 464, cited with approval by the Victorian Supreme Court of Appeal in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in Liq) [2015] VSCA 330 (“Malec”).

^[15] (1994) 12 ACSR 785, 787 (McClelland CJ). Cited with approval by the Victorian Supreme Court of Appeal in TR Administration and Malec.

^[23] The Vitality Health Facility can be found at exhibit SMF-5 to the affidavit of Mr Floreani sworn 26 July 2018.

^[25] See exhibit SMF-8 to the second affidavit of Simon Floreani sworn 6 September 2018.

^[26] See page BOQ-17 of the bundle of subpoena documents tendered by the defendant.

^[27] See, for example, page BOQ-26 of the bundle of subpoena documents tendered by the defendant. Documents produced under subpoena also contain a number of invoices from suppliers such as Officeworks, Bunnings Warehouse, Ikea, Frameless Impressions, The Good Guys, Toby Bloomfield, Cribbin Painting & Decorating and Finer Advisor and Development which match drawdowns on the S.M. Floreani Facility as shown at page BOQ-17 of the bundle of subpoena documents.

^[28] See page BOQ-21 of the bundle of subpoena documents tendered by the defendant.

^[29] See exhibit SMF-9 to the second affidavit of Simon Floreani sworn 6 September 2018.

^[31] See page BOQ-36 of the bundle of subpoena documents tendered by the defendant.

^[32] See page BOQ-17 of the bundle of subpoena documents tendered by the defendant.

^[34] See page BOQ-39 of the bundle of subpoena documents tendered by the defendant.

^[36] This email is found at exhibit SMF-6 of the affidavit of Mr Floreani sworn 26 July 2018.

^[37] See exhibit SMF-10 to the affidavit of Mr Floreani sworn 6 September 2018.

Supreme Court of Victoria

S.M. Floreani Pty Ltd v C Tina Pty Ltd [2018] VSC 654 (1 November 2018)