Supreme Court New South Wales Medium Neutral Citation: In the matter of Srini Associates Pty Ltd [2021] NSWSC 1685 Hearing dates: 3 December 2021 Date of orders: 3 December 2021 Decision date: 03 December 2021 Jurisdiction: Equity - Corporations List Before: Rees J Decision: Dismiss application to set aside statutory demand. Catchwords: CORPORATIONS – application to set aside statutory demand – tenant in arrears of rent over a number of years – genuine dispute – tenant says entitlement to rent dependent upon landlord providing a compliant tax invoice – implied term said to have arisen from practice – contrary to express terms of lease – amount claimed in statutory demand said to be not enough – offsetting claim – tenant says it has claim against landlord in respect of misleading and deceptive – representations said to have been made by seller of business – no evidence beyond subsequent common director of seller of business and landlord – abuse of process – no attempt by defendant to avoid establishing entitlement to amount claimed – no genuine dispute, offsetting claim or abuse of process Legislation Cited: A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 29-70 Corporations Act 2001 (Cth), ss 459G, 459H, 459J Service and Execution of Process Act 1992 (Cth) Trade Practices Act 1974 (Cth), s 52 Uniform Civil Procedure Rules 1999 (Qld), r 389 Cases Cited: BP Refinery (Westernport) v Hastings Shire Council (1977) 180 CLR 266 Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; (2017) 125 ACSR 212 Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85; (2009) 71 ACSR 602 Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192 Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60 Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452 Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd [2007] NSWSC 103; (2007) 61 ACSR 321 In the matter of Douglas Aerospace Pty Ltd [2015] NSWSC 167 In the matter of Essential Media and Entertainment Pty Ltd [2020] NSWSC 990 In the matter of Gorji Property Investment Pty Ltd [2018] NSWSC 1671 In the matter of Granite Power Ltd [2019] NSWSC 1491 In the matter of Linton Developments (Qld) Pty Ltd [2017] NSWSC 336 In the matter of Litigation Insurance Pty Ltd [2017] NSWSC 334 In the matter of Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 In the matter of Universal Property Group Pty Ltd [2019] NSWSC 796 Intergraph Public Safety Pty Ltd v Tess Lawrence Media Services Pty Ltd (1996) 19 ACSR 523 TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67 Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65 Category: Principal judgment Parties: Srini Associates Pty Ltd (Plaintiff) Votraint No. 1019 Pty Ltd (Defendant) Representation: Counsel: Mr BJ Gillard (solicitor) (Plaintiff) Mr DL Cook SC / Mr G Ng (Defendant) Solicitors: Gillard Consulting Lawyers (Plaintiff) HWL Ebsworth (Defendant) File Number(s): 2021/165274 ex tempore Judgment 1. HER HONOUR: This is an application by the plaintiff, Srini Associates Pty Ltd, to set aside a statutory demand under section 459G of the Corporations Act 2001 (Cth) on the basis of: 1. a genuine dispute or offsetting claim within the meaning of section 459H; or 2. as an abuse of process under section 459J(1)(b). Alternatively, Srini seeks an order pursuant to subsection 459H(4) to reduce the amount claimed in the demand to $478,151.97. The statutory demand was issued by Votraint No 1019 Pty Ltd for $1,237,223.56 in respect of unpaid rent and outgoings. 1. Srini relied on the evidence of its director, Sateesh Muvva. Votraint relied on the evidence of director Margarete Ainsworth, book keeper Kellie Saunders and legal representatives Warren Jiear, Francesca Aguinaldo and Darrin Edwards. In addition, Votraint relied on evidence by directors of two other companies relevant to Srini's allegations, being Kjerulf Ainsworth (a director of The Thistle Company of Australia Pty Ltd, the company which assigned a lease to Srini) and Srikanth Tarigopula (a director of Durga Associates Pty Ltd, the company to whom Srini sub-licensed the premises). Although various directions were made by this Court for the plaintiff to file evidence in reply, no further affidavits were served. PRINCIPLES 1. There is no dispute as to the principles. Drawing on my judgment in In the matter of Essential Media and Entertainment Pty Ltd [2020] NSWSC 990 at [77] to [81], the threshold to establish a genuine dispute about the existence of a debt is a relatively low one. Black J conveyed the principles in In the matter of Gorji Property Investment Pty Ltd [2018] NSWSC 1671 at [14]: … In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 at 464, the Full Court of the Federal Court held that a "genuine dispute" must be bona fide and truly exist in fact, and the ground for that dispute must be real and not spurious, hypothetical, illusory or misconceived. In Panel Tech Industries (Aust) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18], Barrett J (as his Honour then was) formulated that proposition as follows, in a proposition applied in subsequent cases: "Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger." 1. In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344, the Court of Appeal (Beazley P, Meagher and Gleeson JJA) said in the context of an offsetting claim, at [30]: It is settled law that s 459H requires the Court to be satisfied that there is a "serious question to be tried": see Scanhill v Century 21 Australasia [Pty Ltd (1993) 47 FCR 451] at 467, or "an issue deserving of a hearing" as to whether the company has such a claim against the creditor: see Chase Manhattan Bank Australia Limited v Oscty Pty Limited [1995] FCA 1208; 17 ACSR 128 at [42] per Lindgren J; Eumina Investments Pty Ltd v Westpac Banking Corp [1998] FCA 824; 84 FCR 454 per Emmett J (as his Honour then was). The claim must be made in good faith: Macleay Nominees v Belle Property East Pty Ltd [[2001] NSWSC 743]. In that case, Palmer J observed, at [18], that good faith, in this context, meant that the offsetting claim was arguable on the basis of facts that were asserted "with sufficient particularity to enable the Court to determine that the claim is not fanciful". Their Honours make it clear that a similar standard of proof is required whether an offsetting claim or a genuine dispute is alleged. 1. It is not for the Court to engage in an assessment of a deponent's credit on an application such as this: Britten-Norman at [46]. What is called for is an assessment of the kind described by McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 (approved in Britten-Norman at [46]) (citations omitted): 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", or "a patently feeble legal argument or an assertion of facts unsupported by evidence". 1. In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67, Dodds-Streeton JA, with whom Neave and Kellam JJA agreed put the test in the following terms, at [71]: As the terms of s 459H of the Corporations Act and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. … 1. Often cited is the judgment of Thomas J in In the matter of Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605, which provides useful guidance: It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another. The essential task is relatively simple — to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it). 1. Drawing on my judgment in In the matter of Granite Power Ltd [2019] NSWSC 1491 at [31]-[32], where the dispute relied upon to set aside a statutory demand is the meaning of the contract, determination of the meaning may be appropriate if a "patently feeble legal argument" is put forward: In the matter of Universal Property Group Pty Ltd [2019] NSWSC 796 at [15]. However, as Barrett AJA (with whom Gleeson and White JJA agreed) cautioned in Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; (2017) 125 ACSR 212 at [26], "where the question of construction has any element of rational controversy to it, the Court must exercise particular restraint." Barrett AJA adopted the statement of principle by Gleeson JA in In the matter of Litigation Insurance Pty Ltd [2017] NSWSC 334 at [31]: The important points to be derived from the authorities are as follows. First, the court dealing with a s 459G application is not compelled to determine questions of construction of documents. Second, s 459G proceedings are not ordinarily the occasion for the court to construe a contract where there are competing views about its meaning. Third, the cases in which it will be appropriate for the court to entertain a construction argument on a s 459G application are likely to be few in number. Fourth, the court's state of mind concerning the existence of a genuine dispute may range from a clear conviction that the debt does not exist to an opinion that the genuine dispute hurdle has only just been cleared. See also Gleeson JA in In the matter of Linton Developments (Qld) Pty Ltd [2017] NSWSC 336 at [32]. 1. Thus, where there are clearly arguable alternatives as to the meaning of a term and related questions of construction, this of itself gives rise to a genuine dispute within section 459H(1)(a) and no attempt should be made to determine the question in an application to set aside a statutory demand: Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192 at [47] per Barrett J. More recently in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60, White JA held at [90] (emphasis added): It is usually inappropriate on an application to set aside a statutory demand that the court attempt to decide competing contentions as to contractual interpretation, partly because to do so might embarrass a judge before whom that issue arises and fundamentally because if the disputed question of contractual interpretation is arguable there will be a genuine dispute as to the existence of the debt, albeit one that does not depend upon a disputed matter of fact. But where the legal argument propounded in support of a particular construction is "patently feeble" (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 (McLelland CJ in Eq), or where it is "as plain as a pikestaff" that it has no basis (Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89; 19 ACLC 1270 at [41]) then there will be no genuine dispute (Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; 125 ACSR 212 at [26]-[29] …). FACTS 1. Margarete Ainsworth is the sole director and shareholder of Votraint. Votraint owns land in Bundaberg, on which is constructed a service station. The lease 1. In 2012, Votraint leased the land to The Thistle Co for 20 years (the Lease), with three options for a further term of ten years each. The rent was $312,000 per annum plus GST, with the rent to increase by 4% each year. The permitted use under the Lease was operation and management of the service station. 2. Ms Ainsworth's son, Kjerulf Ainsworth, was then sole director of The Thistle Co, of which Votraint was a 25% shareholder. The other 75% shareholder was Arx Capital (Australia) Pty Ltd. Kjerulf Ainsworth was the sole director and shareholder of Arx Capital, holding the shares non-beneficially. That is, Ms Ainsworth was not a director of The Thistle Co, being a company in which Votraint was a minority shareholder. 3. Clause 2.1 of the Lease, when read in conjunction with the Reference Schedule, provided: 2.1 Rent The Tenant must pay the Rent to the Landlord – (a) … in equal [monthly] instalments … (c) on or before each Rent Day [being the First Business Day of each month of the Term]. 1. Clause 2.2 of the Lease, "Method of payment of Rent", provided, "The Tenant must pay the Rent by the method referred to in Item 4(c)", being direct deposit into the Landlord's bank account or as directed by the Landlord. The Tenant was obliged to pay Outgoings, expenses and interest on overdue payments: clauses 3, 4.1 and 4.2. In addition, clause 4.3 provided: (emphasis added) 4.3 GST (a) In addition to paying the Rent (which is exclusive of GST), the Outgoings and other consideration under this Lease, the Tenant must – (i) pay to the Landlord an amount equal to any GST for which the Landlord is liable on any supply by the Landlord under this Lease, without deducting or set-off of any other amount, and (ii) make that payment as and when the Rent, Outgoings or other consideration or part of it must be paid or provided. If the Tenant does not pay the GST at that time, then it must pay the GST within 14 days of a written request by the Landlord for payment of the GST. (b) Each party making a taxable supply under this Lease must issue a tax invoice to the other party for each taxable supply on the earlier of the following two dates– (i) in exchange for any payment relating to that taxable supply, or (ii) within 14 days of making the taxable supply. … 1. Schedule 2 to the Lease contained rules for interpretation, including an entire agreement clause: clause (l) of Schedule 2 provided that the agreement "does not include any other collateral or implied agreement or terms which are not expressly included or incorporated in this Lease (and any agreement for lease which gave rise to the Lease) whether arising through representations preceding this Lease or during negotiations relating to this Lease." Sale of service station business 1. Sateesh Muvva is the sole director and shareholder of Srini. Mr Muvva said, "As part of its business and together with other companies in what I refer to as the Srini Group, Srini buys service station sites, renovates or develops the sites, operates service station businesses and sells or sub-leases the sites." 2. In June 2015, Mr Muvva was interested to buy the Bundaberg service station business (the Business) from The Thistle Co. In evidence is a series of emails from June 2015 to January 2016 between Mr Muvva and the general manager of The Thistle Co, Tim O'Donovan, negotiating the purchase. On 10 June 2015, Mr O'Donovan gave Mr Muvva the sales figures for May 2015. Mr Muvva said that, in September 2015, Mr O'Donovan called him and encouraged him to buy the Business. According to Mr Muvva, Mr O'Donovan said, "It is making good margins (8 to 10 cents), it has high volume, big tanks and near new facilities … there is no immediate competition. The only thing you got is a depot behind you and a closed down service station just down the road which will never trade again. … Trust me, you won't see a better margin." Mr Muvva said he relied heavily on what Mr O'Donovan said to him. 3. On 1 October 2015, Mr Muvva sent an email to Mr O'Donovan, "As spoken over the phone, I totally understand your INTERNAL Arms length lease: 4% INCREASE EVERY YEAR IS TOO HIGH." Mr Muvva sought to change the annual increase to a standard CPI increase and sought confirmation that all outgoings would be paid by the landlord. Mr O'Donovan replied that it was not correct to refer to the lease as "internal", noting "the landlord is a totally different entity" albeit known to The Thistle Co. Mr O'Donovan offered to request a reduction in the annual increase in rent from the landlord and also said that it was not his understanding that outgoings were to be paid by the landlord. 4. Further negotiations ensued. Mr Muvva says that on 4 November 2015, he called Mr O'Donovan, who assured him that it was a good business and "you will never go wrong. You can trust me – the margins are great, there are good volumes and the business is never going to face competition." Ultimately, Mr O'Donovan advised that the landlord would agree to hold the rent at existing levels for a year, being $28,121.82 a month plus GST, and thereafter increase the rent with CPI. Amendment of lease 1. On 5 December 2015, Ms Ainsworth signed an amendment to the Lease, in anticipation of the assignment of the lease to Srini. The provisions of the Lease that provided for a 4% increase in rent each year were deleted. Clause 2.8 was inserted instead, which provided for annual CPI increases. Further, clause 2.8(c) provided: (c) If the Rent payable from a Rent Adjustment Date is not determined until after that date– i. the Tenant must continue to pay the current instalments of Rent due (at the rate applicable prior to the Rent Adjustment Date) until the new Rent is determined, and ii. within 14 days of the determination, the Tenant will pay any shortfall to the Landlord. That is, if the Landlord failed to increase the rent in accordance with CPI, the Tenant remained obliged to continue to pay the rent at existing levels, and to pay any shortfall within 14 days of the Landlord increasing the Rent. 1. On 14 January 2016, Srini entered into an Agreement for Sale of Business with The Thistle Co, agreeing to buy the Business for $500,000. Clause 5 of the contract was an 'entire agreement' clause such that the parties warranted that they did not rely on any prior representations. 2. On 4 February 2016, Mr Muvva asked Mr O'Donovan to "please send the last year 2014-2015 financials (proper ones) also last 12 months system generated sales. Nothing to do with our settlements." On 9 February 2016, the amendments to the Lease were registered. On 12 February 2016, the sale was completed. On 12 February 2016, Votraint, The Thistle Co, Srini and Mr Muvva executed a Deed of Consent to Assignment of Lease, whereby Srini took an assignment of the Lease. 3. After completion of the sale of the Business and assignment of the Lease, Ms Ainsworth was appointed a director of The Thistle Co on 10 March 2016, as her son left Australia to reside overseas. Ms Ainsworth said she was involved in Votraint's consideration and consent to the assignment of the Lease but was not involved in negotiations for the sale of The Thistle Co's business. 4. There followed a series of invoices rendered by Votraint, and forwarded by Ms Saunders to Srini, for monthly rent. Rent and outgoings were not paid in a timely manner from the outset. In October 2016, Mr Muvva complained by email to Ms Ainsworth and Ms Saunders, copied to Mr O'Donovan, that he could not afford the rent anymore as someone had opened a store nearby, "I am happy to give the site back". No mention is made in this email of any representations which it is now said were made by Mr O'Donovan. In November 2016, Votraint served a statutory demand and Mr Muvva agreed to "clear up the debt up to date". Further emails in June 2017 indicate that rent and outgoings remained unpaid. A sub-licence 1. Unbeknownst to the Landlord, in January 2018, Durga began occupying the site and operating the Business. According to Mr Tarigopula, a director of Durga, in December 2017 or January 2018, Mr Muvva offered to let Mr Tarigopula and fellow director Srikanth Munnany take over the Business and Lease as repayment of monies which Mr Muvva owed them. This was an oral agreement. On 19 January 2018, Durga took over operation of the Business "and paid the agreed monthly rent in the amount of $30,934.00 to Srini". 2. In evidence are bank statements for Durga and Srini's bank accounts, which show that from February 2018 on, substantial amounts were frequently transferred from Durga to Srini for fuel and rent. Srini has admitted these transfers. By Mr Tarigopula's calculations, from June 2018 to February 2021, Durga paid rent of $1,022,100. 3. By March 2018, the outstanding rent owed by Srini to Votraint was some $386,000. In October 2018, outgoings remained unpaid, with correspondence from Votraint now emanating from its solicitors. On 24 October 2018, Votraint's solicitor gave Mr Muvva a detailed explanation of how the rent was being calculated. District Court proceedings 1. On 12 November 2018, Votraint filed a Statement of Claim in the District Court of Queensland, seeking to recover unpaid rent and outgoings of $427,015.90 from Srini and Mr Muvva, where Mr Muvva was guarantor of Srini's obligations. On 21 December 2018, Srini and Mr Muvva filed a Defence, admitting that Srini owed $166,734.17 but otherwise disputing the claim on the basis inter alia that: 1. the effect of the Lease Amendment was to set the initial rent payable by Srini under the Lease at the level of the base rent under the Lease, as distinct from the amount of rent payable by The Thistle Co at the time of the assignment of the Lease; and 2. by reason of a suggested failure on the part of Votraint to render tax invoices for rent since April 2018, Votraint was not entitled to recover GST in respect of the taxable supply constituted by the Lease. No mention was made in the defence, nor any Cross Claim filed, in respect of the representations now asserted. This would have been an opportune time to raise the matter. 1. According to Ms Ainsworth, Srini "paid a substantial amount of the arrears at that junction, substantially reducing the amount then due". However, the proceedings "stalled". No step having been taken in the District Court proceedings for over two years, no step may now be taken without leave of the Court: Rule 389(2) of the Uniform Civil Procedure Rules 1999 (Qld). There is no suggestion that such leave will be sought. 2. Mr Muvva says that he has not been contacted in relation to the District Court proceedings since August 2019, until recently. Mr Muvva says that the proceedings are still on foot and Srini and he actively maintain their defence to the claim. Srini submitted that it had the option of pressing for a resolution in the Queensland District Court Proceedings. By refusing to pay rent, Srini "put itself in legal jeopardy in order to bring the issue to a head", which I understand to be a suggestion that Srini was being courageous or noble in withholding rent. Notwithstanding the risk said to have thereby been taken by Srini, it was said that Votraint "cannot say such an approach impeaches the genuineness of the dispute". 3. On 8 August 2019, Votraint's solicitors served a Notice to Remedy Breach of Covenant, requiring the payment of rental arrears in the sum of $597,194.05 as particularised in a detailed schedule. By cover letter, Votraint's solicitors carefully explained how the rent had been calculated having regard to the provisions of the Lease, and its amendment. In addition, Votraint's solicitors provided a copy of the outstanding invoices. Mr Muvva said Srini had not been provided with any invoices since August 2019. 4. On 20 January 2020, apparently also unbeknownst to the landlord, Srini and Durga entered into an Agreement for Sale of Business, pursuant to which Durga agreed to purchase the Business for $500,000. That was the same price for which Srini purchased the Business from The Thistle Co. Mr Tarigopula said the money was paid by way of a set-off against the money that Srini and Mr Muvva owed Durga, Mr Tarigopula and Mr Munnangy. 5. By June 2020, Durga had transferred $3,964,860 to Srini for fuel and rent. Srini has admitted these transfers but has not admitted that the payments were for fuel and rent. 6. On 4 March 2021, the landlord served a further Notice to Remedy Breach of Covenant, seeking the payment of rental arrears in the sum of $1,203,475.00, although the notice did not attach the invoices. One cannot help but observe that, although Srini was receiving rent from Durga, it was not paying rent to Votraint. According to Ms Ainsworth, no payment was made in answer to the notice. Queensland Supreme Court proceedings 1. On 10 May 2021, Votraint commenced possession proceedings in the Supreme Court of Queensland. In support of the application, Mr Edwards deposed that rental arrears now stood at $1,237,223.56. The Originating Application and supporting affidavit were served on Srini on 11 May 2021 by email to Mr Muvva and delivery to Srini's registered office in New South Wales. By these means, Mr Tarigopula also came to learn of the proceedings and how much money Srini owed Votraint. He instructed solicitors to communicate with Votraint with a view to formalising Durga's occupation of the site. 2. The possession proceedings were listed for hearing on 18 May 2021 before Bowskill J. Srini did not appear. Senior counsel for Votraint informed her Honour that "[t]here have been some telephone discussions with a solicitor who's indicated that they're not instructed to appear today". (As described in more detail by Mr Edwards in these proceedings, he had received a telephone call from a solicitor, Mr Lawson, who said he had received instructions to act but required proof of personal service on Srini, otherwise he would be seeking an adjournment. Mr Edwards forwarded affidavits of service to Mr Lawson, who then advised that his firm would not be appearing for the defendants and he had no further instructions.) 3. Before her Honour, Votraint read three affidavits of service. Discussion ensued as to whether, in seeking to have the matter heard on 18 May 2021, Votraint was complying with the Service and Execution of Process Act 1992 (Cth), which requires 21 days' for interstate service. Her Honour expressed concern in making orders at a hearing which was taking place sooner than the 21 day period, noting the sizeable amount of unpaid rent and the length of time for which the rent has been outstanding. Votraint pressed for orders to be made given the costs incurred in adjourning the hearing to a later date and suggested that any orders be stayed to comply with the 21 day requirement. Her Honour was persuaded to proceed in that manner and made the following orders: (emphasis added) The Respondent having not complied with a Form 7 – Notice to Remedy Breach of Covenant dated 4 March 2021 and having been found to be in default of a Lease of the land more commonly described as 15 Scotland Street Bundaberg East known as dealing number 714818858, by having not paid the sum of $1,237,223.56 THE ORDER OF THE COURT IS THAT – 1. The Applicant and or its duly authorised agents, servants and delegates be authorised to enter and recover possession of the property more commonly known as 15 Scotland Street, Bundaberg East in the State of Queensland being Lot 15 on Survey Plan 228931, title reference 50782041 ("the property"). 2. The Respondent forthwith deliver up to the Applicant all keys, access codes, security codes and other access devices to the property. 3. The Respondent be restrained from preventing the Applicant or its duly authorised agents, servants and delegates effecting Order 1. 4. The Respondent pay the Applicant's costs of and incidental to this application to be assessed on the indemnity basis. 5. This order is stayed until 9am on 1 June 2021. 1. In making those orders, her Honour delivered ex tempore reasons, relevantly stating as follows: (emphasis added) It is clear on the evidence before the Court that the respondent is in substantial default under the terms of the lease, owing at present, it seems, in excess of $1.2 million in arrears, which is increasing at the rate of approximately $33,000 per month … The evidence satisfies the Court that the notice of default was properly served, and the default is established on the evidence. There is no appearance before the Court by the respondent today. The evidence shows that the respondent was served with the material in three ways: (1) by email to the director of the respondent company; (2) by personally delivering the documents to the business address in Bundaberg East and leaving them there with a person who identified themselves as the manager of the business; and thirdly, by service on the respondent company at its registered office. That registered office is, in fact, at an address in New South Wales, and so service in that regard was accompanied by a form 1 under the Commonwealth Service and Execution of Process Act. It has been drawn to the Court's attention that section 17 of the Commonwealth Service and Execution Process Act contains a provision which arguably applies permitting a person served to enter an appearance within 21 days or such shorter period as the Court on application allows. I say arguably applies because there is some question mark over whether there is any requirement on the respondent to – or ability to serve a document within the meaning of "appearance" under section 14 of the Commonwealth Act. Whilst I accept it is arguable, I think there is sufficient permissive language in both that Act and rule 29 of the UCPR that it could be that that time is available to a party served in another state. As to whether this Court should allow a shorter period, I was somewhat concerned about that. Whilst on the one hand, it is a very substantial amount of money that the respondent is in arrears, and that is accruing at a substantial rate, on the other hand, it seems on the evidence to have been in arrears for quite a long time, at least three years. In order to balance those competing considerations, I am persuaded to make orders in the terms which have been sought permitting the applicant to recover possession of the leased property but to stay the order for a period of 14 days … the purpose of which is to cater for the 21-day period under section 17 of the Service and Execution of Process Act. That means that after that period of time, if the respondent takes no steps, the applicant can go ahead and enforce the order without incurring further legal fees. However, if the respondent wishes to take some step in relation to the proceeding, it can do so in that time period. 1. Whilst Srini pointed out that Bowskill J did not enter judgment against the Srini in the amount of $1,237,223.56, her Honour was obviously satisfied on the evidence that Srini was in default under the Lease and owed rent to the Landlord in that amount. 2. On 19 May 2021, Votraint's solicitors sent a copy of the orders to Mr Muvva. In addition, Votraint issued the statutory demand the subject of these proceedings. The sum stated as being due and payable is the same figure recorded in the orders of Bowskill J as constituting the default under the Lease entitling Votraint to an order for possession of the Premises. Mr Muvva admits that Srini owes $478,151.97, being invoices issued to September 2019 but not since then. 3. Srini took no step to set aside, or otherwise to disturb, the orders made by Bowskill J. Those orders thus became operative at 9am on 1 June 2021. On 31 August 2021, Votraint and Durga entered into a three-month lease in respect of the Premises. 4. In November 2021, Ms Saunders realised that the invoices which she had been preparing and sending to Srini were incorrect as she had omitted to take into account CPI increases. Votraint's solicitor also noted that the outstanding rent claimed in the statutory demand did not include default interest. On 23 November 2021, Votraint served revised invoices from 13 February 2016 to 31 May 2021, said to reflect annual CPI increases under the Amended Lease. By Ms Saunders' calculations and those of Votraint's solicitor Mr Jiear, Votraint is entitled to $2,122,843.23 as at 23 November 2021, being an amount in excess of that in the demand. 5. On 24 November 2021, Srini "reject[ed]" the invoices on the basis that the invoices did not comply with the A New Tax System (Goods and Services) Act 1999 (Cth) and thus did not constitute tax invoices. The invoices were said to be issued in breach of clause 4.3(b) of the Lease. The rental amounts sought to be recovered were disputed "and has been since 2018, including as in accordance with the Queensland District Court proceedings". Srini offered to consent to an application for leave to resume those proceedings and to an increase in the jurisdiction of the District Court to hear the matter or for the matter to be transferred to the Supreme Court of Queensland. This course was said to overcome Srini's objection to the statutory demand being an abuse of process. GENUINE DISPUTE 1. Srini disputes the amount claimed in the statutory demand on four bases. First, notwithstanding Clause 2.1 of the Lease, a practice is said to have developed whereby rent was only payable on receipt of a tax invoice. After June 2018, it is said that the invoices were sent to Votraint's solicitors but not to Srini. As invoices were never served, so it is said that no rent is payable. This is said notwithstanding numerous e-mails from the landlord's solicitors with expansive details of rent and outgoings then outstanding and the basis of the calculations for the amount sought. 2. I am not satisfied that this ground gives rise to a genuine dispute as to the debt. First, it is at odds with the express terms of the Lease, clause 2.1 of which simply provides, "The Tenant must pay the Rent to the Landlord". Further, clause 4.3(a) imposed upon the Tenant an obligation to "pay to the Landlord an amount equal to any GST for which the Landlord is liable on any supply by the Landlord under this Lease, without deducting or set-off of any amount". While clause 4.3(b) obliged each party making a taxable supply to issue a tax invoice within a prescribed period, the Tenant's obligation to pay GST to the Landlord was not expressed to be, and was not impliedly, conditional upon the receipt by the Tenant of a tax invoice. Srini's obligation to pay GST was not conditional upon the receipt of any invoice. 3. Indeed, I do not understand Srini to say that the Lease means otherwise. Rather, it was suggested that a practice has arisen which provides for something other than the express terms of the Lease. It was submitted that the practice has given rise to an implied term to the effect that rent is not payable until a tax invoice has been rendered. However, having regard to the well-established law for the implication of implied terms set out in BP Refinery (Westernport) v Hastings Shire Council (1977) 180 CLR 266, a term will not be implied where it is inconsistent with the express terms of the Lease nor where it is not necessary for the business efficacy of the arrangements. The implied term suggested by the plaintiff would be inconsistent with the express terms of the Lease nor would it be necessary for business efficacy. 4. Such a practice is also at odds with the contemporaneous documents, which include emails from Ms Saunders and Votraint's solicitors from time to time reminding Mr Muvva and his employee, Rony Augustine, that the obligation to pay rent does not depend on the issue of an invoice. Votraint has also, from time to time, demanded the payment of rent from Srini. And so far as I can see, Srini has not suggested in the correspondence that it is not obliged to pay or cannot pay the rent because of the absence of an invoice. 5. Turning to the second suggested genuine dispute, Srini says that the Lease provided for CPI increases after the first anniversary of the amended lease. In fact, the landlord did not apply a CPI increase to the invoice. As I understand the argument, it is thereby suggested that the landlord undercharged the rent, and there is a genuine dispute that the rent claim should have been more. Whilst I have heard many applications to set aside a statutory demand, this is the first time I have heard a debtor complain that the genuine dispute is that the debtor is obliged to pay more than the amount claimed in the statutory demand. I do not think it is a reasonable construction of section 459H of the Corporations Act to suggest that a genuine dispute extends to the fact that the amount claimed is not enough. In any event, it would be no reason to reduce the amount claimed in the statutory demand on that account. 6. The third genuine dispute is said to be that the tax invoices are not payable because they are addressed to "Srini Group" rather than Srini Associates Pty Limited. It is thereby said that Srini cannot claim a tax credit and that the tax invoices do not comply with section 29-70 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth). 7. As already mentioned, clause 2.1 and 4.3 of the Lease makes plain that the obligation to pay rent is separate and independent of the issue of a tax invoice. In any event, section 29-70 of the A New Tax System (Goods and Services Tax) Act provides that a tax invoice must contain enough information to enable various matters to be clearly ascertained, including the recipient's identity or the recipient's ABN. It is perfectly apparent from Mr Muvva's affidavit that Srini was part of the Srini Group: see [16]. The contemporaneous documents, being emails and correspondence, emanated from and were sent to the Srini Group. In addition, the invoices referred to the leased premises and the landlord, albeit addressed to the Srini Group. I note also that, aside from a pleading in the District Court that Voltraint was not entitled to recover GST in the absence of a tax invoice, there is no mention in the correspondence of a suggestion that the rent could not be paid because the tax invoices were addressed to the wrong entity. It cannot be seriously argued that the invoices did not contain enough information to enable the recipient to identify who it was that was obliged to pay the rent. This suggested dispute is not plausible. 8. The fourth suggested genuine dispute is that the figure in the statutory demand, being the figure advanced before Bowskill J, departed from the invoices which historically had been rendered in that it included CPI adjustments. That may well be so, although I rather understood that CPI adjustments were not added until November 2021: see [42]. But the question is whether there is a genuine dispute as to whether the amount claimed in the statutory demand is owing. 9. Where the Lease provided for CPI increases, the fact that the landlord had failed to previously include the whole of its entitlement in invoices rendered to that point does not have the consequence that, when a statutory demand was issued which captured the landlord's entitlement, there is a genuine dispute as to that entitlement. As clause 2.8(c) provided, once the Landlord adjusted the Rent for CPI, the Tenant was obliged to pay any shortfall within 14 days. This fourth suggested genuine dispute does not meet the requirements as articulated in the authorities. OFFSETTING CLAIM 1. Notwithstanding the entire agreement clause in the Agreement for Sale of Business, Mr Muvva says that, in entering into the agreement with The Thistle Co, he and Srini relied on seven representations by The Thistle Co. First, The Thistle Co had sold fuel at the service station at an average price of 8 to 10 cents a litre above the cost it paid, on an average volume of 461,000 litres of fuel sold per month. Second, Srini would in future sell fuel at the same, or similar, margin and volume. Third, The Thistle Co was paying rent of some $33,000 a month, including GST, pursuant to an arms-length commercial registered lease. Fourth, there was no direct competition for the service station. Fifth, a derelict Caltex service station nearby would not in the future recommence trading in competition with the service station. Sixth, Votraint made a capital investment in The Thistle Co but was otherwise independent of, and had no influence over, The Thistle Co. Seventh, The Thistle Co was not in a position to negotiate any variation of the Lease with Votraint. 2. Srini contends that these representations were misleading and deceptive, contrary to sections 18 and 20 of the Australian Consumer Law. Srini contends that Votraint "as the parent company of Thistle and in circumstances where it exercised full control" was knowingly involved in the conduct of The Thistle Co. I note that at the time the representations are said to have been made: 1. Votraint was a minority shareholder in The Thistle Co; and 2. Ms Ainsworth, being the sole director and shareholder of Votraint, was not a director of The Thistle Co. 1. Srini asserts that Ms Ainsworth acted as a shadow or de facto director of The Thistle Co during the relevant time and Voltraint knew or ought to have known the representations made by The Thistle Co were misleading and an inducement for Srini to enter into the Agreement for Sale of Business and that Voltraint was knowingly involved in the conduct of The Thistle Co. Srini submitted that Mr Muvva raised his concerns regarding the representations made during the sale of the business with Ms Ainsworth by email in October 2016. Thus, it was said that this was not an ambit or frivolous claim raised solely to set aside the statutory demand. (As earlier mentioned, the email does not suggest that any representation had been made by Mr O'Donovan, this being a good opportunity to raise the matter. Instead, Mr Muvva simply said that he was unable to pay the rent.) 2. To the extent that it is suggested that any loss suffered by Srini was reduced by the payment of rent from Durga, Srini submitted that the evidence as to the rent paid contained inconsistencies between Mr Tarigopula's affidavit, his diary entries and bank statements. Further, to the extent that Srini had received $500,000 for selling the business, that was said to be subject to obtaining the Landlord's consent to an assignment of the Lease, such that Srini may be obliged to repay the $500,000 and, potentially, also damages. To this, Votraint rejoined that any entitlement which Durga had to request repayment of $500,000 would be caused by Srini's failure to pay the rent, which led to re-possession of the site. 3. Having reviewed the evidence before the Court on this application, it is not necessary for me to comment on the strength of any case Srini may have against The Thistle Co. The question is whether there is an offsetting claim against Votraint. I have struggled to see how a claim for misleading and deceptive conduct can be brought against Votraint. One cannot ignore the fact that there were separate corporate entities involved. There is nothing in the contemporaneous documents which would support a contention that Ms Ainsworth, notwithstanding her lack of any official involvement in The Thistle Co at the time, somehow exerted influence over that company. Indeed, the contemporaneous documents point in the other direction and also point away from the suggestion lately made that there were representations made by Votraint. 4. Even if Votraint could plausibly be said to have had knowledge of the falsity of the alleged representations and the purpose for which they had been made during the negotiations between The Thistle Co and Srini, the mere fact of such knowledge could not suffice to constitute knowing involvement in The Thistle Co's allegedly misleading or deceptive conduct. As a majority of the High Court noted in Yorke v Lucas (1985) 158 CLR 661 at 670; [1985] HCA 65, while the intent necessary to be knowingly involved in a contravention of what was then section 52 of the Trade Practices Act 1974 (Cth) is "based upon knowledge of the essential elements of the contravention", one must still, in order to be so knowingly involved, be a "participant" in the relevant contravention. The assertions contained in Mr Muvva's evidence do not suggest any participation by Votraint in the allegedly misleading or deceptive conduct of The Thistle Co. 5. Nor for that matter is there any evidence capable of raising a plausible contention that any of the representations attributed to The Thistle Co were false, or, in the case of the representation concerning the possibility of a future revival of the derelict Caltex service station, made without reasonable grounds. Mr Muvva does not proffer any evidence capable of casting doubt upon the correctness of that representation. He does not advance any allegations concerning the margins and volumes actually achieved by Srini in selling fuel at the Bundaberg site. The evidence affords no basis for a plausible contention that the Lease did not answer the description of an arm's length transaction. Having alleged the falsity of the representation said to have been made by The Thistle Co that the derelict Caltex service station previously trading at 2 Kendall Street, Bundaberg East would not in the future recommence trading in competition with the Business, Mr Muvva does not depose that trade actually recommenced. There is an email Mr Muvva addressed to Mrs Ainsworth on 5 October 2016 which refers to "some one (sic) opened the store 300 meters (sic) away to us on BOURBONG road" but it is not clear whether that is the same service station or some other service station as the Caltex service station was said to be on Kendall Street. 6. It must also be noted that no proceedings have been commenced by Srini against The Thistle Co, Mr O'Donovan or Votraint in respect of the suggested misleading or deceptive conduct, notwithstanding that the limitation period fast approaches. 7. More importantly, even if there was a plausible misleading and deceptive conduct claim against Votraint, there also needs to be sufficient evidence before the Court to assess what the value of that claim might be, such that it exceeds the statutory demand or requires the amount demanded to be reduced. Mr Muvva says that Srini would not have entered into the Agreement for Sale of Business absent the representations. Instead, it would have purchased another service station business and earned profits of some $20,000 a month, being a similar profit said to have been earned by Srini at service stations purchased in Kiama and Warrawong at about the same time. Srini suggests that it has suffered a loss and damage as a consequence of some $1.76 million, which is said to be continuing. Alternatively, Srini claims to have suffered loss and damage in the sum of $500,000, being the purchase price paid. 8. An affidavit under section 459G may read like a pleading and may raise a ground of dispute in a form which is inadmissible to prove the facts giving rise to the dispute, which facts may be proved in a later affidavit served outside the 21 day period in proper form: Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452 at 459; Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd [2007] NSWSC 103; (2007) 61 ACSR 321 at [34] per White J. Beyond the assertions as to the suggested loss in Mr Muvva's affidavit served within the 21 days prescribed by the Corporations Act, Srini has not adduced any evidence in proper form outside the 21 day period to establish the suggested loss to the requisite, albeit low, standard required on an application such as this. There is simply no evidence supporting the claim beyond the bald assertion contained in Mr Muvva's affidavit. There being no evidence, the application to set aside the statutory demand on the basis of an offsetting claim fails. ABUSE OF PROCESS 1. Finally, Srini says that the issuing of the statutory demand was an abuse of process. Srini relied on Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85; (2009) 71 ACSR 602, where Martin CJ (Owen and Miller JJA agreeing) stated: The issue of the statutory demand, and the appeal from the decision of the master setting it aside, reflect a fundamental misconception as to the purpose of the statutory demand process created by Pt 5.4 of the Corporations Act. That purpose is to provide a means whereby the insolvency of a company may be established for the purposes of an application to wind up that company. Its purpose is not to provide a means whereby those claiming a genuinely disputed debt can avoid the obligation of establishing their entitlement to that debt in a court of appropriate jurisdiction by placing commercial pressure on the party resisting payment. There is a clear inference from the evidence that Createc's purpose in issuing the statutory demand was the improper purpose of using the statutory demand process to enforce payment of a debt which it knew to be genuinely disputed. That is an abuse of process. See also Intergraph Public Safety Pty Ltd v Tess Lawrence Media Services Pty Ltd (1996) 19 ACSR 523 at 526-7. 1. Srini submitted that at Votraint did not seek an order for judgment for unpaid rent, nor disclose the suggested dispute as to the calculation of rent, the existence of the District Court proceedings or Srini's filed Defence. Srini submitted that the Queensland District Court proceedings are the appropriate forum for the dispute. This is not negated by the judgment and orders of Bowskill J as her Honour did not enter judgment against the Plaintiff in the amount of $1,237,223.56, nor is the statutory demand based on her Honour's orders. The defendant's service of the statutory demand was said to be a clear attempt to avoid the obligation of establishing its entitlement to the claimed amount in a court of appropriate jurisdiction. The Court can objectively conclude an improper purpose in doing so, even if the defendant may have some other subjective purpose in mind. I draw no such conclusion. 2. It is apparent that debt recovery proceedings were commenced some time ago in the District Court proceedings. It appears from Ms Ainsworth's evidence that in response to that claim, Srini paid a substantial amount of the outstanding debt. It is certainly the case that Votraint, if it so wished, could seek to prosecute its claim for unpaid debt by revitalising the District Court proceedings. But I do not agree that there is an obligation to do so if the amount claimed in the statutory demand cannot seriously be disputed. The real issue before the Court today is whether there is a genuine dispute as matters stand today. As I have already found, there is not. I am not satisfied that there is an abuse of process. The Landlord has not used the statutory demand to enforce payment of a debt which it knew to be genuinely disputed. 3. For these reasons, I make the following orders: 1. Dismiss the Originating Process dated 8 June 2021. 2. Order the plaintiff to pay the defendant's costs of these proceedings. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 December 2021