Supreme Court New South Wales Medium Neutral Citation: In the matter of Norwest Legal Services Pty Limited [2019] NSWSC 1896 Hearing dates: 22 November 2019 Date of orders: 22 November 2019 Decision date: 22 November 2019 Jurisdiction: Equity - Corporations List Before: Black J Decision: The creditor's statutory demand issued by Brookris Pty Ltd dated 16 September 2019 be set aside. Catchwords: CORPORATIONS – application to set aside creditor's statutory demand – where debt purported to be due and payable to beneficiary of trust – where evidence of debt appears to be sourced from financial accounts that have not been prepared – whether debt is due and payable – whether there is a genuine dispute – whether demand should be set aside. Legislation Cited: - Corporations Act 2001 (Cth) ss 459G, 459J Cases Cited: - Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601 - Chianti Pty Ltd v Leume Pty Ltd [2007] WASCA 270 - Euroasian Holdings Pty Ltd v Ron Diamond Plumbing Pty Ltd (in liq) (1996) 64 FCR 147 - Fischer v Nemeske Pty Ltd [2015] NSWCA 6 - Fischer v Nemeske Pty Ltd [2016] HCA 11; (2016) 330 ALR 1 - Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60 - Gusdote Pty Ltd v Ashley [2011] FCA 250 - Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 Texts Cited: - F Assaf, Statutory Demands and Winding Up in Insolvency (LexisNexis Butterworths, 2nd ed, 2012) Category: Principal judgment Parties: Norwest Legal Services Pty Limited (Plaintiff) Brookris Pty Limited (Defendant) Representation: Counsel: D C P Stewart (Plaintiff) M W Watson (Solicitor) (Defendant) Solicitors: Matthews Dooley & Gibson (Plaintiff) Watson Mangioni (Defendant) File Number(s): 2019/310260 Judgment Background and evidence 1. By Originating Process filed on 4 October 2019, the Plaintiff, Norwest Legal Services Pty Limited ("Norwest"), which is the trustee of a trust, applies to set aside a creditor's statutory demand ("Demand") served by Brookris Pty Limited ("Brookris"), a beneficiary of the trust, dated 16 September 2019. That Demand quantified the debt claimed as $508,997.06 and described the relevant debt as: "Unpaid trust distribution balance, as at 30 June 2018, owing to Brookris Pty Ltd as trustee for the CJ Kearney Family Trust by Norwest Legal Services Pty Limited in its capacity as trustee of the Norwest Legal Services Unit Trust." 1. The Demand was verified by an accompanying affidavit dated 16 September 2019 of Mr Christopher Kearney, which referred to his having been a director of Norwest to 30 June 2019; to the entities which are unitholders of the Norwest Legal Services Unit Trust; asserted that Norwest was indebted to Brookris for the relevant amount being the unpaid trust distribution balance owed at 30 June 2018; and claimed that the debt was due and payable by Norwest and that he believed there was no genuine dispute about the existence or the amount of the debt. That, of course, complied with the requirements for the prescribed form of an affidavit accompanying a statutory demand, although there may be questions as to whether there was a proper basis for the statements that the debt was due and payable and that there was no genuine dispute as to it at the relevant time. 2. I should first refer, briefly, to the relationship between the parties, before turning to the affidavit evidence, the documents, the parties' submissions, and the relevant principles. As I have noted above, Norwest is the trustee of the Norwest Legal Services Unit Trust and carried on an incorporated legal practice in that capacity. Brookris is a company associated with Mr Kearney, a solicitor who was a principal in the firm to 30 June 2019. Brookris was a one-third unitholder in the unit trust, and the two other unitholders were companies controlled by two other principals of the firm. Mr Kearney gave notice of his intention to resign from the firm, and that resignation appears to have become effective as at 30 June 2019. The Demand, however, is not directed to any debt that may be due as at 30 June 2019, because it appears accounts for that period have not yet been prepared in the ordinary course, and is instead directed to the position nearly a year earlier, on 30 June 2018. 3. Norwest relies, in support of the application to set aside the Demand, on the affidavit dated 4 October 2019 of Mr Mark Ford, who is one of the solicitors in the firm. That affidavit sets out the structure of the firm, in terms that appear to be relatively uncontroversial, and the manner in which its financial statements are prepared, generally in December each year, in order to meet a requirement for provision of those statements to its bank by a specified date. Mr Ford also refers to the circumstances in which tax returns are lodged. He refers to the amount of the unpaid distribution claimed in the Demand, and points to the fact that a different amount is shown, described as an unpaid trust distribution, in financial statements as at the relevant date. I will return below to the manner in which the amount set out in the Demand has been calculated. Mr Ford's evidence is that there has been no determination made by Norwest in its capacity of trustee of the trust to pay out to Brookris or any of the unitholders any amount of unpaid trust distributions and that he is not aware of anything that creates a present entitlement to Brookris to demand or receive payment of the unpaid trust distributions or of any liability on the part of Norwest to pay the alleged debt claimed in the Demand. 4. Brookris in turn relies on the affidavits of Mr Kearney dated 7 November 2019 and 20 November 2019. Mr Kearney's first affidavit refers to figures shown in the accounts of the unit trust for the financial year ended 30 June 2018 and Mr Watson, who appears for Brookris, has taken me in some detail to those accounts in submissions. Mr Kearney also refers to working papers prepared by the accountants for Norwest, or the trust, which record calculations on which reliance appears to have been placed to determine the amount in the Demand. Mr Kearney fairly recognises that the accounts taking into account income and drawings for the 2019 financial year have not been prepared, and that that would entail a reconciliation of current beneficiary equity accounts. Mr Watson submits that is not to the point, because any debt that existed at 30 June 2018 remains in place until some further reconciliation or determination is made. The further affidavit of Mr Kearney dated 20 November 2019 referred, in evidence that was not pressed, to information provided by the accounting firm, and, in evidence that was not admitted, to Mr Kearney's understanding of the distribution to unitholders in particular years. 5. I have also been taken, in submissions, to the trust deed for the trust which provides in cl 2(c) that unitholders are beneficially entitled to the trust fund in proportion to the units registered in their names. Clause 10 provides for distribution of income and, inter alia, provides for the trustee to decide, in June each year, the amount or proportion of the net income of the trust fund which will be distributed to unitholders in respect of the accounting period. That clause appears to contemplate a formal process of decision, not least because it refers to the need for approval of unitholders holding 75 per cent of the ordinary units as to the amount available for distribution. It also provides a power to issue further units in whole or part satisfaction of the distribution of income, presumably as an alternative to the payment of a money amount. It provides that any amount not distributed shall be added to a general reserve established under the trust deed. Mr Stewart, who appears for Norwest, has also referred to provisions dealing with distributions on termination of the trust, which it is not presently necessary to address. 6. Mr Watson has in turn taken me, at considerable length, to the financial report for the unit trust for the year ended 30 June 2018, including a record described as "beneficiaries distribution" in that year. He has also referred to a record, in the balance sheet, of a current liability described as "an unpaid trust distribution". Mr Stewart fairly points out that the description of current liability does not indicate a debt presently due and payable, because the concept of currency in accounting standards contemplates a debt or amount that may be payable within a 12 month period. The notes to the relevant financial statements also refer, in respect of Brookris, to an amount which appears to reflect trust distributions, as in turn adjusted by drawings, to reach a figure at 30 June 2018 that is significantly less than that claimed in the Demand. Mr Watson raises the possibility that the Demand should be varied to that lesser figure. Mr Stewart also refers to subsequent correspondence from Mr Kearney, in May 2019, which raised the possibility of the need for a reconciliation of respective current beneficiary equity accounts, which may or may not impact upon the amount due to beneficiaries, calculated as of today, as distinct from the position at 30 June 2018 which is the subject of the Demand. Mr Watson has also taken me to the accountant's working paper, for the June 2018 year, which appears to record, at one point, a balance which is consistent with the financial statements and then, adopting a different methodology, a balance which might support the larger amount claimed in the Demand. Applicable principles 1. I now turn to the applicable principles, because it is important, in this case, to be clear as to what the Court should decide in an application to set aside a creditor's statutory demand. The Court has power to set aside such a demand, under s 459H(1)(a) of the Act, where there is a genuine dispute between a company, relevantly, Norwest as trustee of the trust, and the issuer of a creditor's statutory demand, relevantly, Brookris. A genuine dispute will be established if the dispute is bona fide and truly exists in fact, and the grounds for the dispute must be real and not spurious: Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 at 464. The relevant principles have since been considered by the Court of Appeal in, for example, Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601, where the Court of Appeal conducted a comprehensive review of the cases applicable to establishing a genuine dispute, although that case involved an offsetting claim. Their Honours summarised the position (at [47]) as that the Court's role was to determine "whether there was plausible evidence to establish the existence of a genuine dispute, not whether the evidence was disputed or even likely to be accepted on a final hearing of any such claim." 2. In Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60 at [90], the Court of Appeal returned to these matters, and White JA there emphasised that it will generally be inappropriate, in an application of this kind, for the Court to decide competing contentions as to contractual interpretation, both because that may embarrass a judge before whom a final hearing occurs, and because, if a genuine question of interpretation is arguable, then there will be a genuine dispute as to the existence of the debt. Here, the questions are not, strictly, questions of construction of a contract, but instead the application of principles of unjust enrichment in the relevant context. 3. Turning now to Norwest's submissions in respect of the application to set aside the Demand, Mr Stewart submits that the rights of a beneficiary against a trustee in respect of trust income are generally enforceable in equity only and do not create a debtor/creditor relationship. That proposition finds support in Euroasian Holdings Pty Ltd v Ron Diamond Plumbing Pty Ltd (in liq) (1996) 64 FCR 147, and has been approved in Mr Assaf's text, Statutory Demands and Winding Up in Insolvency (LexisNexis Butterworths, 2nd ed, 2012) at [2.53]. There are two cases, to which both parties refer, where courts have found that the entry of amounts in the accounts of a trust, as due to a beneficiary, in the particular circumstances amounted to an admission that the amount was due and payable: Chianti Pty Ltd v Leume Pty Ltd [2007] WASCA 270 at [77] and Gusdote Pty Ltd v Ashley [2011] FCA 250. Mr Stewart submits, and I accept, that it is at least genuinely arguable that those are decisions on their particular facts, where the former involved provisions in the trust deed which provided that the relevant determination by the trustee had the consequence that the beneficiary was absolutely entitled to the amount due, and the latter appears to have been decided after earlier proceedings between the parties in respect of their relevant entitlements rather than, as here, where no such determination has been reached in any substantive proceedings. Mr Stewart here points to a number of steps that have not been taken including, for example, a current valuation of the corpus of the trust, which might be taken in order to determine the amount presently due to Brookris. As I have noted above, Mr Watson seeks to sidestep that proposition by pointing out that the amount claimed is that which was previously due, as at 30 June 2018, even if it might be amended, or varied, by some further determination. 4. Mr Watson in turn submits that, whatever the status as to the claim in equity of a beneficiary, a beneficiary is able to maintain a claim for moneys had and received in respect of an amount which has been determined to be due and payable to him in that capacity: Fischer v Nemeske Pty Ltd [2015] NSWCA 6 at [89]; and, on appeal to the High Court of Australia, Fischer v Nemeske Pty Ltd [2016] HCA 11; (2016) 330 ALR 1. The High Court's decision does not, however, wholly assist Brookris, since French CJ and Bell J emphasised (at [16]-[17]) that it was only when there was nothing that remained for the trustee to do except to pay over money to the beneficiary, or when the trustee had admitted the debt, that an action for money had and received might lie by the beneficiary against the trustee. I again remind myself that the question here is not for me to determine how the High Court's decision should be construed, in the relevant circumstances, but instead whether there is a genuine dispute as to that matter, capable of supporting an application to set aside the Demand. 5. Mr Watson in turn refers to the practice of the trust, from year to year, as recorded in its accounts in respect of the amount calculated and described as the unpaid trust distribution. He also refers, in a somewhat complex analysis, to the manner in which amounts have been treated in the trust tax return, although it was not all together clear what should follow from that, because the fact that a beneficiary is treated as entitled to an amount for tax purposes will not necessarily establish that that amount is due and payable, whether in law or in equity, still less that it is presently due and payable in law or in equity. 6. In the present circumstances, it seems to me that there is a genuine dispute as to the relevant claim. That is not to say that the claim could not be established, in a court of competent jurisdiction, by way of an action for debt or for unjust enrichment or seeking a declaration as to the amount due at a particular point in time, which would involve findings both as to contested facts and the inferences that should be drawn from the practice of the parties from time to time, and a fuller consideration of the cases to which I have been taken and particularly the scope of a claim for unjust enrichment in this context. The position here seems to me to be quite different to the position considered in, for example, Gusdote Pty Ltd v Ashley above, where there was found to be a clear admission that an amount was due to the beneficiary, quite apart from the difficulties which arise from the question, here, as to whether any amount that was due to the beneficiary, as at 30 June 2018, was still due to the beneficiary on the date the Demand was issued. I do not reach final conclusions as to any of these matters, because it is not my role to do so in an application of this kind. These matters are sufficient to create a genuine dispute in respect of the Demand. 7. For these reasons, I order that the creditor's statutory demand issued by Brookris Pty Limited and dated 16 September 2019 be set aside. Costs 1. The parties addressed briefly as to costs. Mr Stewart submitted that an order for indemnity costs should be made, by reference to two letters. The first, with no disrespect to it, did no more than identify the suggestion that there was a genuine dispute as to the debt which, as it turns out, is consistent with the finding I have reached. The second was somewhat more extensive, but again amounted, in effect, to a statement that there was a genuine dispute. That was a matter which was plainly open to argument, so far as, as I have noted above, there are at least some cases in this context where conduct has been found sufficient to amount to an admission of a debt owed by a trust. 2. Mr Watson, on the other hand, submitted, somewhat more ambitiously, that there should be no order as to costs. The basis of that submission seems to be, in part, that there is said to be a lack of responsiveness by Norwest to correspondence from Mr Kearney, and a lack of a substantive response, at least for a time, to correspondence from Mr Watson's firm. The second aspect of the submission was that Norwest was acting for itself, which perhaps rather merged the distinctions between the trustee and the firm which conducts the legal practice, and ignores the fact that Mr Stewart is a member of the independent bar. 3. It seems to me that costs should follow the event. I am not satisfied that a claim for indemnity costs has been established, where the correspondence to which Mr Stewart referred amounted to an assertion of the Plaintiff's position, which has ultimately been upheld, but did not rise to the level that it could be said that it was unreasonable for the Defendant to take the contrary position. Similarly, the matters to which Mr Watson has referred do not seem to me to be sufficient to displace the ordinary rule that costs follow the event. For that reason, I make a further order that the Defendant pay the Plaintiff's costs of the application, as agreed or as assessed. I also order that the exhibits be returned. ********** 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 2019