Setting aside a Statutory Demand – a low threshold?

In Project 88 TPF Pty Ltd v Open Projects Group Pty Ltd[1] Project 88 Pty Ltd (Project 88) fell behind on payments to Open Projects Group (OPG) under a commercial building contract for the fit out of a nightclub, the Pink Flamingo Spiegelclub on the Gold Coast. OPG effectively sought to enforce a compromise agreement it asserted was reached and which included a term that all debts would be satisfied upon payment of $450,000 by Project 88 or its directors, Anthony Rigas and Susan Porrett.

In November 2019, OPG filed proceedings in the District Court of Queensland against Mr Rigas, his wife and Ms Porrett claiming, amongst other things, $450,000 and simultaneously, served its second statutory demand for $450,000 on Project 88 (the first statutory demand having been set aside).

This second statutory demand was also set aside as the Court found that there was a genuine dispute about the debt.

What happened?

On 2 August 2019, the directors of OPG and Project 88 communicated about a potential payment plan and for Mr Rigas to provide a mortgage over his home as security for the amounts owing to OPG. Project 88’s directors intended to discuss this arrangement with their lawyer and informed OPG’s director, Mr McCarthy, who wished to resolve the matter quickly and had arranged a meeting on 11 August 2019.

Following that meeting, Mr McCarthy sent Project 88’s directors an email outlining what had been discussed in the meeting and requesting that legal documents be signed “at the earliest convenience” and that the debt owing would be paid back “as soon as possible… planning on $20,000 a week if possible…” It was this email that Mr McCarthy would later seek to rely on as evidence of a compromise agreement supporting the debt owed under the statutory demand.

Although Project 88’s directors agreed with what had been outlined in Mr McCarthy’s email, they also indicated that weekly payments of $20,000 may not always be possible. Subsequent emails between the directors of OPG and Project 88 showed that Mr McCarthy had followed up and sought an update on the position of Project 88’s directors as he was aware they had wanted to consult with their lawyer. More significantly, Mr McCarthy also indicated that if he commenced legal proceedings, “the original without prejudice offer… [in his email dated 11 August 2019]… would be cancelled…”

On 2 September 2019, Mr McCarthy’s email to Project 88’s directors showed that he was still following up on legal documents to be signed by them and for a payment plan to be put forward.

On 8 November 2019, OPG commenced proceedings in the District Court of Queensland for, amongst other things, amounts alleged to be owing by Mr Rigas, his wife and Ms Porrett under the alleged compromise agreement or, if that agreement was found to be unenforceable, amounts owing under the commercial building contract.

The second statutory demand was then served upon Project 88 on 28 November 2019.

The Court’s findings

Project 88 applied under section 459G of the Corporations Act 2001 (Cth) (the Act) to set aside the second statutory demand. It disputed the debt on the basis that the alleged compromise agreement is not enforceable and does not oblige Project 88 to pay the debt.

Under section 459H of the Act, the Court considered whether there was a genuine dispute about the existence or amount of a debt stated in a statutory demand and/or whether there was an offsetting claim that the debtor company could rely on in challenging the statutory demand.

Her Honour Justice Ryan considered several cases which were concerned with the existence of a genuine dispute. Noting that the threshold is not high or demanding, Justice Ryan applied the test of whether there was a plausible contention requiring investigation and which does not require a Court to go any further in determining the merits of, or to resolve, the dispute. Put simply, the Court is not to weigh the dispute but rather, determine whether there is a genuine dispute or not.

Justice Ryan held that the facts before her demonstrated that there was a genuine dispute about the debt. In particular, it was found that:

• the terms of the alleged compromise agreement had not been agreed upon as there were differences in Mr McCarthy’s own account of what the terms of the alleged agreement were;
• Mr McCarthy had subsequently referred to his own email of 11 August 2019 as the “original without prejudice offer” which he threatened would be “cancelled”; and
• subsequent emails seeking updates and details of a payment plan from Project 88’s directors evidenced there was no concluded agreement that had been reached.

Justice Ryan found there was no concluded agreement which supported the alleged debt in the statutory demand. Having determined that there was a genuine dispute about the debt warranting that the second statutory demand be set aside, Justice Ryan considered that it was unnecessary to determine the obligations under the alleged compromise agreement and whether it was in fact, enforceable.

Her Honour also observed that the pleadings in the District Court proceedings did not clearly assert OPG’s position and concerned the same debt the subject of the statutory demand. In light of the ambiguity relating to the alleged compromise agreement, her Honour observed that the District Court proceedings would constitute sufficient ‘other reason’ under section 459J of the Act for the second statutory demand to be set aside.

Key Takeaway

This case reinforces that it is a low threshold to satisfy a Court that a statutory demand should be set aside. In determining whether there is a genuine dispute, the Court can have consideration to several factors, but it will not resolve the merits of the dispute. Here, the Court considered the actions and uses of expression and language through various emails sent between the parties and held that no concluded compromise agreement had been reached and the statutory demand should be set aside.

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Authored by:

Barbara-Ann Sim, Partner
Xavier Jovellanos, Solicitor

[1] [2020] QSC 167.