This week’s TGIF considers In the matter of Black Tie Holdings Pty Ltd [2022] NSWSC 781 in which the NSW Supreme Court upheld a statutory demand despite defects where the debtor failed to comply with formalities in serving its challenge interstate.

Key takeaways

  • When serving an application to set aside a statutory demand, where the demand provides an interstate address for service, check that a SEPA notice is attached if required.
  • Statutory demands will rarely be found to be sufficiently defective to be a ‘nullity’.
  • Courts may take a pragmatic approach to finding that a loan balance is due and payable, even if based on somewhat unusual balance sheet entries.

What happened?

The relationship between the parties in this case, Z4life Pty Ltd (Z4life) and Black Tie Holdings Pty Ltd (Black Tie), arose out of developing or operating a digital platform for cryptocurrency coins or tokens.

Black Tie was based in New South Wales and Z4life was based in Victoria.

There was a disconnect between the parties as to how they described the relationship. Z4life claimed it was owed a ‘loan’ balance by Black Tie, primarily based on a balance sheet entry, plus an adjustment for money allegedly paid for coins not received, less an amount referrable to a motor vehicle transferred to Z4life. Black Tie instead alleged a consultancy agreement between the two and described the alleged ‘loan’ as a ‘holding account’. Black Tie also referred to evidence suggesting that the parties had gone into partnership.

In January 2022, Z4life served a statutory demand on Black Tie for the alleged loan. The demand contained a ‘2021’ date by mistake and also incorrectly stated a Queensland solicitor’s address for service.

The 21-day statutory deadline for applying to set it aside was midnight on 21 February 2022. Late that evening, Black Tie filed and emailed originating process and a supporting affidavit to Z4life’s solicitor in Queensland.

Crucially, the email did not attach a notice for effective interstate service, as required by section 16 of the Service and Execution of Process Act 1992 (Cth) (SEPA).

The proceedings

The failure to attach a SEPA notice meant that Black Tie had to conduct its case without relying on certain avenues for setting aside the demand under the Corporations Act 2011 (Cth) (Corporations Act) – specifically those under section 459G (genuine dispute) and section 459J(1)(a) (substantial injustice).

In anticipation of this, Black Tie amended its originating process to seek as alternative relief:

  • a declaration that the demand was null and void, which was then argued on the basis that it had specified an incorrect interstate address and that the amount claimed was not ‘due and payable’; or
  • an order setting aside the demand for ‘other reasons’ pursuant to section 459J(1)(b) of the Corporations Act, which was argued by reference also to the same issues, together with arguments that the demand claimed several loans as a single sum and lacked appropriate verification.

Black Tie did not apply for injunctive relief, but attempted to overcome the lack of a SEPA notice with an estoppel argument along the lines that Z4life was unconscientiously seeking to capitalise on having given its Queensland lawyers’ address for service in the demand.

Determination

The Court held that the failure to annex the SEPA notice was ‘fatal’ to Black Tie’s case, despite accepting that its email service was otherwise effective and within time.

The Court did not find any estoppel or unconscionability in Z4life’s conduct to overcome the SEPA issue.

The Court was also not persuaded by Black Tie’s alternative arguments to the effect that the demand was so fatally defective or caused such substantial injustice or was misleading as to amount to a ‘nullity’, nor that the demand should be set aside for ‘some other reason’ pursuant to section 459J(1)(b).

In considering evidence of the underlying loan balance, the Court remarked at a number of ‘odd’ aspects including the ‘unusual’ balance sheet relied on. Ultimately, the Court found sufficient evidence of a running loan balance that it was due and payable without the need for a formal demand.

Comment

Issues with SEPA and interstate service are by no means new for parties applying to set aside statutory demands. In an earlier edition of TGIF, we examined the approach to these issues in Victoria.

In this New South Wales case, there were essentially two attempted work-arounds. One was to argue that the demand was a nullity, but the authorities and commentary on this approach are mixed. As the Court observed in this case, there are a surprisingly large number of cases where demands fail to provide an address for service in the correct state but it is extremely rare for a demand to be sufficiently defective to be declared a nullity. As a fall-back, there can be scope to ventilate defects at the winding up hearing itself.

The other attempted work-around was to outflank the SEPA notice with an estoppel. No estoppel was found in this case so it was not necessary to decide whether (reluctant) South Australian authority should be applied here to preclude this approach on principle. However, debtors making this argument will need to do more than invoke the court’s equitable jurisdiction. They may also consider seeking injunctive relief to prevent a creditor relying unconscientiously on non-compliance with SEPA or other requirements which, as mentioned above, was not sought in this case.