Beattie and Sutherland v Osman (No. 4)

[2009] NSWSC 834

Reported Decision: 73 ACSR 220

New South Wales

Supreme Court

CITATION:	Beattie and Sutherland v Osman (No. 4) [2009] NSWSC 834
HEARING DATE(S):	07/08/09 and 10/08/09
JUDGMENT DATE :	11 August 2009
JURISDICTION:	Equity
JUDGMENT OF:	White J
EX TEMPORE JUDGMENT DATE:	11 August 2009
DECISION:	1. Order that the originating process be dismissed; 2. order pursuant to s 447A that the administration of the third defendant end; 3. exhibits may be returned after 28 days; 4. stand the matter over to deal with the question of costs to Friday, 14 August 2009 at 9.30am.
CATCHWORDS:	CORPORATIONS – administration – application by administrators for declaration that their appointment as administrators by secured creditor was valid – administrators have not discharged onus on them to prove that the company owed a debt to secured creditor – not established that ‘Default Event’ occurred entitling secured creditor to make the appointment – declaratory relief refused - administration brought to an end
LEGISLATION CITED:	Corporations Act 2001 (Cth) Evidence Act 1995 (NSW)
CASES CITED:	Young v Queensland Trustees Ltd (1956) 99 CLR 560 J & B Records Ltd v Brashs Pty Ltd (1995) 36 NSWLR 172 Massoud v NRMA Insurance Ltd (1995) 62 NSWLR 657 Blanch v British American Tobacco Australia Services Ltd [2005] NSWSC 241; (2005) 62 NSWLR 653 Jones v Sutherland Shire Council [1979] 2 NSWLR 206 Jackson v Irvin (1809) 2 Camp 48; 170 ER 1077 Bay Bon Investments Pty Ltd v Selvarajah [2008] NSWSC 1251
PARTIES:	Graeme Robert Beattie and Roderick Mackay Sutherland in their capacity as joint and several administrators of PR Marketing & Media Group Pty Ltd (Administrators Appointed) ACN 101 259 910 v Rhonda Osman & 2 Ors (No. 4)
FILE NUMBER(S):	SC 3588/09
COUNSEL:	Plaintiffs: C D Wood Defendants: B Katekar
SOLICITORS:	Plaintiffs: Matthews Folbigg Defendants: Axis Legal

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

WHITE J

Tuesday, 11 August 2009

3588/09 Graeme Robert Beattie and Roderick Mackay Sutherland in their capacity as joint and several administrators of PR Marketing & Media Group Pty Ltd (Administrators Appointed) ACN 101 259 910 v Rhonda Osman & 2 Ors (No. 4)

JUDGMENT

: On 24 June 2009, Visiontek Pty Limited (“Visiontek”) purportedly appointed the plaintiffs as administrators of the third defendant, PR Marketing & Media Group Pty Limited (“PRM” or "the Company"). The appointment was purportedly made pursuant to s 436C of the Corporations Act 2001 (Cth) which provides:

“ 436C Chargee may appoint administrator

(1) A person who is entitled to enforce a charge on the whole, or substantially the whole, of a company’s property may by writing appoint an administrator of the company if the charge has become, and is still, enforceable.

(2) Subsection (1) does not apply to a company if a person holds an appointment as liquidator, or provisional liquidator, of the company. ”

2 On 10 November 2005, PRM gave a charge over all or substantially all its assets to Visiontek. In correspondence with the administrators, PRM's directors contended that the charge was not enforceable. The plaintiffs commenced these proceedings on 9 July 2009 seeking a declaration that their appointment as administrators of PRM was valid and consequential relief.

3 The principal questions which have arisen are as follows. First, whether the plaintiffs have the onus of proving that a debt is owing by PRM to Visiontek, and if so, whether the plaintiffs have discharged that onus. Secondly, if a debt were owing by PRM to Visiontek whether that debt became payable following service of a notice of demand, irrespective of whether a Default Event as defined in the charge had occurred. Thirdly, whether a Default Event as defined in the charge occurred. Fourthly, if a Default Event as defined in the charge occurred, but if I am not satisfied that some debt was owing and payable, whether in those circumstances the charge is enforceable within the meaning of s 436C.

4 I have concluded that the plaintiffs have not discharged the onus which is on them to establish that PRM owed a debt to Visiontek as at 24 June 2009. I have concluded that if a debt were owing, the charge would not be enforceable unless a Default Event occurred entitling Visiontek to demand payment. I have also concluded that no Default Event as defined, and as alleged, occurred. It is unnecessary to decide what the position would have been had I found that a Default Event had occurred but no debt was owing and payable. In the light of these conclusions I will refuse the declaratory relief sought and make orders under s 447A to bring the administration to an end.

Background

5 The company, PRM, carries on the business of providing operator services for what are euphemistically called adult and non-adult chat lines. These lines are accessed by members of the public by telephone on 1-300 or 1-900 numbers issued by Telstra. These are known as Interactive Voice Response (IVR) numbers. Alternatively they are accessed by SMS or text message through numbers known as Premium SMS Short Codes. PRM trains and provides the services of operators who take calls and answer text messages. In some cases, it does this as a service for other businesses. Visiontek trades under the name Inpho Interactive. It provides a platform for IVR technology and provides technology for SMS applications allowing the end consumers and the operators to communicate. PRM uses Visiontek IVR and SMS applications to provide its services. Visiontek services are sometimes known as a bureau service.

6 On 5 November 2005 Visiontek and PRM signed an agreement called a Past Loan Agreement under which PRM acknowledged a debt of $81,804.74. In that agreement, Visiontek was called Inpho. The agreement provided:

“ PRM hereby agrees to authorise Inpho to withhold the entire monthly revenue received from the carriers for both IVR and SMS revenue until the payables are fully reconciled to zero.
Along with monthly revenue statement, Inpho Interactive shall submit a monthly record of balance payable.
PRM have no objection to Inpho registering a charge on their assets in the event of their non-payment of the pending amount due to Inpho in case of monthly revenues not reaching up to the amount pending. ”

7 The reason Visiontek could withhold revenue otherwise payable to PRM as set out in the second paragraph of the Past Loan Agreement lies in the way the business operations are structured. Visiontek is a party to agreements with telecommunications carriers (Telstra, Optus, Vodafone, Hutch, and Virgin) for what are called premium rate SMS and telephone services. These services are provided at a high cost to the end user. The carriers provide monthly revenue statements for each call or text, and from that revenue remitted to Visiontek the carriers deduct their agreed share.

8 Mr Lee, formerly Visiontek’s finance manager, deposed that:

" Likewise, Visiontek provides to the Company each month a revenue statement setting out a summary of the number of calls/sms messages, the duration of each call and the revenue generated calculated based on the duration of each call and applying to this the set timed tariff rate per minute/rate per message in the case of SMS. Visiontek then deducts from the total monthly revenue their agreed percentage share of the revenue, after the carrier has apportioned their share, and the balance is then paid to the Company. In the case of SMS, Visiontek forwards to Company their share of the total revenue (after the carrier has apportioned their share) less fees for Visiontek services. "

9 Ms Rhonda Osman, a director of PRM, deposed that Visiontek first provided PRM with monthly statements in April 2009 at which time monthly statements going back to 2006 were provided. Pursuant to the Past Loan Agreement, Visiontek was entitled to the whole of such revenues which were otherwise receivable by PRM until the debt of $81,808.74 was paid off.

10 Visiontek also agreed to make further loans to be paid off from PRM's share of revenue received by Visiontek from carriers. On 5 November 2005, the parties entered into a further agreement called a Future Loan Agreement. It provided:

“ PRM have requested for funds from Inpho Interactive for supporting their business on monthly basis for meeting operational expenses such as advertisement, operator fees and occupancy costs.

It is estimated that this would be around $150,000.00 over the next 12 months. Inpho does not guarantee this support. However Inpho will try their best to support PRM with funding as much as affordable.

PRM hereby agree to authorise Inpho to withhold all IVR & SMS payments from carriers until these loans are reconciled and balance payable becomes nil.

PRM have no objection to Inpho registering a charge on their assets in the event of their non-payment of the pending amount due to Inpho in case of monthly revenues not reaching up to the amount pending. ”

11 As I have said, the charge was given on 10 November 2005. It was lodged for registration the next day. On 16 November 2005, the directors of PRM resolved to appoint administrators. On 13 December 2005 PRM's creditors resolved the company execute a Deed of Company Arrangement. A Deed of Company Arrangement was entered into on 14 December 2005. It provided for the payment of a dividend to Admitted Creditors of six cents in the dollar. There is no evidence as to whether Visiontek voted to approve the Deed of Company Arrangement.

12 On 23 December 2005, Visiontek and PRM entered into an agreement called Agreement for Company Management. The operative clauses of that agreement provide:

“ 1. Visiontek will continue to provide loans to PRM directors as per an existing loan agreement between the two companies dated Nov 1, 2005.
2. PRM will use the loans to pay their operational, payroll and administrative expenses including ‘deed administrators’ fees as per the provisions of the deed.
3. PRM will put in all efforts to improve their business under the guidance and supervision of Visiontek management.
4. Visiontek will continue to be a ‘chargee’ of PRM vide their charge number 1230044 dated 11/11/2005 and will release the same only after all outstanding dues plus interest @8% per annum (after net adjustment of revenues) have been paid to Visiontek.
5. Visiontek will continue to adjust ‘Net PRM revenues’ received from carriers against
Outstanding loan amounts advanced by Visiontek to PRM and
Payments directly made by Visiontek to suppliers and other agencies on behalf of PRM
6. Visiontek have also offered to provide ‘Strategic management guidance and operational support’ to PRM using its own management and operational resources and PRM have accepted the offer.
7. PRM will pay an amount of $2000 per month as ‘management fees’ for the above service to Visiontek.
8. This service will automatically terminate when Deed administration by Peter Ngan and Co ends. If PRM and Visiontek mutually agree to continue this service even further after this deed is closed, they shall enter into a separate agreement.
9. Visiontek will keep the deed administrations periodically informed about the progress of the company affairs. ”

13 On 1 March 2007, notification was given to ASIC that the Deed of Company Arrangement had terminated, it having achieved its purpose.

14 Mr Lee deposed:

“ 14. During the period October 2005 and June 2009, Visiontek continued its business relationship with the Company and the Company continued to utilise Visiontek’s IVR Applications and SMS Applications. As agreed, the carrier, Visiontek and the Company would each apportion their respective percentage shares in monthly revenues and Visiontek continued to provide to the Company each month an IVR revenue statement and SMS revenue statement. Pursuant to the Past Loan Agreement, Future Loan Agreement and the Agreement for Company Management, Visiontek withheld and applied the Company’s net IVR and SMS revenues against any outstanding loan amounts advanced by Visiontek to the Company. Annexed and marked ‘D’ is a copy of an IVR revenue statement issued by Visiontek to the Company for the month May 2009.
15. Pursuant to the Future Loan Agreement, the Company periodically submitted loan applications with Visiontek. Annexed and marked ‘E’ is a copy of a loan application and approval form dated 1 May 2009 submitted by the Company to Visiontek. ”

15 Annexure D referred to in paragraph 14 contains a statement from Visiontek to PRM setting out the amounts of revenue said to be "as per Telstra statement" received from Telstra and an invoice from Visiontek for charges made by Visiontek in relation to the same calls which were the subject of the revenue statement. The invoice also included other charges. The summary stated that there was a net amount which would be credited to PRM of $5,651.03. Annexure E referred to in paragraph 15 is a letter signed for PRM addressed to Visiontek applying for an advance of $10,000 for expenses pursuant to the future loan agreement of 5 November 2005. It appears from the document that the loan amount was approved and payment made.

16 The directors of PRM are Ms Rhonda Osman and Ms Lisa Aifantis. Ms Osman deposed that in April 2008 they incorporated a company called Premium SMS Marketing Solutions Pty Limited ("PSM"). She deposed:

“ 17 ... The reasons for incorporating PSM included that Ms Aifantis and I wished to offer to our Managed Clients and prospective Managed Clients a service which involved using bureau other than Inpho. PRM was known in the industry as being associated with Inpho. I was of the understanding that Managed Clients and prospective Managed Clients expected that, if PRM was to offer operator services, it would be assumed or expected that Inpho would provide the bureau services. Setting up PSM enabled us to overcome this expectation.
18 Since April 2008, PSM has contracted various operators. As at 24 June 2009, PSM had approximately 50 contracted operators. Those operators provide services to IVR numbers and Short Codes which are operated by PSM. Some of them also provide service to IVR numbers and Short Codes operated by PRM as required from time to time. PRM has never paid PSM for the operator services it has provided. PRM owes PSM in the order of $123,000 for such services which includes payment of operator expenses. ”

17 The reference in paragraph 17 of Ms Osman's affidavit to Managed Clients was not to the end users, but to businesses to whom PRM or PSM would provide operator services.

18 PRM has the right to use designated telephone numbers and SMS service numbers with the prefix 1-90 and 1-990 respectively. According to Ms Osman, Ms Aifantis is the rights of use holder in respect of all the IVR numbers, and PRM is the rights of use holder in respect of the SMS short codes operated by PRM through Visiontek.

19 So far as the evidence reveals, a rights of use holder is the person recorded by Telstra as being entitled to use the specified numbers. Ms Osman deposed:

“ As the rights of use holder in respect of all of the IVR numbers operated by PRM, Lisa Aifantis has licensed her rights to PRM. That licence is not in writing, but it is continuing. ”

20 That evidence was not objected to, nor was Ms Osman's cross-examined in relation to it. As will later be seen, the plaintiffs relied upon that evidence in asserting that there have been breaches of the charge which gave rise to Default Events.

21 At some time during or after May 2009 Visiontek sent to Ms Osman a schedule setting out its estimate of a debt owing by PRM to it as at 31 March 2009. The schedule stated:

Balance as of 31/10/05
Balance as of 31/10/05	$81,804.74
Payment made by Inpho on PRM behalf
- Advertising charges (From Oct 05 to Mar 09)	$763,833.16
- Purchase of Computer and Mobile Handsets	$18,580.50
- Payment in relation to deed settlement	$44,775.27
Loan advanced to PRM (From Nov 05 to Mar 09)	$2,257,523.22
$3,166,516,89
Less: PRM’s Revenue Retained by Inpho (From Nov 05 to Mar 09)
- IVR Revenue (Nov 05 to Mar 09)	$683,591.72
- SMS Revenue (Nov 05 to Mar 09)	$652,604.34
- IVR Operator Service Revenue (Dec 05 to Mar 09)	$212,987.03
- SMS Operator Service Revenue (Dec 05 to Mar 09)	$1,397,113.99
- Advertising management Fee (Jan 06 to Jun 06)	$5,863.00
$2,952,160.09
Estimated Debt Position as of 31/10/09	$214,356.80
Add/(Less): Other Adjustments
- Adjustment of PSMS revenue payout rates based on MM rates (Jul o6 to Feb 09)	-$151,933.70
- IVR Debt Reconciliation (May 05 to Feb 08)	-$2,680.54
- Inpho Management Fee during administration (23/12/05 – 01/09/07)	$30,800.00
- Loan Interest payable to Inpho	$51,284.54
- Inpho Commission of PRM Operator Services (Dec 05 to Feb 09) – consumer First (IVR & SMS)	$102,797.05
$30,267.35
Estimated Debt Position after other adjustments	$244,624.15
Add: Inpho Commission of PRM Operator Services of Other Clients (Dec 05 to Feb 09)
- AOL	$52,395.98
- Azspa	$4,407.00
- Data Dial	$1,615.20
- DC Marketing	$368.93
- Eyeconnix / XL Tones	$963.68
- EzyFriends	$7,752.23
- Fishing co.	$40,015.05
- Fonework Factory	$22,857.22
- Fordar	$1,217.80
- Hyarchis	$17,747.03
- Info Access	$6,406.80
- Mt Wilson	$6,720.62
$162,467.54
Estimated Debt Position after all adjustments	$407,091.69

22 PRM has not accepted that the schedule is accurate nor does the schedule purport to be. It is said to be an estimate.

23 On or about 1 June 2009 Telstra provided Visiontek with a Movement Advice Form signed by Ms Aifantis requesting that certain IVR Premium Rate Service Numbers be transferred from Inpho Interactive, that is Visiontek, which was called a Premium Rate Service Provider, to a different provider called Telads-Australia. Ms Osman deposed that Telads had agreed to provide the bureau service at cheaper rates than those charged by Visiontek to PRM. When Visiontek learned of this request, it instructed its solicitors to write a letter of demand for payment of a debt alleged to be due. On 16 June 2009 the solicitors for Visiontek, Watkins Tapsell, wrote to the directors of PRM as follows:

“ CLAIM BY VISIONTEK PTY LTD – NOTICE OF DEFAULT
We are the solicitors for Visiontek Pty Ltd (‘Vtek’) who is the Chargee pursuant to a deed of charge dated 10 November 2005 (‘the Charge’) naming PR Marketing and Media Group Pty Ltd A.C.N. 101 259 910 as Mortgagor (‘PRM’).
The Charge is expressed to be security for payment of the Secured Money.
The Secured Money is any money actually owing to Vtek by PRM. (clause (a) (i) under the definition of ‘Secured Money’ in clause 1.1.1)
PRM has entered three agreements with Vtek dealing with loans by Vtek to PRM. Those agreements are as follows (‘the agreements’):
A Document headed ‘Past Loan Agreement’ dated 5.11.05
B Document headed ‘Future Loan Agreement’ dated 5.11.05
C Document titled ‘Agreement for Company Management’ dated 23 December 2005
Vtek claims that the amount owing to it under these agreements, as at 30/4/09 is $438,720.55. This debt forms part of the debt which is secured by the Charge.

Under the terms of the agreements between the parties, PRM agreed that Vtek was entitled to retain all ‘IVR and SMS payments from carriers’ until the debts due to Vtek are repaid in full.

We are instructed that PRM is effectively transferring its business to a third party and thereby materially and adversely affecting its ability to meet its obligations to Vtek as follows:

1 PRM has now advised the relevant carrier (Telstra) that Premium Rate Service Numbers (‘PRSN’s’) retained by Vtek on PRM’s behalf are being transferred by PRM from Vtek to another Premium Rate Service Provider (‘PRSP’).
2 PRM is transferring existing operator (and other) services from PRSN’s [sic] which are currently controlled by Vtek to new PRSN’s [sic] which are controlled by another PRSP on behalf of a third party.
3 PRM is permitting the establishment of new operator (and other) services in a third party and thereby effectively transferring ownership of those services, and the associated entitlements to revenue, to that third party.
The effect of the movement of these numbers and services is that PRM will no longer be able to honour its obligations to repay Vtek under the agreements. You have not notified Vtek of any alternative method of repayment of the funds payable to Vtek pursuant to the agreements.
In these circumstances, we note that PRM has breached its agreement with Vtek, and you are accordingly provided with the following Notice:

NOTICE TO PR MARKETING AND MEDIA GROUP PTY LTD

A.C.N. 101 259 910 (‘PRM’)
1 You have committed a Default Event under the Charge in that you have:
1.1 failed to pay, when payable, part of the Secured Money (clause 11.2.1)
1.2 changed your activities in a manner which could materially and adversely affect the ability of PRM to meet its obligations to Vtek. (clause 11.2.20), to wit:
1.2.1 the transfer of the Premium Rate Service Numbers (‘PRSN’s’ [sic] ) to a third party service provider.
1.2.2 The transfer of existing operator (and other) services from PRSN’s [sic] which are currently controlled by Vtek to new PRSN’s [sic] which are controlled by another Premium Rate Service Provider (‘PRSP’) on behalf of a third party.
1.2.3 PRM is permitting the establishment of new operator (and other) services in a third party.
2 Pursuant to clause 4.2 of the Charge, you are therefore directed to immediately pay to Vtek by bank cheque sent directly to this firm, the amount of $438,720.55, to be received by us no later than 5pm on Friday 19 ^th June 2009.
3 Failure to comply with the requirements of paragraph 2 above, will result in Vtek exercising its rights under the Charge, which includes the option to appoint a Receiver or an Administrator to PRM.”

24 The only respect in which PRM was required to remedy the alleged defaults under the charge was by paying the amount of $438,720.55 claimed to be payable. PRM did not pay the amount demanded, nor any part of it.

25 As I have said, on 24 June 2009 Visiontek purportedly appointed the plaintiffs as administrators of PRM pursuant to s 436C following non-compliance with the demand for payment. The issue is whether the charge was then enforceable. I turn to the terms of the Deed of Charge.

Terms of the Deed of Charge

26 The charge defines PRM as the Mortgagor and Visiontek as the Mortgagee. It includes the following relevant provisions:

“ RECITALS
The Mortgagee has provided, and has agreed to provide or continue providing credit or financial accommodation from time to time to or at the request of the Mortgagor upon the condition that the Mortgagor enters into this agreement.
...
‘ Associate ’ means any person who is an associate of the Mortgagor pursuant to the Corporations Law and any corporation which is directly or indirectly controlled or owned by a director or a spouse of a director or the Mortgagor;
‘ Business ’ means the business or businesses carried on by the Mortgagor at any time;
‘ Call Revenues ’ means all revenues received by the Mortgagee or the Mortgagor from any Carrier in respect of the Information Services.
‘ Default Event ’ means any event or circumstance referred to in clause 11;
‘ Information Services ’ means a telephone service whereby a telephone caller may receive certain information whether by means of an operator, recording, direct connection, voice activated fax transmission or otherwise, including those services delivered on the service numbers listed in Schedule 2.
‘ Mortgaged Property ’ means all the property, undertaking and rights presently or in the future held by the Mortgagor including (without limitation):
(a) rights to receive capital and other money from shareholders or, where the Mortgagor is a trustee, beneficiaries of a Trust;
(b) the goodwill attaching to any Business;
(c) any property undertaking or rights held as trustee;
(d) all rights of the Mortgagor in relation to use and ownership of the Trademarks; and
(e) all rights of the mortgagee or the Mortgagor to any Call Revenues pursuant to any agreement between the Mortgagor and Telstra, or the Mortgagee as representative of the Mortgagor and Telstra, or the Mortgagee and the Mortgagor, relating to the provision of Information Services.
‘ Secured Money ’ means any money which at any time:
(a) the Mortgagor in any capacity and whether alone or with others;
(i) is actually or contingently liable to pay the Mortgagee; or
(ii) may become actually or contingently liable to pay to the Mortgagee in the future pursuant to any transaction or arrangement at any time entered into or made by the Mortgagee with any person;
(b) can be debited to any account of the Mortgagor with the Mortgagee;
(c) has been advanced or paid by the Mortgagee to a person with the express or implied consent or at the express or implied request of the Mortgagor; or
(d) the Mortgagee is or may become actually or contingently liable to pay a person in connection with a transaction or arrangement entered into with the express or implied consent or at the express or implied request of the Mortgagor,
other than money payable under a provision which is void under section 261 of the Income Tax Assessment Act 1936, and includes money advanced by the Mortgagee pursuant to the Loan Agreement.
...
2.1 Charge
The Mortgagor as beneficial owner charges the Mortgaged Property to the Mortgagee as security for the payment of the Secured Money and the due performance of all its other obligations to the Mortgagee.
...
3.1 Performance of all obligations
In addition to its obligations under this agreement the Mortgagor must duly perform all of its other obligations (both positive and negative) at any time owed to the Mortgagee (including, without limitation, the payment of Secured Money when payable).
3.2 Mortgagee’s right to remedy
If the Mortgagor fails to duly perform any obligation owed to the Mortgagee the Mortgagee may do anything it considers appropriate to protect its interests. The costs of an liabilities incurred from any such action must be paid by the Mortgagor upon demand. Action by the Mortgagee to protect its interests does not amount to waiver of a Default Event.
4.1 Time and place for payment
Subject to clause 4.2 the Mortgagor must pay the Secured Money to the Mortgagee at the times and in the manner expressly agreed between the Mortgagor and the Mortgagee or, in the absence of any express agreement, immediately upon demand by the Mortgagee at its address in this agreement.
4.2 Payment following a Default Event
If a Default Event occurs the Mortgagor must pay the Secured Money to the Mortgagee immediately upon demand.
...
6.1 Carrying on the Business
The Mortgagor must ensure that the Business continues to be carried on in a good, proper and efficient manner and without limitation that:
...
6.1.5 the value of the Mortgagee’s security under this agreement is not diminished other than by circumstances beyond the control or influence of the Mortgagor.
7.1 Prohibition on dealing with the Mortgaged Property
7.1.1 Subject to clauses 2.5 and this clause the mortgagor must not without the Mortgagee’s consent:
7.1.1.1 sell, lease, charge, encumber, surrender, grant any interest in or power over or otherwise in any manner deal or agree or attempt to deal with any Mortgaged Property or any interest in any Mortgaged Property; ...
7.3 Prohibition on acts prejudicial to Mortgagee’s security
The Mortgagor must not exercise any right arising in relation to the Mortgaged Property or directly or indirectly cause or influence any decision of any person which has or may behave [sic] an adverse affect [sic] on the Mortgagee’s security under this agreement or its value.
...
7.6 Prohibitions in relation to the Business
7.6.1 The Mortgagor must not without the Mortgagee’s consent:
7.6.1.1 change the nature of the Business at any time;
7.6.1.2 contract out or licence any part of the Business; ...
...
7.7 Prohibitions on dealings with an Associate
7.7.1 The mortgagor must not without the Mortgagee’s consent:
...
7.7.1.4 enter into any contract or arrangement with an associate; ...
other than pursuant to ... a contract or arrangement the terms of which have been consented to by the Mortgagee.
9.1 Warranties
The Mortgagor warrants to the Mortgage that:
...
9.1.6 no other person has any interest or rights in respect of the Mortgaged Property and no property is held by the Mortgagor subject to any reservation of title in favour of another person except as expressly disclosed in writing to the Mortgagee prior to this agreement.
11.1 Mortgagor to prevent Default Events
The Mortgagor must prevent the occurrence of a Default Event.
11.2 Default Events
A Default Event occurs if:
11.2.1 the Mortgagor fails to pay when payable any Secured Money;
11.2.2 the Mortgagor defaults in the performance or observance of any obligation owed or undertaking given to the Mortgagee which is not the payment of Secured Money and, to the extent that the default is capable of remedy within 5 business days, it continues for 5 business days after a written notice from the Mortgagee requiring its remedy;
11.2.3 a warranty, representation, answer to requisition or statutory declaration made or given by or on behalf of any Mortgagor, Borrower or Guarantor in connection with this agreement or Secured Money is found to be incorrect or misleading;
...
11.2.20 in the Mortgagee’s opinion there is any change in the activities of any Mortgagor, Borrower or Guarantor which could materially and adversely affect the ability of that person to meet any of its obligations to the Mortgagee;
11.2.25 without limiting the operation of any other Default Event, any other event occurs or circumstance arises, financial or otherwise, which, in the opinion of the Mortgagee, is likely to materially and adversely affect:
11.2.25.1 the ability of the Mortgagor or any other person actually or contingently liable to pay Secured Money;
11.2.25.2 the ability of the Mortgagor to comply with its obligations under this agreement;
11.2.25.3 the Mortgagee’s security;
11.2.25.4 the value of the Mortgaged Property; or
11.2.25.5 the ability of a Borrower to duly perform its obligations to the Mortgagee. ”

27 Clauses 12 and 13 entitle the Mortgagee to exercise a wide variety of powers including taking possession of the Mortgaged Property and appointing a receiver. The powers are expressly exercisable following the occurrence of a Default Event.

28 Because Visiontek's powers under those clauses are expressly conditioned upon the occurrence of a Default Event, I consider that such a Default Event must have occurred before Visiontek would be entitled to enforce its charge.

29 Clause 3.2 provides that the Mortgagee may do anything it considers appropriate to protect its interests, and charge the cost of doing so to the Mortgagor if the Mortgagor fails duly to perform any obligation owed to it. A failure to perform an obligation might not be a Default Event. For example, if the default is one capable of remedy, there would not be a Default Event under clause 11.2.2, unless the default continued for five business days after notice was given requiring its remedy.

30 Clause 3.2 permits the mortgagee to take action to protect its interests, but if such action were by way of enforcement of the charge, then, in my view, a Default Event must have occurred before the action of enforcement could be taken. Any other construction would render otiose the careful drafting of clauses 11, 12 and 13. No contrary submission was put placing reliance on clause 3.2.

Default Event under Clause 11.2.1

31 The first Default Event relied on is clause 11.2.1, namely, the failure to pay the Secured Money when payable. Having regard to the definition of Secured Money, the plaintiffs must show that PRM owed some amount actually or contingently, and that the amount owed had become payable. Any such debt would only be payable on demand if (a) there was no express agreement as to the time and manner in which the debt was to be paid; or (b) a Default Event occurred (see clauses 4.1 and 4.2).

32 The plaintiff sought to prove that PRM owed Visiontek $438,700.25 demanded in Watkins Tapsell's letter of 16 June 2009. It sought to prove that debt through Mr Lee. Mr Lee annexed to his affidavit a schedule in a similar format to the document sent to Ms Osman which I have referred to above. He provided a summary of the schedule setting out what he deposed to be the estimated debt owed by PRM to Visiontek at May 2009. I rejected that evidence. It was opinion evidence in relation to each debit and credit item in the schedule for which no basis was laid. It was not admissible under s 79 of the Evidence Act 1995 (NSW) and would, in any event, have been liable to be excluded under s 135.

33 I also rejected the tender of the schedule under s 50 of the Evidence Act as a summary of voluminous and complex documents said to establish the debt. And I rejected the late tender of those documents on the ground that the defendants would thereby be prejudiced.

34 These evidentiary rulings meant that Mr C D Wood of counsel, who appears for the plaintiff, relied on the following matters to establish that some debt was owed. First, he pointed to the Past Loan Agreement which PRM acknowledged on 5 November 2005 that a debt of $81,804.74 was then owed to Visiontek. Secondly, the Agreement for Company Management of 23 December 2005 established a liability of PRM to pay $2,000 per month to Visiontek for "strategic management guidance and operational support" up to the termination of the Deed of Company Arrangement. Thirdly, it appears from annexure E to Mr Lee's statement referred to earlier in these reasons that on 1 May 2009 Visiontek advanced $10,000 by way of loan to PRM. Mr Wood submitted that these debts having been established the onus of proving that the debts had been discharged by payment or otherwise lay on the defendants (Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 562, 568 and 569). In an action to recover a debt, a plea of payment is a plea of confession and avoidance, and the onus lies on the defendant to establish payment as a defence.

35 Mr Wood also submitted that the letter of demand, and the schedule sent by Visiontek to Ms Osman in or after May 2009 stating the estimated debt as at 31 March 2009, were documents in evidence for all purposes. He submitted that they provided some evidence of the debt owing, or some evidence that some debt was owing, and that evidence was uncontradicted.

36 Mr B Katekar of counsel who appeared for the first and second defendants, submitted that the debt of $81,804.74 was discharged by the Deed of Company Arrangement. There is no evidence either way to establish that that was so. By the terms of clause 7.5 of the Deed of Company Arrangement, which it is not necessary to set out, that debt would be extinguished when the dividend was paid to the Admitted Creditors. However, s 444D(1) and (2) provides:

“ 444D Effect of deed on creditors
(1) A deed of company arrangement binds all creditors of the company, so far as concerns claims arising on or before the day specified in the deed under paragraph 444A(4)(i).
(2) Subsection (1) does not prevent a secured creditor from realising or otherwise dealing with the security, except so far as:
(a) the deed so provides in relation to a secured creditor who voted in favour of the resolution of creditors because of which the company executed the deed; or
(b) the Court orders under subsection 444F(2). ”

37 The effect of section 444D(2) is that, subject to any order under s 444F, a chargee who has not voted in support of the resolution for execution of the Deed of Company Arrangement can take extra-curial action to enforce the charge for the debt owing on or before the day specified under s 444A(4)(i). It may do so notwithstanding that the Deed of Company Arrangement in its terms purportedly bars or extinguishes that debt (see J & B Records Ltd v Brashs Pty Ltd (1995) 36 NSWLR 172 at 181).

38 There is no evidence as to whether or not Visiontek voted in favour of the resolution. Later documents, in particular, the Agreement for Company Management, refer to the continued existence of the charge. But that does not justify the inference that Visiontek did not vote in favour of the resolution. The charge secures future obligations as well as past obligations, and they would not be barred by the deed. There is simply no evidence on the question.

39 In any event, there remain two other debts which are clearly established and there is no evidence of payment. Were Visiontek to sue for these three debts, the onus would be on PRM to establish a defence of payment or discharge by the Deed of Company Arrangement. But in this case, the plaintiffs seek a declaration that "Upon the Defendants having articulated the specific grounds in the letter from Axis Legal dated 1 July 2009, a declaration pursuant to section 447C(2) declaring that the Plaintiffs' appointment as administrators of the company was valid.”. The opening words of the relief sought no doubt refer to the terms of s 447C(1) but it would not be appropriate or useful to make a declaration in that form, particularly as the letter of 1 July 2009 was superseded by a later letter, the defendants were ordered to provide stating the grounds on which they say the appointment is invalid.

40 The opening words of the relief sought do not affect the fact that the plaintiffs are seeking a declaration that their appointment as administrators is valid. In Massoud v NRMA Insurance Ltd (1995) 62 NSWLR 657 at 660, McLelland CJ in Eq, held that the principles on which the onus of proof is to be determined where a declaration is sought are as follows:

“ (1) a party who seeks relief has the burden of satisfying the Court of facts which (in the absence of proof of other facts) would justify the grant of that relief;

(2) what those facts are depends principally upon:

(a) the nature of the relief sought; and
(b) the operation of any relevant presumptions;

(3) in the case of relief by way of declaratory order, the precise terms of the declaration assume particular significance in that (subject to any relevant presumption) the party seeking the declaration has the burden of proof of any matter which is a necessary element of the declaration sought (even if in proceedings by that party for relief of another kind, or in proceedings by the other party, that matter would not arise unless raised (and the burden of proof consequently assumed) by the other party). ”

(See Blanch v British American Tobacco Australia Services Ltd [2005] NSWSC 241; (2005) 62 NSWLR 653.)

41 Amongst the authorities quoted by McLelland CJ in Eq was the comment of Hutley JA in Jones v Sutherland Shire Council [1979] 2 NSWLR 206 (at 213) that:

“ ... in my opinion, a court should refrain from making a declaration as to the existence of a fact, when there is no evidence one way or other of the fact, though in certain other litigation, by reason of the burden of proof assigned by law to the other party, the person applying for the declaration might succeed in that contest. "

42 As the judgments in Massoud v NRMA Insurance Ltd, the cases cited in that judgment, and Blanch v British American Tobacco Australia Services Ltd show, there are many cases in which a party seeking a declaration has the burden of proving or disproving a fact notwithstanding that in other proceedings the burden of proof lies on the opposite party. In the present case, to establish that the charge was enforceable because of a Default Event under clause 11.2.1, the onus is on the plaintiffs to prove that a sum was owing and payable. That onus is not discharged by saying that in proceedings for recovery of the alleged debt the onus of proving payment would be on PRM.

43 There is an additional reason that the onus should be on the plaintiffs to establish that some debt was owing and payable which is peculiar to the facts of this case.

44 In this case, the facts on which the continued existence and the amount of the debt are primarily within the knowledge of Visiontek. That is because Visiontek has control of the revenues receivable by PRM from the carriers, and Visiontek is to apply such revenue to the reduction or discharge of any indebtedness. PRM did not receive the revenue statements from the carriers to Visiontek from which Visiontek was to deduct its share of revenue and apply the balance, that is PRM's share, in reduction or discharge of the debt. In these circumstances, there is no room for the operation of the so-called presumption of continuance of a debt once established (compare Young v Queensland Trustees Ltd at 570; Jackson v Irvin (1809) 2 Camp 48; 170 ER 1077; and Bay Bon Investments Pty Ltd v Selvarajah [2008] NSWSC 1251 at [44]-[45]).

45 The so-called presumption of continuance is not a true presumption but a description of the process of reasoning by which inferences of fact can be drawn. Whether an inference should be drawn depends on the particular circumstances and the chance or likelihood of intervening circumstances having altered the original state of affairs. The matters deposed to by Mr Lee in paragraph 14 of his affidavit (quoted at para [13] above) mean that the inference cannot be drawn in this case.

46 Nor do I conclude from the fact that Visiontek and its solicitor asserted that a debt was owing that the assertion was true. Whilst the evidence referred to earlier was admitted without qualification as to its use, it does not have any weight to establish the truth of the facts asserted in the absence of other admissible evidence showing how the debt arose and that some amount remained owing when the demand was made.

47 For these reasons I am not satisfied that a debt was owed by PRM to Visiontek at the time the demand was made and at the time the administrators were purportedly appointed. That is not to say that the contrary has been established. It is only to say that the onus which lies on the plaintiffs to establish that element of their claim has not been discharged.

48 In any event, if some amount were owing, it would not have become payable unless a Default Event occurred. That is because the Past Loan Agreement, the Future Loan Agreement and the Agreement for Company Management expressly provide that the debt shall be paid by Visiontek’s appropriating the monthly IVR and SMS payments received by it from the carriers which represents revenue to which PRM would be otherwise entitled. The appropriation of that revenue in payment of the debt or debts payable to Visiontek was the agreed means by which the loans to PRM, and other payments made by Visiontek on PRM's behalf, would be repaid.

49 I agree with Mr Katekar's submission that for the purposes of clause 11.2.1 of the charge the alleged outstanding balance was not payable otherwise than through the receipt of the IVR and SMS payments. That was so unless any such debt became payable on demand by reason of the occurrence of a Default Event.

50 Apart from clause 11.2.1, Mr Wood identified Default Events specified in 11.2.2, 11.2.3, 11.2.20 and 11.2.25. Only clause 11.2.20 was identified in the Letter of Demand, and in some respects the defendants are entitled to complain. Had the matters identified in closing submissions been raised before the hearing, evidence might have been available to them to answer the claim. However, there were no pleadings and I will deal with these matters as they arise.

Clause 11.2.2

51 I turn then to clause 11.2.2. Mr Wood submitted that PRM had defaulted in performing or observing its obligations under clauses 7.7.1.4, 6.1.5, 7.6.1.1, 7.6.1.2, 7.1.1.1, 7.3, and 9.1.6. If any such default is established, then, in the absence of the notice requiring the default to be remedied, the default will only constitute a Default Event if it is not capable of remedy. I will deal with each of the alleged breaches in turn. First, clause 7.7.1.4.

Clause 7.7.1.4

52 The plaintiffs rely on the evidence in paragraph 17 and 18 of Ms Osman's affidavit which I have set out earlier. There is no issue that PSM is an associate of PRM. It is evident from paragraph 18 of Ms Osman's affidavit that there is an arrangement between the companies pursuant to which operators engaged by PSM provide services to PRM. Mr Katekar submitted that there was no evidence that Visiontek had not consented to the arrangement.

53 I can infer from the terms of the letter of demand of 16 June 2009 that Visiontek has not consented to the establishment of PSM's business. The third complaint in the letter of demand was that PRM had permitted the establishment of a new operator and other services in a third party. That complaint has been understood by the defendants as a complaint that PSM has begun providing operator services using a new premium rate service, using new premium rate service numbers and a bureau other than Visiontek. However, it does not follow that I can also infer a lack of consent to PRM using the services of operators contracted to PSM for the IVR numbers and short codes operated by PRM. There is no evidence about that. I think for the reasons previously given in relation to the establishment of a Default Event, the onus lies on the plaintiffs to establish a lack of consent to the arrangement. In any event, as the matter was only raised in final submissions, there could be no evidentiary onus on the defendants on that matter.

54 If there were a breach of clause 7.7.1.4 by the arrangement under which the services of operators contracted to PSM have been made available to PRM, that is a breach capable of remedy. It might be remedied by seeking and obtaining consent. It could be remedied by PRM terminating the arrangement for use of the services of PSM's operators.

55 Nor would anything need to be done to remedy any past breach because no past breach has been shown to have caused any damage to Visiontek. Ms Osman's evidence is that PRM hasn't paid PSM for the services. Therefore, PRM's ability to pay any debt owed to Visiontek has not been diminished. Therefore, if - which I do not consider to be the case - a breach of clause 7.7.1.4 was established, it would not be a Default Event under clause 11.2.2 as no notice requiring a remedy of the breach was given.

Clauses 7.6.1.1 and 7.6.1.2

56 I turn next to clause 7.6.1.1 and 7.6.1.2. Again the plaintiffs rely on the evidence in paragraph 17 and 18 of Ms Osman's affidavit concerning the establishment of PSM's business. The "Business" referred to in clause 7.6.1.1 is the business, or businesses, carried on by PRM. The establishment of a business by PSM which provides similar services to those of PRM did not change the nature of PRM's business. PRM's business remained as it was. PRM did not expand its activities to provide services to Managed Clients using other IVR numbers and short codes. But the non-expansion of its business was not a change in its business, let alone a change in the nature of its business. Nor did PRM contract out or licence any part of its business. It uses services by PSM, but that is not a contracting out or licensing of any part of its business. No breach of clause 7.6.1.1 or 7.6.1.2 is established.

Clause 6.1.5

57 I turn next to the alleged breach of clause 6.1.5. In clause 6.1.5 the expression "Mortgagee Security" is not defined. In my view it means the property of the Mortgagor which is the subject of the charge. As will be seen shortly through the definitions of "Mortgaged Property", "Call Revenues" and "Information Services", the definition of Mortgaged Property includes certain revenues of Visiontek itself. The proposed transfer of IVR Premium Rate Service Numbers from Visiontek to Telads Australia would affect the continued receipt by Visiontek of revenue in respect of the numbers so transferred. But although, as will be seen, such revenues received by Visiontek are within the definition of Mortgaged Property, they do not represent property of the Mortgagor. Diminution of those revenues would not diminish the value of Visiontek’s security within the meaning of clause 6.1.5, nor would the proposed transfer, if effectuated, diminish PRM's revenues. To the contrary, because Telads will be charging lower fees than Visiontek, PRM's revenues, and, hence, the value of the property over which Visiontek has security, will be enhanced.

58 The question then is whether the value of Visiontek security may be diminished because on the transfer of the numbers the revenue to be received by PRM would not be channelled through Visiontek so that Visiontek would not be able simply to bank for itself the revenue otherwise payable to PRM.

59 Clause 2.3.5 provides in effect that PRM's right to such call revenues is subject to a fixed charge in favour of Visiontek. Given that the value of the property charged to Visiontek is not diminished, I do not consider that the value of the security would be diminished. If that conclusion is wrong then there could be a breach of clause 6.1.5 because the circumstances which could be said to bring about a diminution in the value of the security are not beyond the influence (at least) of PRM. Steps by which the numbers might be transferred are steps being taken by Ms Aifantis. But I would accept that she would be at least under the influence of Ms Osman, and indeed herself in her capacity as director of PRM. However, even if there were a breach of clause 6.1.5 on this ground, it is again a breach which would be capable of remedy. It could be remedied by the directors of PRM using their influence on Ms Aifantis to ensure that she did not proceed with the application for the movement of the numbers. Therefore, any such breach would not constitute a Default Event, no notice requiring the remedy of the alleged breach having been given.

Clause 7.1.1.1

60 I turn next to clause 7.1.1.1. The plaintiffs contend that the proposed transfer of the service numbers from Visiontek as a service provider to Telads is a dealing by PRM or an attempt by PRM to deal with Mortgaged Property within the definition of "Mortgaged Property". When the definitions of Call Revenues and Information Services are read into the definition of Mortgaged Property, the latter includes:

“ All rights of [Visiontek] or [PRM] to all revenues received by [Visiontek] or [PRM] from any carrier in respect of a telephone service whereby a telephone caller may receive certain information ... including those services delivered on the service numbers listed in schedule 2 pursuant to any agreement between:
(a) [PRM] and Telstra; or
(b) [Visiontek] as a representative of [PRM] and Telstra; or
(c) [Visiontek] and [PRM] relating to the provision of such telephone services. ”

61 Schedule 2 lists the numbers described as PRM, IVR 1-90 service numbers as at 1 November 2005. There is no evidence as to whether the numbers specified in schedule 2 to the charge, or some of them, are the subject of the proposed transfer.

62 Mr Wood submitted that the opening words of the definition of Mortgaged Property include without limitation all of the rights of the Mortgagor. He submitted that the telephone lines listed in schedule 2 were Mortgaged Property. I accept that PRM's rights to use those lines is within the definition of Mortgaged Property. However, the proposed transfer of the service providers, or as they were sometimes called aggregators, involves no change or dealing with PRM's rights to use those lines. The uncontradicted evidence of Ms Osman is that PRM's rights are by way of licence from Ms Aifantis, and those rights will be unchanged. Nor is there an attempt to deal with the revenues received by Visiontek from carriers in respect of those lines. There is a proposed interference with Visiontek’s right to receive revenues from the lines, but not to its rights to the revenues received. Similarly, the proposed transfer of the lines between service providers, whilst it affects the right of PRM to receive revenues pursuant to what I infer is an agreement between Visiontek as its representative and Telstra, is not an attempt to deal with the revenues received by PRM from a carrier. Moreover, any attempted dealing which affects, or may affect, Visiontek's rights or PRM's rights is, on the evidence, an attempted dealing not by PRM but by Ms Aifantis.

63 If contrary to these conclusions, the proposed transfer of the lines to a different service provider were a breach by PRM of any provision of the charge, the breach would be capable of remedy. Assuming, as one must, that the conduct of Ms Aifantis is treated as the conduct of PRM, then she could remedy such a breach by withdrawing the application.

64 There was no notice requiring any such breach to be remedied. Therefore, any such breach, if it were established, would not be a Default Event within the meaning of clause 11.2.2.

Clause 7.3

65 Turning next to clause 7.3, for the same reasons as I have given with respect to clause 6.1.5, I consider that the reference to the Mortgagee’s security is to the property of the Mortgagor which is the subject of the charge, and I do not consider that any dealing or proposed dealing has had, or may have, an adverse effect on PRM's property or its value. That is, PRM's right to receive revenue from the telephone lines or their use will not be diminished by its using services of another bureau.

66 If contrary to my view there were a breach of clause 7.3, the breach would be capable of being remedied. I accept that PRM through its directors could influence Ms Aifantis' decision to exercise her rights as a rights of use holder to change the premium rates service provider. If, contrary to my view her doing so would put PRM in breach of clause 7.3 by PRM’s influencing that decision, then the breach could be remedied by PRM using its influence to persuade her not to change providers. As no notice requiring the remedy of any such breach has been given, such a breach would not be a Default Event under clause 11.2.2.

Clause 9.1.6

67 I turn next to clause 9.1.6. The alleged breach of warranty is that whereas the charge describes the numbers in schedule 2 as PRM service numbers and PRM SMS service numbers, the evidence is that the rights of use holder for the telephone numbers is Ms Aifantis who has licensed her rights to PRM. There is no evidence that there was no express disclosure in writing to Visiontek prior to the charge that Ms Aifantis was the rights of use holder. For the reasons previously given, I think the onus is on the plaintiffs to establish the absence of such disclosure. As the matter was raised for the first time in closing submissions, there can be no evidentiary onus on the defendants. In any event, the relevant right of PRM is a licence from Ms Aifantis to use the numbers and derive revenue from that use. I do not consider that Ms Aifantis has any interest within the meaning of the clause in those rights of PRM. She is the counter-party to the transaction under which PRM has those rights, but she did not on that account have any right or interest in the right PRM has against her. In my view, no breach of clause 9.1.6 has been established. For these reasons, no Default Event under clause 11.2.2 has been established.

Clause 11.2.3

68 The Default Event relied on under clause 11.2.3 is based on the same alleged breach of warranty in clause 9.1.6 and that claim fails for the same reasons.

Clause 11.2.20

69 I turn next to clause 11.2.20. The Letter of Demand stated that PRM had changed its activities in a manner that could materially and adversely affect its ability to meet its obligations to Visiontek. The change was described as being the transfer of the premium rate service numbers to another service provider; the transfer of existing operator services from numbers currently controlled by Visiontek to new numbers controlled by another service provider on behalf of a third party; and permitting the establishment of new operator services in a third party. The plaintiffs have to establish that it was Visiontek's opinion that there had been such a change in the activities of PRM. The director of Visiontek at relevant times was a Mr Bhaskar Eswaran. It was his decision to make the demand and his decision to appoint administrators. He did not give evidence. There has not in fact been any change in the activity of PRM.

70 Mr Lee, the finance manager, gave evidence in his affidavit that in his opinion the advice form lodged with Telstra and signed by Ms Aifantis asking Telstra to move the premium rate service numbers demonstrated a clear intent from PRM to deny Visiontek the ability to retain any PRM revenues arising out of the service numbers, and denied Visiontek any revenue share it would normally get due to usage of its gateway. He said that the act showed the intention on PRM's part to work against the business interests of Visiontek and was a clear violation of the spirit of the Future Loan Agreement and that was something that materially affected PRM's ability to meet the charge obligations. But in cross-examination Mr Lee accepted that change in the bureau, or aggregator, from Visiontek to Telads did not change PRM's activities as PRM would still be managing the mobile content and operating the call centre. He also accepted that if Telads charged less commission than Visiontek then PRM would make more money and its ability to repay a debt to Visiontek would be improved. The evidence is that the asserted change would not adversely affect PRM's ability to meet any of its financial obligations to Visiontek. The proposed transfer of the service numbers could demonstrate a change in PRM's willingness to continue to meet its financial obligations but not its ability to do so.

71 The terms of the letter of demand and Mr Lee's evidence would suggest that Visiontek was of the opinion that its own revenues would be diminished by the proposed transfer of the service numbers if it proceeded, and was also of the opinion that its ability to apply PRM's revenues in reduction of the alleged debt would be adversely affected. But I do not accept that anyone from Visiontek formed the opinion that PRM's ability to meet its obligations would be reduced. It was also submitted for the plaintiffs that the proposed transfer would materially and adversely affect PRM's ability to meet its obligations to Visiontek being, it was said, the preservation of the Mortgaged Property, namely, PRM's rights to use the telephone lines. The evidence does not establish that Visiontek formed an opinion that there had been any change to PRM's activities that could materially affect its ability to meet its obligation to preserve such Mortgaged Property. And for the reasons I have given in relation to the alleged breach of clause 7.1.1.1, I do not accept that there was a dealing or attempted dealing with the Mortgaged Property which breached PRM's obligations in that respect.

72 For these reasons I am not satisfied that the Default Event under clause 11.2.20 occurred.

Clause 11.2.25

73 The remaining alleged Default Event was in clause 11.2.25. No evidence was given that Visiontek, through its relevant officer, formed an opinion under clause 11.2.25. In the letter of demand and in Mr Lee's affidavit it was said that an opinion had been formed as to the matters in clause 11.2.20, not as to the matters in clause 11.2.25.

74 It was submitted for the plaintiffs that clause 11.2.25 was a "catch-all clause" designed to pick up anything that might have been missed by the specific parts of clause 11.2. That may be, but in that event there must be evidence as to the formation of an opinion in respect of any of the matters referred to in clause 11.2.25.

75 For the reasons I have given there was not a circumstance which was likely to materially and adversely effect the ability of PRM to pay the Secured Money or to comply with its obligations under the agreement, or which affected the value of the Mortgaged Property. The question, rather, is whether there was a circumstance which, in the opinion of Visiontek, was likely to materially and adversely affect its security in terms of clause 11.2.25.3. But as stated earlier in these reasons its security over revenues to be received by PRM was a security by way of fixed charge over all call revenues arising pursuant, inter alia, to any agreement between Visiontek as its representatives and Telstra related to the provision of Information Services. That security is not affected except in so far as call revenues will not continue to be derived. The fact that revenues might be received under a different agreement would not change the nature of the Mortgagee's security. I am not satisfied that a Default Event under clause 11.2.25 has been established.

76 It follows that even if money is owing by PRM to Visiontek, a matter which has not been established, it has not been established that any money owing has become payable. Therefore, it has not been established that Visiontek was entitled to enforce its charge when it purportedly appointed the plaintiffs as administrators. In those circumstances it is unnecessary to consider what the position would have been had a Default Event been established where it was not established that any money was owing. It follows that the declaration which the plaintiffs seek must be refused.

77 Questions arose during the course of the hearing as to what would be the consequences if I reached that position. It was submitted for the plaintiffs that if the declaration were refused on the grounds that the plaintiffs had not discharged an onus which lay on them to establish a Default Event, no other order should be made other than refusal of the declaration. It was pointed out that the defendants have not by cross-claim sought orders under s 447A that the administration be brought to an end, and had they done so the onus would have lain on them to establish the invalidity of the plaintiffs' appointment. As it is, I have concluded that no Default Event has been shown to have occurred and that, therefore, Visiontek was not entitled to make the appointment. The consequence of that finding is that the plaintiffs' appointment as administrators was not valid and I ought to bring the administration to an end.

78 For these reasons, I order that the originating process be dismissed. I order pursuant to s 447A that the administration of the third defendant end. The exhibits may be returned after 28 days. I stand the matter over to deal with the question of costs to Friday, 14 August 2009 at 9.30am.

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