Ceduna Marina Development Company Pty Ltd v Umilo Bria
[2012] SASC 115
•2 July 2012
SUPREME COURT OF SOUTH AUSTRALIA
(Appeal from a Master: Civil)
CEDUNA MARINA DEVELOPMENT COMPANY PTY LTD v UMILO BRIA
[2012] SASC 115
Judgment of The Honourable Chief Justice Kourakis
2 July 2012
CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - STATUTORY DEMAND
CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - STATUTORY DEMAND - SUPPORTING AFFIDAVIT - REQUIREMENTS FOR
CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - STATUTORY DEMAND - APPLICATION TO SET ASIDE DEMAND - GENUINE DISPUTE AS TO INDEBTEDNESS - ASSESSING GENUINENESS - GENERALLY
Respondent served a statutory demand under s 459E of the Corporations Act 2001 (Cth) on the appellant – respondent swore an affidavit in support of the demand in purported compliance with the requirements of s 459E(3) of the Corporations Act 2001 (Cth) – appellant brought proceedings to set aside the statutory demand on the grounds that the supporting affidavit did not comply with Form 7 of the Corporation Rules 2003 (SA) and because the claim was genuinely disputed – a Master found that the affidavit did not substantially comply with Form 7 of the Corporation Rules 2003 (SA) – however the Master found that there was no reason to set aside the statutory demand pursuant to s 459J(1)(b) of the Corporations Act 2001 (Cth) – the Master also found that there was no genuine dispute with respect to the amount claimed – the Master dismissed the proceedings to set aside the statutory demand – the appellant appeals against that order and contends that both findings were attended by error.
Whether there was a genuine dispute with respect to the amount claimed – whether the statutory demand should be set aside pursuant to s 459J(1)(b) of the Corporations Act 2001 (Cth) - whether the statutory demand should be set aside pursuant to s 459J(1)(b) of the Corporations Act 2001 (Cth) on the grounds that the supporting affidavit did not substantially comply with the form of affidavit prescribed by Form 7 of the Corporation Rules 2003 (SA).
Held – appeal dismissed – there was no genuine dispute with respect to the amount claimed – the statutory demand should not be set aside pursuant to s 459J(1)(b) of the Corporations Act 2001 (Cth) – the failure to comply with the form of affidavit prescribed by Form 7 of the Corporation Rules 2003 (SA) was not a sufficient reason in the circumstances of this case to set aside the statutory demand pursuant to s 459J(1)(b) of the Corporations Act 2001 (Cth).
Coporations Act 2001 (Cth) s 459A, s 459C, s 459D, s 459G, s 459S, s 459E, s 459E(3), s 459E(3)(a), s 459H(4), s 459H, s 459J, s 459J(1)(b), referred to.
Faji (Australia) Constructions Pty Ltd v AC Professional Accounting Pty Ltd [2009] NSWC 180, discussed.
W & F Lechner Pty Ltd v Drummond & Rosen Pty Ltd [2001] NSWSC 275 ; B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 15 ASCR 433; Ceduna Marina Development Company Pty Ltd v Bria [2012] SASC 23; Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 132 FLR 300; Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229; Austech Institute for Further Education Pty Ltd v Britt [2010] NSWSC 56; Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] 214 FLR 393; Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452; The Hire Works Pty Ltd v Elexpo Pty Ltd (1995) 19 ACSR 114 at 117.10; Olympic Holdings Pty Ltd v Interwest Investments Pty Ltd (1998) 16 ACLC 1,242 at 1,247; Technitrade Pty Ltd v Compucon Computers (SA) Pty Ltd [2002] SASC 309 at [14]-[18]; Main Camp Tea Tree Oil Limited v Australian Rural Group Limited [2002] NSWSC 219 at [22]-[24]; IFA Homeware Imports Pty Ltd v Shanghai Jerrys Candle Company Ltd [2003] FCA 533 at [22]-[26]; Rivercorp v Casement [2004] NSWSC 280 at [15]; Anderson Formrite Pty Ltd v CASC Hire Pty Ltd (2005) 147 FCR 379 at [64]-[65]; Standard Commodities Pty Ltd v Societe Socinter Department Centragel (2005) 54 ACSR 489 at [15]; Four Seasons Construction Pty Ltd v Eastern Metropolitan Regional Council (2000) 35 ACSR 716 at [21]-[22]; Wildtown Holdings Pty Ltd v Rural Traders Co Ltd (2002) 172 FLR 35 at [65]-[73]; LawCover Pty Ltd v Swart [2007] NSWSC 306 at [4]; Bonnyview Pty Ltd v David Deane & Associates (2007) 213 FLR 388 at [19]; Willard King Organisation (1978) Pty Ltd v CT Franchises Pty Ltd (2009) ACSR 612 at [22]; Betham Management Pty Ltd v Union Finance Pty Ltd [2007] SASC 42, considered.
CEDUNA MARINA DEVELOPMENT COMPANY PTY LTD v UMILO BRIA
[2012] SASC 115Civil:
KOURAKIS CJ: On 13 December 2011 the defendant, Bria, served a statutory demand under s 459E of the Corporations Act 2001 (Cth) (the Act) on the plaintiff, Ceduna Marina Pty Ltd (Ceduna Marina). The demand was for the sum of $1,348,786 which was claimed to be due and payable under a secured loan made by Bria to Ceduna Marina (the loan agreement). Mr Bria swore an affidavit in support of the demand in purported compliance with the requirements of s 459E of the Act. On 22 December 2011 Ceduna Marina brought proceedings to set aside the statutory demand on the grounds that the supporting affidavit did not comply with the Corporation Rules of this Court and because the claim was genuinely disputed.
A Master of this Court (the Master) found that the affidavit did not substantially comply with the form of affidavit prescribed by Form 7 of the Corporation Rules 2003 (South Australia) (the Rules). Nonetheless the Master found that there was no reason to set aside the statutory demand pursuant to s 459J(1)(b) of the Act. The Master also found that there was no genuine dispute with respect to the amount claimed. He therefore dismissed the proceedings to set aside the statutory demand.
Ceduna Marina appeals against that order and contends that both findings were attended by error. For the reasons appearing below the appeal should be dismissed.
Setting Aside Pursuant to Section 459J
Part 5.4 of the Act provides for the winding up of insolvent companies and provides that a creditor may apply for a winding up order.[1] A company against which a winding up order is sought is presumed to be insolvent if the company has failed to comply with a statutory demand during the three month period preceding the application, or at any time after the application is brought. On an application for a winding up order the respondent company may not, without the leave of the Court, oppose the application upon a ground on which the company relied, or could have relied, to set aside the statutory demand.[2]
[1] Corporations Act 2001 (Cth) s 459A, s 459D.
[2] Corporations Act 2001 (Cth) s 459S.
The procedures for the service of a statutory demand, and for an application to set it aside, are prescribed respectively by Divisions 2 and 3 of Pt 5.4 of the Act. In summary the statutory demand must specify in writing the amount due under the debt and require payment within 21 days of service of the demand. The demand must be accompanied by an affidavit, conforming to the Rules, verifying the debt and that it is due and payable.[3] A company so served may apply to the Court for an order setting aside the demand within 21 days after it is served. The application must be supported by an affidavit, and both the application and the affidavit must be served on the person making the demand.
[3] Corporations Act 2001 (Cth) s 459E.
On such an application the Court may;
a)set aside the demand if there is a genuine dispute about the existence of all of the debt, or so much of it as to leave a balance which is less the statutory minimum;[4]or
b)vary the amount of the demand to reflect the amount over the statutory minimum about which there is no genuine dispute;[5] or
c)set aside the demand if it is satisfied that an injustice will be caused by a defect in the demand unless it is set aside;[6] or
d)set aside the demand if there is some other reason why it should be set aside.[7]
[4] Corporations Act 2001 (Cth) s 459H(3).
[5] Corporations Act 2001 (Cth) s 459H(4).
[6] Corporations Act 2001 (Cth) s 459J(1)(a).
[7] Corporations Act 2001 (Cth) s 459J(1)(b).
The purpose of Divisions 2 and 3 appears to be to provide a summary procedure for identifying those companies which have failed, without valid reason, to pay substantial debts which are due and payable. It is presumed that companies which fail to do so are evading their just debts because they are insolvent. The Division provides a mechanism for those companies to be wound up expeditiously in the public interest.
It is now necessary to consider in closer detail the text of the provisions which bear on the power of the Court to vary or set aside a statutory demand. They are:
SECT 459A
Order that insolvent company be wound up in insolvency
On an application under section 459P, the Court may order that an insolvent company be wound up in insolvency.
SECT 459C
Presumptions to be made in certain proceedings
(1) This section has effect for the purposes of:
(a) an application under section 234, 459P, 462 or 464; or
(b) an application for leave to make an application under section 459P.
(2) The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made:
(a) the company failed (as defined by section 459F) to comply with a statutory demand; or
(b) execution or other process issued on a judgment, decree or order of an Australian court in favour of a creditor of the company was returned wholly or partly unsatisfied; or
(c) a receiver, or receiver and manager, of property of the company was appointed under a power contained in an instrument relating to a circulating security interest in such property; or
(d) an order was made for the appointment of such a receiver, or receiver and manager, for the purpose of enforcing such a security interest; or
(e) a person entered into possession, or assumed control, of such property for such a purpose; or
(f) a person was appointed so to enter into possession or assume control (whether as agent for the secured party or for the company).
(3) A presumption for which this section provides operates except so far as the contrary is proved for the purposes of the application.
SECT 459E
Creditor may serve statutory demand on company
(1) A person may serve on a company a demand …
(2) The demand:
(a) if it relates to a single debt--must specify the debt and its amount; and
(b) if it relates to 2 or more debts--must specify the total of the amounts of the debts; and
(c) must require the company to pay the amount of the debt, or the total of the amounts of the debts, or to secure or compound for that amount or total to the creditor's reasonable satisfaction, within 21 days after the demand is served on the company; and
(d) must be in writing; and
(e) must be in the prescribed form (if any); and
(f) must be signed by or on behalf of the creditor.
(3) Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that:
(a) verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and
(b) complies with the rules.
SECT 459G
Company may apply
(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2) An application may only be made within 21 days after the demand is so served.
(3) An application is made in accordance with this section only if, within those 21 days:
(a) an affidavit supporting the application is filed with the Court; and
(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.
SECT 459H
Determination of application where there is a dispute or offsetting claim
(1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b) that the company has an offsetting claim.
(2) The Court must calculate the substantiated amount of the demand in accordance with the formula …
(3) If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.
(4) If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:
(a) varying the demand as specified in the order; and
(b) declaring the demand to have had effect, as so varied, as from when the demand was served on the company.
SECT 459J
Setting aside demand on other grounds
(1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b) there is some other reason why the demand should be set aside.
(2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.
If the matter were free from authority I would have been inclined to read the phrase “defect in the demand” in s 459J(1) to refer to a defect both in the demand itself and the supporting affidavit even though s 459E(3) distinguishes between the two by speaking of the demand being “accompanied” by a verifying affidavit.[8] A defect is defined, in relation to a statutory demand, by s 9 of the Act to include an irregularity, or misstatement of an amount or a misdescription of the debt or a person or entity. The same misstatement may appear in both the demand or the affidavit and it is difficult to see why the consequence of such a misstatement should vary depending on whether it appears in the affidavit or the demand. However, such is the weight of interstate authority against that view that I am bound to follow it.[9] Nonetheless, in considering the consequence of an irregularity appearing in an affidavit it remains a relevant matter to consider the consequence had the same defect appeared in the statutory demand. In particular a misdescription or misstatement which, if it had appeared in the demand alone, would not have resulted in its setting aside because it was not causative of any injustice, should not, generally, lead to a different result simply because it also appears in the affidavit.
[8] W & F Lechner Pty Ltd v Drummond & Rosen Pty Ltd [2001] NSWSC 275 (Santow J).
[9] B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 15 ASCR 433; Wildtown Holdings Pty Ltd v Rural Traders Co Ltd (2002) 172 FLR 35, [29]; Portrait Express (Sales) v Kodak (Australasia)Pty Ltd (1996) 132 FLR 300, 311.
The power to set aside a statutory demand pursuant to s 459J(1)(b) of the Act is sometimes approached as if it confers a discretion.[10] I doubt that it does. Section 459J(1) of the Act certainly confers a power, “may by order set aside”, but if a defect will cause an injustice it is difficult to see any basis on which the order could be refused, just as s 459J(2) precludes making a setting aside order in a case in which the defect does not cause an injustice. Similarly the phrase “satisfaction that … there is some other reason why the demand should be set aside” suggests a judgment about the existence of a reason which, in the context of Pt 5.4 of the Act, calls for the demand to be set aside.[11]
[10] Portrait Express (Sales) v Kodak (Australasia)Pty Ltd (1996) 132 FLR 300, 311.
[11] Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229, 239.
The authorities show that a failure to support a demand for a debt, which is not a judgment debt, with an affidavit which verifies that the debt is due and payable will generally constitute a valid reason to set it aside. That is not surprising. The obligation to support the demand by a verifying affidavit is expressed in mandatory terms. The requirement for a supporting affidavit safeguards the statutory demand procedure from abuse. Section 459G of the Act imposes a heavy onus on a company served with a notice to apply to, and file sworn material, with the Court within a very short period of time. The obligation is contingent on the proper verification of the demand.
The additional, on the face of s 459E(3)(b) of the Act, mandatory, requirement that the affidavit comply with the Rules needs some elaboration. First, it should be observed that the Rules cannot impose a requirement which is extraneous, to or subverts the statutory purpose of the affidavit, which is to verify that the debt is due and payable. Secondly, a mere misdescription or misstatement in the affidavit, which, if it were to appear in the demand, would not, as I earlier observed, ordinarily be reason enough to set aside the demand because it also appeared in the affidavit. Thirdly, whether an affidavit verifies the demand is a question of fact. If the affidavit might properly be described as a verifying affidavit, within the meaning of s 459E(3) of the Act, notwithstanding the failure to comply with the Rules, there will seldom be good reason to set aside the demand.
Rule 5.2 of the Rules requires that the supporting affidavit take the form prescribed by Form 7. The requirements of Form 7 to identify the debtor and creditor, the nature of the debt and that the debt is due and payable, are plainly enough essential to the verification of the debt. The requirements to state the relationship of the deponent to the creditor, to disclose the authorisation to make the affidavit if the deponent is not the creditor and to identify the source of knowledge of the matters deposed to are also necessary for the proper verification of the debt. Bare assertions which do not have a reasonable source can not verify a debt, even if sworn.
The requirement that the deponent state that there is no genuine dispute about the existence of the debt does not appear to be necessary for the purpose of verification. A creditor can claim to know a debt is due and payable even if he or she also knows that the debtor genuinely disputes the debt, because the creditor may be certain, on the basis of his or her own knowledge, that the debtor’s belief is a wrong one, even though genuinely held. It is therefore possible for a creditor to verify a debt without deposing to the absence of a genuine dispute. Nonetheless, that particular requirement of Form 7 is in my view a valid and appropriate rule for the purposes of s 459E(3)(b) of the Act, because it is calculated to discourage use of the statutory demand procedure to put undue pressure on a debtor who genuinely disputes the debt. The purpose of Pt 5.4 is not to provide a procedure for the summary collection of genuinely disputed debts. It is to facilitate the winding up of insolvent companies which cannot pay their just debts.[12]
[12] Austech Institute for Further Education Pty Ltd v Britt [2010] NSWSC 56, [14]-[16].
There are many authorities which support the proposition that a failure to verify that the debt is due and payable, and to depose to the absence of a genuine dispute is a sufficient reason to set aside a demand pursuant to s 459J(1)(b) of the Act.[13] Those cases show that the failure to properly verify the debt and depose to the absence of a genuine dispute may be a sufficient reason to set aside a demand even if the debtor company relies on that failure alone, and does not file material disputing the debt.
[13] The Hire Works Pty Ltd v Elexpo Pty Ltd (1995) 19 ACSR 114 at 117.10;.Olympic Holdings Pty Ltd v Interwest Investments Pty Ltd (1998) 16 ACLC 1,242 at 1,247; Technitrade Pty Ltd v Compucon Computers (SA) Pty Ltd [2002] SASC 309 at [14]-[18]; Main Camp Tea Tree Oil Limited v Australian Rural Group Limited [2002] NSWSC 219 at [22]-[24]; IFA Homeware Imports Pty Ltd v Shanghai Jerrys Candle Company Ltd [2003] FCA 533 at [22]-[26]; Rivercorp v Casement [2004] NSWSC 280 at [15]; Anderson Formrite Pty Ltd v CASC Hire Pty Ltd (2005) 147 FCR 379 at [64]-[65]; Standard Commodities Pty Ltd v Societe Socinter Department Centragel (2005) 54 ACSR 489 at [15]; Four Seasons Construction Pty Ltd v Eastern Metropolitan Regional Council (2000) 35 ACSR 716 at [21]-[22]; Wildtown Holdings Pty Ltd v Rural Traders Co Ltd (2002) 172 FLR 35 at [65]-[73]; LawCover Pty Ltd v Swart [2007] NSWSC 306 at [4]; Bonnyview Pty Ltd v David Deane & Associates (2007) 213 FLR 388 at [19]; Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393 at [39]-[41], [43]; Willard King Organisation (1978) Pty Ltd v CT Franchises Pty Ltd (2009) ACSR 612 at [22]; Faji (Australia) Constructions Pty Ltd v AC Professional Accounting Pty Ltd [2009] NSWSC 180 at [31]; Austech Institute for Further Education Pty Ltd v Britt [2010] NSWSC 56 at [17], [20].
In Faji (Australia) Constructions Pty Ltd v A C Professional Accounting Pty Ltd[14] Barrett J set aside a statutory demand pursuant to s 459J(1)(b) in a case in which the debtor company had attempted, but ultimately failed, to show that the debt was genuinely disputed. That conclusion may appear paradoxical given the manifest purpose of Pt 5.4 to facilitate the winding up of companies which do not pay their just debts and are for that reason presumed to be insolvent. In my view the paradox is explained by the expeditious and summary procedure by which an application to set aside a statutory demand must be determined. In effect a demand which is insufficiently verified may be set aside because it is an abuse of the statutory demand procedure to visit upon a debtor company the consequences of a failure to demonstrate a genuine dispute, in the truncated time allowed, if no person on behalf of the creditor has sworn or affirmed that the debt is indisputable and immediately payable.
[14] [2009] NSWSC 180, [30]
There is a proposition which is implicit in my discussion of the scope of the power in s 459J(1)(b) of the Act that I should put expressly. With respect to others who may take a different view, it is no part of the exercise of the power to set aside a statutory demand to educate, or send a message to, creditors who are not parties to the application, or solicitors generally, about the importance of complying with the forms prescribed by the Rules.[15]
[15] Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 132 FLR 300, [312-313].
Adequacy of the Affidavit
The accompanying affidavit of the defendant, in support of the demand relevantly provided:
I Umilo Bria … say on oath:
1. I am the Creditor herein described.
2. I have had regard to the relevant books and records of the Creditor in respect of the debt and interest owed by the Debtor relating to the total of the amounts detailed in the Schedule to the accompanying Statutory Demand.
3. I make this Affidavit in support of the Form 509H Statutory Notice of Demand for Payment against the Debtor.
4. The monies are for monies due and payable under Memorandum of Mortgage … and have been calculated as follows:
a. $1,070,000.00 being the principal sum,
b. interest at 15% per annum from 13th August 2009 to 5th December, 2010 calculated at $210,628.76.
c. interest at 0% per annum from 6th December 2010 to 6th September, 2011.
d. default interest at 25% which calculates at $732.88 per day from 7th September, 2011 to 9th December, 2012 $68,157.84.
5. I believe the amount of $1,348,786.60 being the total of the amounts specified in the accompanying demand is due and payable by the Debtor to the Creditor – in addition to other costs incurred by me properly claimable under the Mortgage.
…
8. I believe that there is no genuine dispute about the existence or amount of the debts referred to in paragraph 3.
9. I know the facts deposed to herein of my own knowledge except where otherwise appears.
The Master commenced his consideration of the adequacy of the affidavit by noting that Rule 1.7 of the Rules provides that a document sufficiently complies with a form prescribed by the Rules if it is substantially in accordance with a prescribed form. Nonetheless, the Master found that the affidavit of Mr Bria did not conform to Form 7 in a number of respects. Those findings are not challenged by Bria. First, the Master found that Mr Bria’s deposition in paragraph 2 of his affidavit, that he “had regard to” his books and records, fell short of a statement of the source of his knowledge that the debt was due and payable. The Master referred to the use of the phrase “have regard to” in administrative law, where the phrase leaves a decision maker free to depart from the consideration or material to which he or she has had regard.[16]
[16] Ceduna Marina Development Company Pty Ltd v Bria [2012] SASC 23, [15].
Secondly, the Master found that by deposing only to his “belief” that the stated debt was due and payable, in paragraph 5 of his affidavit, Mr Bria failed to declare that he knew that the debt was due and payable. The Master referred to authorities of this Court that draw a distinction between belief and knowledge for the purposes of the criminal law.[17]
[17] Ceduna Marina Development Company Pty Ltd v Bria [2012] SASC 23, [18] – [21].
The Master concluded that together there had been a substantial failure to comply with Form 7.
I have some doubts about the process of analysing the meaning of Mr Bria’s words by reference to the technical legal meaning of those words in administrative and criminal law. Moreover, the Master does not refer at all to paragraph 4 of Mr Bria’s affidavit which follows reasonably closely the words of Form 7. Be that as it may, it remains to determine the significance of the two failures to substantially comply with Form 7 identified by the Master.
I commence by recording my finding that notwithstanding the non-compliance with Form 7, Mr Bria effectively pledged his oath to the existence of the debt. The affidavit exposed Mr Bria to a prosecution for perjury if his claim that the debt was due and payable was false. Mr Bria was himself, the creditor. Accordingly neither the phrase “had regard to” nor the word “belief” were likely to save him from prosecution and conviction in the event that his claim was manifestly false. Next I observe that the affidavit followed the text of Form 7 in its denial that there was a genuine dispute.
This case can therefore be distinguished from cases in which the deponent of the affidavit is a solicitor, or other person, who relies on hearsay sources to depose to the matters specified in Form 7.[18] Nor is this a case in which an authorised officer of a corporate creditor fails altogether to depose to his or her personal knowledge of the existence of the debt.[19]
[18] Austech Institute for Further Education Pty Ltd v Britt [2010] NSWSC 56; Faji (Australia) Constructions Pty Ltd v A C Professional Accounting Pty Ltd [2009] NSWC 180.
[19] Saferack Pty Ltd v Marketing Heads Australia Pty Ltd 92007) 214 FLR 393.
The deficiencies in Mr Bria’s affidavit are not, in the circumstances of this case, such as to render his invocation of the statutory demand procedure an abuse. Nor is it unfair in all of the circumstances, and in the context of Pt 5.4 of the Act, to require Ceduna Marina to submit to a summary adjudication of the genuineness of the dispute it asserts.
I am not satisfied that there is any proper reason to set aside the statutory demand pursuant to s 459J(1)(b) of the Act.
No Genuine Dispute
Ceduna Marina contends that the Master made two errors in finding that Bria’s demand was not genuinely disputed. The first is his reliance on the settlement by deed of related proceedings brought by Ceduna Marina against Bria in 2009. The second is his reliance on the admissions made by Ms Hautop and her counsel on the hearing of an application to enjoin Bria from exercising his power of sale under the mortgage which secured his loan to Ceduna Marina.
I am not persuaded that the Master made the errors for which the appellant contends. I too have reached the conclusion on all of the material that the demand is not genuinely disputed.
The background to the serving of the statutory demand was described by the Master as follows[20]:
The plaintiff owns land at Ceduna on which it is seeking to carry out a major development known as “The Ceduna Keys Marina”. The commencement of the project has been substantially delayed because of the time taken to obtain the many necessary approvals for the development work. Many of them were only given on 17 November 2011, and the construction phase of the development has not yet commenced.
On 5 March 2009 the plaintiff mortgaged its land to the defendant to secure the repayment of a loan which became due for repayment on 6 September 2011. As at 24 November 2011 $1,338,526 was owing by the plaintiff to the defendant, including default interest to that date.
[20] Ceduna Marina Development Company Pty Ltd v Bria [2012] SASC 23.
In late 2011 Ceduna Marina brought proceedings to enjoin Bria from exercising his rights under the mortgage (the possession proceeding). On 24 November 2011 an interlocutory injunction to that effect was granted on the condition that Ceduna Marina pays the mortgage debt into court. Ceduna Marina failed to do so and the auction proceeded on the next day but the land was passed in.
In support of Ceduna Marina’s application for an injunction in the possession proceedings, its principal, Ms Hautop deposed as follows:
28. The Bria Mortgage secures a loan to CMDC of $1.07 million which was due for repayment on 6 September 2011. Interest payable for the period 13 August 2009 to 5 December 2010 is due in the amount of $210,628.76. (There was no interest payable between 6 December 2010 and 6 September 2011, pursuant to the Deeds referred to in paragraph 46.3 of this affidavit). Default interest at 25% per annum ($732.88 per day) has been accruing from 7 September 2011, and continues to accrue. I calculate the total sum due as at the date of this affidavit being the principal and all interest to be $1,338,526.28.
29. CMDC does not dispute that it is in default and does not dispute the amount owing to Bria.
…
32. CMDC does not dispute Bria’s entitlement to sell the Land as mortgagee-in-possession.
In the course of the hearing of that application, Ceduna Marina’s counsel conceded that the plaintiff “is in default under the mortgage” and was liable to pay the interest claimed by Bria. Counsel accepted that “the mortgagee should sell the property”.
Ceduna Marina’s application to set aside Bria’s statutory demand was initially supported by an affidavit of Ms Hautop, sworn on 22 December 2011, in which Ms Hautop deposed inter alia:
22. It is the Company’s intention to investigate further the conduct of Bria for the purposes of prosecuting its claims against Bria in Action no 1767 of 2011. I am advised by my solicitors and understand that the action ought now convert to pleadings and become a formulated claim against Bria for his conduct to date and actions taken by him which are prejudicial to the Company’s interests.
23. In addition to all the matters raised in my earlier Affidavit and in this Affidavit, the company maintains that by virtue of Bria’s conduct to date and ongoing, he is prevented from asserting that the debt is currently due until such time as the property is marketed on a proper basis to recognise the value of the further approvals and the development nature of the project.
The Master reasonably assumed at the first hearing of the application to set aside the statutory demand that the conduct of Mr Bria referred to in those paragraphs was engaged in after the admissions made on 24 November 2011 that the debt was due and payable. The Master gave Ceduna Marina permission to file further affidavits in support of its application.
On 6 March 2012, Ms Hautop filed a further affidavit to which she exhibited a copy of a Statement of Claim which Ceduna Marina had shortly before filed in the possession proceedings.
I accept that paragraphs 22 and 23 of Ms Hautop’s affidavit of 22 December 2011 are widely enough expressed to refer to the dealings between Bria and Ceduna Marina in 2009. The Master’s initial belief that Ms Hautop was referring to conduct engaged in after 24 November 2011 arose from his assumption that it was unlikely that Ms Hautop was referring to conduct preceding her admission, and the concessions of her counsel, on the application for an injunction. Recently a more liberal approach has been taken to reliance on material not expressly included in the affidavit first filed in support of an application to set aside a statutory demand.[21] Nonetheless it is doubtful whether it is possible to discern any ground of dispute in those paragraphs because of their very width. However, I need not finally decide whether Ceduna Marina is entitled to rely on the further material it filed because I have concluded that the subsequently filed material does not establish a genuine dispute.
[21] Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393, [25].
The Statement of Claim in the possession proceedings pleads that Ceduna Marina and Bria entered into an asset sale contract on 31 October 2008 in which Bria agreed to purchase Ceduna Marina’s assets for $5.75 million. The assets sale contract included a number of terms which were conditions precedent to the settlement and over which the parties soon fell into dispute. Ceduna Marina pleads that a meeting was held with Bria on 30 January 2009, attended by, amongst others, Mr Bria and Ms Hautop. The parties discussed the assets sale contract and the terms of the loan offer made by Mr Bria which was subsequently accepted by Ceduna Marina. Ceduna Marina alleges that amongst other representations Bria represented that if the loan offer were accepted, he would not be entitled to, nor would he, hold Ceduna Marina in default of the loan agreement, or exercise any remedies in respect of such default, whilst he was himself in default under the assets sale contract.
The relief sought by Ceduna Marina includes an injunction restraining Bria from exercising any rights consequent upon a default under the loan agreement or mortgage. Ceduna Marina also seeks a declaration that it is a term of the loan agreement that Bria is not entitled to hold Ceduna Marina in default, or exercise any remedies in respect of such default, whilst Bria is in default of his obligation to settle under the assets sale contract. A similar declaration is sought on the ground that Bria is estopped from relying on any default by Ceduna Marina whilst he was himself in default.
I proceed on the basis that it is sufficient to set aside a demand that the dispute is genuine and the grounds are not spurious.[22] All that is required is a plausible contention.[23] I accept Ceduna Marina’s submissions that the matters pleaded in the Statement of Claim in the possession matter, would in the ordinary course suffice to demonstrate a genuine dispute. However, in this case they fail to do so for the following reasons.
[22] Spencer Constructions Pty Ltd v G & M Aldrich Pty Ltd (1996) 76 FCR 452, 464; Bentham Management Pty Ltd v Union Finance Pty Ltd [2007] SASC 42.
[23] Bentham Management Pty Ltd v Union Finance Pty Ltd [2007] SASC 42.
First, the representations complained of in the Statement of Claim in the possession proceedings were the subject matter of proceedings in this Court in 2009 (the 2009 proceedings) which were resolved by a deed of compromise. The Statement of Claim in the 2009 proceedings was not placed before the Master. It was anticipated that the Master would locate the Statement of Claim in the records of this Court but he was unable to do so. Nor was the Statement of Claim provided to me before I commenced the hearing of this appeal. I gave permission to Bria to file it after the hearing of the appeal. It was and I have now received it on this appeal.
I am satisfied that in substance the 2009 proceedings raised the same legal controversy, or matter, that is raised in the 2011 possession proceedings. The claims associated with that matter were finally resolved by a deed into which the parties entered on 3 November 2009 (the settlement deed). By clause 1 of the settlement deed the parties agreed to “discharge and resolve completely and comprehensively the claims and cross-claims” in the 2009 proceedings. On this ground alone I am satisfied that Bria’s demand is not genuinely disputed. Alternatively the failure of Ceduna Marina to disclose, or deal with, the 2009 proceedings and the settlement deed, in its application to set aside the demand is in itself an indication, to be weighed with the other matters to which I refer below, that the dispute it raises is not a genuine one. It is in this alternative way, which the Master appears to have treated the 2009 proceedings, and the settlement deed. In so doing he did not err.
The Statement of Claim filed in the possession proceedings is only obliquely supported by the affidavit of Ms Hautop of 6 March 2012. Ms Hautop deposes that the Statement of Claim is in accordance with her instructions and that it properly reflects the dealings between the parties. However, Ms Hautop fails to address the legal significance of the settlement deed and the circumstances in which the admissions on the hearing of the injunction application were made.
The concessions made on the application for an injunction are all the more significant given the history of disputation between the parties after the loan was first made and the settlement of the 2009 proceedings. It is not to the point that the admissions and concession do not formally bind Ceduna Marina. The question is a factual one: is the dispute it raises a genuine one.
Ms Hautop’s affidavit of 6 March makes no reference to the admissions in her affidavit filed in the possession proceedings, nor to the concession of her counsel. The failure of Ceduna Marina to advance any plausible response to the damning effect of the admissions and the concession, on a factual level, is critical.
I have no hesitation in concluding that the dispute which Ceduna Marina now raises is a recent and disingenuous fabrication. It is not genuinely advanced. It is, instead, an attempt to evade, or at least forestall, liability for the debt under the loan agreement which is now due and payable.
Conclusion
I dismiss the appeal
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