Central City Pty Ltd v Montevento Holdings Pty Ltd
[2011] WASCA 5
•18 JANUARY 2011
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: CENTRAL CITY PTY LTD -v- MONTEVENTO HOLDINGS PTY LTD [2011] WASCA 5
CORAM: BUSS JA
MURPHY JA
HEARD: 7 DECEMBER 2010
DELIVERED : 18 JANUARY 2011
FILE NO/S: CACV 62 of 2010
BETWEEN: CENTRAL CITY PTY LTD
GIUSEPPE DIEGO SCAFFIDI
AppellantsAND
MONTEVENTO HOLDINGS PTY LTD
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :MASTER SANDERSON
Citation :CENTRAL CITY PTY LTD -v- MONTEVENTO HOLDINGS PTY LTD [2010] WASC 133
File No :COR 46 of 2009
Catchwords:
Application for leave to appeal - Statutory demand - Genuine dispute - Contract for loan - Loan - Inferred or implied terms
Legislation:
Corporations Act 2001 (Cth), s 459C, s 459G, s 459H(1)(a), s 459J(1),
Result:
Leave to appeal granted
Appeal allowed
Category: A
Representation:
Counsel:
Appellants: Mr C Slater
Respondent: Ms K A Vernon
Solicitors:
Appellants: Oldfield Legal
Respondent: Butcher Paull & Calder
Case(s) referred to in judgment(s):
Allmark v Mossensons (a firm) [2006] WASCA 127
Argyll Park Thoroughbreds Pty Ltd v Glen Pacific Pty Ltd (receiver and manager appointed) (1993) 11 ACSR 1
Asian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59
Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd [2007] VSCA 121; (2007) 63 ACSR 300
AX Business Systems Pty Ltd v Quality Image Pty Ltd [2004] FCA 724
Azed Developments Pty Ltd v Frederick & Co Ltd (in liq) (1994) 14 ACSR 54
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410
Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337
Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85
D & J Fowler (Aust) Ltd v Bank of New South Wales (1982) 2 NSWLR 879
Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 25 ACSR 675
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785
Global v Sensis [2007] NSWSC 967
Haller v Ayre [2005] QCA 224
Hawkins v Clayton [1988] HCA 15; (1988) 164 CLR 539
Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41
Hotncold Pty Ltd v Hawk Construction Services Pty Ltd [2006] WASCA 45
Integrated Lighting and Ceilings Pty Ltd v Philips Electrical Pty Ltd (1969) 90 WN (pt 1) (NSW) 693
Jarpab Pty Ltd v Winter t/as Boldon Haulage (1994) 14 ACSR 255
John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250
Lighting by Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd [2008] WASCA 23; (2008) WAR 520
MacKenzie v Albany Finance Ltd [2003] WASC 100
MacKenzie v Albany Finance Ltd [2004] WASCA 301
Marist Bros Community v Harvey SC (1994) 14 WAR 69
Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290
Moyall Investments Services Pty Ltd v White (1993) 12 ACSR 320
Murphy v Lawrence [1960] NZLR 772
Norton v Ellam (1837) 2 M & W 461; (1837) 150 ER 839
Ogilvie v Adams [1981] VR 1041
Pegrum v Fatharly (1996) 14 WAR 92
Penfold v Penfold [1980] HCA 4; (1980) 144 CLR 311
Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA & Pharmagel SpA (1994) 15 ACSR 347
Spacorp Australia Pty Ltd v Myers Stores Ltd [2001] VSCA 89; (2001) 19 ACLC 1270
Stage Club Ltd v Millers Hotels Pty Ltd [1981] HCA 71; (1981) 150 CLR 535
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294
Young v Queensland Trustees Ltd [1956] HCA 51; (1956) 99 CLR 560
BUSS JA: I agree with Murphy JA.
MURPHY JA:
Introduction
This is an application for leave to appeal against a decision by the learned master dismissing an application by the first appellant (the company) to set aside a statutory demand, and awarding indemnity costs against the company and the second appellant.
The principles concerning the exercise of discretion on the grant of leave are well known. See, eg, Allmark v Mossensons (a firm) [2006] WASCA 127 [26] (Pullin JA, Buss JA agreeing):
Leave will usually only be granted where the decision below was wrong, or at least attended with sufficient doubt to justify the granting of leave, and if in addition substantial injustice would be done by leaving the decision unreversed. See Wing Luck Foods v Lay Choo Lim [1989] WAR 358 at 360 and Friday v Australian National Airlines Commission, unreported; FCt SCt of WA; Library No 8502; 24 September 1990; Stanley v Layne Christensen [2006] WASCA 56 at [15] and [58]. These are not rules but guidelines. The Court has a residual discretion to do justice in any case requiring leave even if the guidelines are not satisfied. See Sanderson v Metropolitan (Perth) Passenger Transport Trust, unreported; FCt SCt of WA; Library No 950185; 22 March 1995.
The principal issue debated in the application was whether the master's decision is wrong or attended with sufficient doubt to justify the grant of leave.
In essence, the appellants contend that:
(a)the master erred in failing to apply, in his consideration of the evidence, the correct test in relation to s 459H(1)(a), alternatively failed properly to apply s 459J(1), of the Corporations Act 2001 (Cth) (the Act), and that upon the proper application of those provisions, he ought to have found that there was a genuine dispute concerning the date for repayment of the money the subject of the demand;
(b)the master erred in awarding indemnity costs without applying the correct principles to such an order, failing to give reasons therefor, and failing to give the appellants an opportunity to be heard on that issue.
Other issues had been raised by the company in its application to set aside the demand with which the master dealt, which are not the subject of any challenge in this appeal.
The appellants' first contention requires a brief review of the statutory demand and the evidence adduced in the company's application to set it aside.
Before doing so, it is convenient to set out the principles presently relevant in relation to an application to set aside a statutory demand.
The principles
The expression 'genuine dispute', within the meaning of s 459H(1)(a) of the Act, connotes a plausible contention requiring investigation: Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 [44]. The demand will be set aside if there is a bona fide disputed issue of fact or law, which is not based on spurious, hypothetical, illusory or misconceived grounds: Createc v Design Signs [45]; Asian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59 [35]. Once such a dispute is raised, it is not necessary for a company to satisfy the court as to where the merits of the dispute lie: Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294 [30]. The court will not attempt to weigh or examine the merits of any dispute: Createc v Design Signs [46]; Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290, 295.
Any claim by the company in dispute of the debt must be one which is 'genuinely believed [by the company] to exist': John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250, 253.
This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit, however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent or inherently improbable in itself: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787; Createc v Design Signs [4]. Nor does it require the acceptance of a 'patently feeble legal argument' or 'matters of fact unsupported by evidence': Eyota v Hanave (787); Jarpab Pty Ltd v Winter t/as Boldon Haulage (1994) 14 ACSR 255, 261.
In that context, Lockhart J said, in Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37, 39:
The notion of a 'genuine dispute' … suggests to me that the Court must be satisfied that there is a dispute that is not plainly vexatious or frivolous. It must be satisfied that there is a claim that may have some substance. On the other hand the Court must be careful, because if all an applicant has to do is to assert both a claim and some basis for it, without more, it would mean in almost every case that the court would set aside statutory demands where application is made to that effect. Plainly that is not what the legislature intended by introducing this new regime.
Similarly, in Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA & Pharmagel SpA (1994) 15 ACSR 347, 353, Lindgren J said:
Paragraph (a) of subs459H (1) and the definition of 'admitted amount' in subs459H (5) both refer to the existence of a 'genuine dispute', and the definition of 'offsetting claim' in subs459H (5) refers to the existence of a 'genuine claim'. Plainly, the intention is to refer to something more than the mere 'raising' of a dispute and the mere 'making' of a claim. The provisions assume that the dispute and offsetting claim have an 'objective' existence the genuineness of which is capable of being assessed. The word 'genuine' is included to sound a note of warning that the propounding of spurious disputes and claims is to be expected but must be excluded from consideration.
The dispute must exist at the time of the hearing of the application to set aside a statutory demand, and not at some other time: Mibor Investments Pty Ltd v Commonwealth Bank of Australia (293). Likewise, the amount of any offsetting claim is to be considered as at the time the court is determining an application under s 459G, not as at the date of demand: Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 25 ACSR 675, 697.
The onus is on the recipient of the demand to establish a genuine dispute: Moyall Investments Services Pty Ltd v White (1993) 12 ACSR 320, 324; AX Business Systems Pty Ltd v Quality Image Pty Ltd [2004] FCA 724 [22]; Azed Developments Pty Ltd v Frederick & Co Ltd (in liq) (1994) 14 ACSR 54, 57; Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd [2007] VSCA 121; (2007) 63 ACSR 300 [140].
Different judicial views have been expressed as to the proper basis upon which a statutory demand may be set aside where it is conceded that there is a debt, but it is said that it is not presently due and payable. McLure JA noted the differences in Hotncold Pty Ltd v Hawk Construction Services Pty Ltd [2006] WASCA 45 [24]:
The Commissioner concluded that because there was a genuine dispute as to whether the debt was presently due and payable it fell within s 459H(1)(a) of the Act. However, differing judicial views have been expressed as to which category applies. It cannot be within s 459H(1)(a) unless that can be read as referring to a debt of the class that can be included in a demand, that is, a debt presently due and payable: [NT Resorts Pty Ltd v Deputy Commissioner of Taxation (1998) 153 ALR 359] at 367. Finkelstein J in that case inclined to the view that where a debt was arguably not due and payable the appropriate ground was s 459J(1)(b) not s 459H, although the genuine dispute test would apply by way of analogy. Bryson J in Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 132 FLR 300 concluded that the inclusion of debts not due for payment at the date of the statutory demand was a defect within s 459J(1)(a) ...
It is unnecessary to decide which of the two provisions apply in this case, as the appellants rely on each, and the point sought to be made under each section is the same, namely, whether there was a genuine dispute as to whether the alleged debt was presently due and payable.
The statutory demand and the evidence
By statutory demand dated 20 February 2009, Montevento Holdings Pty Ltd, as trustee of a trust (the trustee), demanded repayment from the company of the sum of $1,439,010. The affidavit in support of the demand was sworn by Mr Eugenio Scaffidi, who is the brother of Mr Giuseppe Scaffidi, the second appellant. (I will refer to the second appellant as Mr Scaffidi, and to Mr Eugenio Scaffidi as 'Mr Scaffidi's brother'.)
Mr Scaffidi swore an affidavit dated 12 March 2009 in support of the application by the company to set aside the demand. The affidavit was not a model of clarity. At one point, Mr Scaffidi appeared to say that the claimed debt of $1,439,010 was not a receivable of the trust (ie, a loan), but rather a payment by way of capital subscription by the trustee to the company.
However, he also said that the money in dispute was to 'be repaid upon the realisation of the entire project or through the sale of the [trustee's] shares', thereby suggesting that the money was a loan. He described this as an aspect of a broader oral agreement between Ms Lisa Scaffidi, the trustee, and the company, which he referred to as the 'Equity Contribution Agreement', to the effect that Ms Lisa Scaffidi would lend money to the trust, and the trust would advance money to the company. He also said that the 'entire project' had 'not been realised' nor had the trust's shares been sold.
In his second affidavit, sworn 9 February 2010, Mr Scaffidi gave evidence, which was not the subject of objection, as to the background circumstances which led to the creation of the alleged debt. There was evidence, including evidence of the background circumstances, to the effect that:
(a)the trust was formed in 1977, effectively for the benefit of Mr Scaffidi, Mr Scaffidi's brother and their respective families; the trustee was Scaffidi Nominees Pty Ltd and the father of Mr Scaffidi and Mr Scaffidi's brother, Mr Antonio Scaffidi, was the appointor in his lifetime and, failing any other appointment, their mother, Mrs Maria Scaffidi, was the appointor after Mr Antonio Scaffidi's death;
(b)in 1995, Scaffidi Holdings Pty Ltd replaced Scaffidi Nominees Pty Ltd as the trustee of the trust, and, in 2009, Montevento Holdings Pty Ltd replaced Scaffidi Holding Pty Ltd as trustee;
(c)Mr Antonio Scaffidi, Mr Scaffidi and Mr Scaffidi's brother were directors and shareholders of the trustee at the time that the alleged debt was incurred;
(d)prior to March 2002, the trust was the owner of a parcel of land in Barrack Street, Perth, known as the Railway Hotel site;
(e)Mr Antonio Scaffidi and Mr Scaffidi, as directors of the trustee, some time prior to 2001, discussed the development of the Railway Hotel site owned by the trust and decided to set up a separate unlisted company 'that people could invest in' in order to undertake the development: 'That was how [the company] came about';
(f)after the redesign of the hotel, its feasibility appeared to be marginal as the land area was too small, and Mr Antonio Scaffidi and Mr Scaffidi decided to acquire adjoining parcels of land on Barrack Street, in order to facilitate the development of a larger area, later known as the Barrack Plaza project;
(g)as part of the proposed broader redevelopment, in 2001 the company acquired the land adjacent to the hotel site owned by the trust;
(h)on 18 March 2002 a transfer was executed, for the transfer to the company of the Railway Hotel site for the stated consideration of $1.8 million - the transfer showed that the property was encumbered by a mortgage for which, it might be inferred, the company assumed the liability;
(i)on 22 April 2002 the company paid the trustee $300,000;
(j)it was mutually known to the parties that the only asset of the company was in substance the property to be developed, and that the 'anticipated income or return to [the company] was the long‑term returns from managing the developed property';
(k)on 7 August 2002 the company issued 200,009 shares to, or to entities associated with, its directors, including 100,003 $1 shares to Dafinkas Nominees Pty Ltd, 50,001 $1 shares to the trustee, and 50,001 shares to Mr Scaffidi;
(l)in addition to the trustee, other shareholders of the company (the 'Dafinkas group' and Mr Scaffidi personally) provided loans to the company for the purpose of the development of the Barrack Plaza project, and the company also had bank borrowings for that purpose;
(m)on 2 September 2002, the transfer was registered by the Registrar of Titles;
(n)at the time of the above acquisition of land, the directors of the company included Mr Scaffidi and Mr Antonio Scaffidi;
(o)the $300,000 paid on 22 April 2002 was applied to the $1.8 million purchase price, leaving $1.5 million payable;
(p)the issue of the 50,000 $1 shares reduced the company's liability to the trustee from $1.5 million to $1,450,000;
(q)in 2004, Mr Antonio Scaffidi passed away (the inference is open that this matter is an aspect of a wider dispute between Mr Scaffidi and his brother, following a falling‑out that appears to have arisen after the passing of their father, Mr Antonio Scaffidi);
(r)there were other minor transactions between the company and the trustee in 2005 and 2006 by which the sum of $1,450,000 was reduced by small amounts, leaving a debt of $1,439,010; and
(s)the amount of $1.5 million, and the reduced sum of $1,439,010, have been treated by each of the company and the trustee as a loan in its accounts. In the company's 2007 accounts, the sum of $1,439,010 was treated as a non‑current liability.
The evidence of the trustee and the company tends to indicate that the loan has not carried interest.
There was also evidence to the effect that the building and sale of residential apartments and certain retail shops in the Barrack Plaza project were settled in August/September 2006, and that the company has retained within the development, an hotel comprising 100 serviced apartments and a bar, which have been leased.
Mr Scaffidi, in his second affidavit, also gave evidence to the effect that the company has not generated revenue in excess of expenses in order to enable repayment of the alleged debt. The objection was made that this was inadmissible as a statement of general conclusion, unsupported by any records of the company. In my view, in the present context, Mr Scaffidi could give evidence of those matters, as he was a director of the company, and the objection goes to weight.
In the second affidavit, Mr Scaffidi deposed also, in various ways, to his belief or understanding as to the terms for the repayment of the money in dispute. Objection was taken to those paragraphs in his affidavit at the hearing of the application before the master, although the master did not deal with the objection. In my view, the evidence concerning Mr Scaffidi's subjective beliefs was inadmissible as to the existence and terms of any contract for loan, but that the evidence was, arguably, admissible on the genuineness of the company's belief that there existed a plausible contention requiring investigation. It is unnecessary to resolve the issue in this application, as the application, in my view, is to be determined without reference to this disputed evidence.
Finally, it may be noted that at the commencement of the hearing of the appeal, the respondent applied to adduce additional evidence in the form of a letter from the appellants' solicitors, to the Public Trustee, dated 4 November 2010, which referred to the Barrack Street Plaza project being 'now finished', and valued in 2009 at approximately $35 million. Although the application was formally opposed, counsel for the appellants said that, in substance, neither fact was disputed. Those matters had, arguably, a bearing on the correctness of certain matters deposed to by Mr Scaffidi in his affidavit evidence which, it was understood, the respondent proposed to develop in submissions on the appeal. The letter had not been created, and hence was not available, at the time of the hearing before the master. The appellants could not point to any prejudice in having to deal with it on the application. In all those circumstances, the letter was received into evidence. Ultimately, however, neither party referred to it in submissions.
The contention as to a genuine dispute
The appellants' principal contention was, in effect, that the evidence raised a genuine dispute as to whether:
(a)a contract for loan from the trustee to the company could be inferred;
(b)if so, whether there was an inferred or implied term of the contract to the effect that the loan was not repayable on demand, but was repayable out of cash flow from the management of the Barrack Plaza project, following completion of the project; and
(c)the cash flow from the management of the project had not, at the time of the hearing before the master, been sufficient to enable the loan to be repaid.
It was further submitted, in effect, in the course of oral argument that:
(a)the loan from the trust was on similar terms to the loans which had been provided by the other shareholders of the company;
(b)there were terms in each of the loan contracts in respect of the loans from the shareholders of the company to the effect that payments would be made rateably out of cash flow from the management of the project; and
(c)the contracts for loan with the shareholders contained terms to the effect that the loans were subordinated to bank debt and debts owing to trade creditors.
There were other suggested implied terms as to repayment in the event that the project was not completed within a reasonable time, or that sufficient cash flow was not generated within a reasonable time.
The master's decision
In relation to the question of whether the company had established the existence of a genuine dispute, the master's reasons appear to be as follows.
First, he referred to those parts of Mr Scaffidi's first affidavit which appeared to indicate that the sum of $1,439,010 was a capital contribution, and compared this evidence with other evidence in the accounts of the trustee, signed by Mr Scaffidi, which disclosed that the relevant sum was a receivable of the trustee. The master said: 'Clearly this all calls for explanation' (reasons [6]).
He then referred to Mr Scaffidi's second affidavit and noted that the affidavit described how the sum of $1.5 million was provided by the trust to the company by way of 'loan'. The master said that there was no mention in that affidavit of the 'Equity Contribution Agreement', and that Mr Scaffidi had implicitly conceded in this affidavit that there was no such agreement. The master said that it was axiomatic that a deponent to an affidavit must tell the truth and that 'even without the benefit of cross‑examination I can say I am not prepared to accept the evidence of Mr … Scaffidi in these circumstances'.
The master then addressed the evidence to the effect that the sum in question was a debt and the question of whether the debt was due and payable. He said that Mr Scaffidi's evidence that it was not then due and payable was at odds with other evidence, including the accounts of the trustee, signed by Mr Scaffidi, and he found that there was no term of any loan agreement which would preclude the trustee from recovering the debt.
Loans and contracts for loan
The objective theory of contract is settled law in Australia. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 [40] the High Court said:
This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement.
Agreements are, however, not necessarily oral or written. The existence of an agreement may be inferred from the acts and conduct of the parties as well as, or in the absence of, their words: Lighting by Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd [2008] WASCA 23; (2008) WAR 520 [21] ‑ [23], [90] ‑ [91]; Marist Bros Community v Harvey SC (1994) 14 WAR 69, 74 ‑ 75, 90 ‑ 91; Pegrum v Fatharly (1996) 14 WAR 92, 101 ‑ 102; Integrated Lighting and Ceilings Pty Ltd v Philips Electrical Pty Ltd (1969) 90 WN (pt 1) (NSW) 693, 697 ‑ 698.
At common law, a loan made where no time for repayment is specified, or where the loan is stated to be payable 'on demand', creates an immediate debt by which the money is repayable immediately without the creditor first making a demand for payment: Norton v Ellam (1837) 2 M & W 461; (1837) 150 ER 839; Young v Queensland Trustees Ltd [1956] HCA 51; (1956) 99 CLR 560, 566; Stage Club Ltd v Millers Hotels Pty Ltd [1981] HCA 71; (1981) 150 CLR 535, 569 (Brennan J); Ogilvie v Adams [1981] VR 1041, 1043, 1052 ‑ 1059; Haller v Ayre [2005] QCA 224 [26] ‑ [32]; MacKenzie v Albany Finance Ltd [2003] WASC 100 [243] ‑ [245] (appeal allowed on other grounds MacKenzie v Albany Finance Ltd [2004] WASCA 301); Argyll Park Thoroughbreds Pty Ltd v Glen Pacific Pty Ltd (receiver and manager appointed) (1993) 11 ACSR 1, 4; Chitty on Contracts (30th ed, vol 2, 2008) 38‑247.
Also at common law, a loan payable 'on demand' in the above sense is to be distinguished from a loan only repayable on condition that a demand is first made. In the latter case, but not the former, the making of the demand is a condition precedent to liability to repay, and the cause of action does not arise until the demand has been made: MacKenzie v Albany [245]; see also, D & J Fowler (Aust) Ltd v Bank of New South Wales (1982) 2 NSWLR 879, 882 ‑ 883, 886; Murphy v Lawrence [1960] NZLR 772, 774 ‑ 775.
Where the parties do not expressly fix a time for repayment, or agree that the repayment is to be conditional upon the making of a demand, implications as to such matters may be made or inferred in appropriate circumstances: Chitty par 38‑247.
Where there is a formal contract, complete upon its face, the law may imply terms in accordance with the five criteria accepted by the majority of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 282 ‑ 283, which had been accepted by the High Court in a number of cases including Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, 347.
In relation to informal contracts, however, in Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 121, Deane J cautioned against an over rigid application of those criteria, in circumstances where the parties had never attempted to reduce their contract to complete written form. Deane J reiterated the undesirability of attempting to formulate a precise mechanical test in Hawkins v Clayton [1988] HCA 15; (1988) 164 CLR 539, 572 ‑ 573. Deane J's observations were endorsed in Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410, 422 (per Brennan CJ, Dawson and Toohey JJ), and observations to a similar effect were made by McHugh and Gummow JJ (442).
In Byrne v Australian Airlines Ltd at 442 McHugh and Gummow JJ said:
In such situations, the first task is to consider the evidence and find the relevant express terms. Some terms may be inferred from the evidence of a course of dealing between the parties. It may be apparent that the parties have not spelled out all the terms of their contract, but have left some or most of them to be inferred or implied. Some terms may be implied by established custom or usage, as described above. Other terms may satisfy the criterion of being so obvious that they go without saying, in the sense that if the subject had been raised the parties to the contract would have replied 'of course'. If the contract has not been reduced to complete written form, the question is whether the implication of the particular term is necessary for the reasonable or effective operation of the contract in the circumstances of the case; only where this can be seen to be true will the term be implied.
Finally, it may be noted that the parties confined their submissions to the position at common law, and neither party contended that s 59 of the Limitation Act 2005 (WA) had any application - as to which see s 4 of that Act.
Merits of the first ground of appeal
The important finding of the master, for present purposes, is that the master said that he was satisfied that there was no term of any loan agreement which would preclude the trustee from recovering the debt.
The subjective intentions and belief of Mr Scaffidi may be put to one side. The principal question is whether, on the uncontested evidence, there was a plausible issue requiring investigation as to whether the moneys were not repayable until 'realisation' of the Barrack Street project, and in that regard, whether there was a contract for loan containing an implied or inferred term as alleged.
It is important, in this context, to note the observations of Brooking and Charles JJA in Spacorp Australia Pty Ltd v Myers Stores Ltd [2001] VSCA 89; (2001) 19 ACLC 1270 [3] ‑ [4]:
The only question for us is whether the judge erred in determining that there was no genuine dispute. One can of course differ from the judge without deciding that the debt did not exist. A great range of states of mind on what we might call the ultimate question - the existence of the debt - may accompany the view that there is a genuine dispute, ranging from a clear conviction that the debt does not exist to the opinion that the genuine dispute hurdle has only just been cleared.
We think, if we may say so, that, except in a case in which it is as plain as a pikestaff that there is no debt (where bluntness may be in the interests of both sides), judges should, in general at all events, in dealing, whether at first instance or on appeal, with the question of genuine dispute, be at pains to perform the admittedly delicate task of disposing of that question without expressing a view on what we have called the ultimate question. For otherwise, on an application which resembles if it is not in law an interlocutory one, things may be said which embarrass the judge before whom the ultimate question comes.
Bearing in mind this admonition, it is sufficient to indicate that, in my view, there was a plausible contention requiring investigation, that there was a loan contract, with an inferred or implied term, as alleged, having regard to the circumstances referred to in [21] ‑ [22] above, including the following matters in, or which might arguably be inferred from, the evidence:
(a)at the time of the transaction, the trustee and the company were entities associated with the Scaffidi family;
(b)there was no written contract and the arrangements appear to have been of an informal nature;
(c)the trustee became a shareholder of the company, holding approximately 25% of the equity in the company;
(d)the transfer of land was registered after the issue of the shares to the trustee - and the debt arguably first arose at the time of registration of the transfer;
(e)material contributions by shareholders to the company for the funding of the development appear to have been in the form of loans, rather than capital; and
(f)there were two tiers of debt, shareholder debt and bank debt, with, it may arguably be inferred, the former having recourse and repayment terms which differed from ordinary commercial 'arms‑length' debt.
Also, it could not be said, in my view, that the inferred or implied term alleged would, for present purposes, necessarily be regarded as too uncertain. This is not a case where it could confidently be said that the court could dispose of the issue by summarily finding that, properly construed, and in the light of all the arguably inferred or implied terms of the contract, the time for repayment could not be determined objectively: cf Argyle v Glen Pacific (4).
Mr Scaffidi's evidence was also sufficient, for present purposes, to address the cash flow issue referred to in subpar (c) in [27] above. The respondent contended that there was evidence that there had been a reduction in a loan from 'The Lisajoe Trust' (presumably a trust associated with Mr Scaffidi) to the company, which, the respondent said, signified that there were funds available from management of the project to repay shareholder loans. The evidence is, however, equivocal because the same document records an increase in loans to the company from Mr Scaffidi personally, which arguably suggests that the evidence reflects adjustments in book entries between related entities, rather than repayments from operations.
Accordingly, in my view, the evidence before the master disclosed a genuine dispute, and the statutory demand ought to have been set aside. It was not open to the master to reject those parts of Mr Scaffidi's evidence which were uncontested, not inherently improbable and not inconsistent with undisputed contemporary documents.
Merits of the second ground of appeal
The second ground concerns the award of indemnity costs. As I have indicated, the first appellant, in my view, ought to have succeeded in setting aside the statutory demand. Although the court retains a wide discretion, costs would ordinarily follow the event (see, eg, Global v Sensis [2007] NSWSC 967).
The respondent contends, nevertheless, that the master properly awarded indemnity costs because there were three other issues, raised by the first appellant at the hearing before the master, on which it did not succeed. None of those matters, individually or collectively, would warrant an order for indemnity costs against the party who, overall, ought to have been successful on the application. It is unnecessary to decide the other questions raised on this ground, including whether the master ought to have given reasons for the order: cf Penfold v Penfold [1980] HCA 4; (1980) 144 CLR 311, 315 ‑ 316.
Discretionary considerations
I am satisfied that the decision of the master, if left unreversed, will cause substantial prejudice. If the decision is unreversed, there is a substantive effect on the first appellant's rights. It will either have to pay what is a large sum to the respondent, or become subject to the statutory presumption of insolvency: s 459C of the Act. The statutory presumption of insolvency, although rebuttable, is a serious matter for a trading corporation.
Conclusion
For the foregoing reasons I would grant leave to appeal and allow the appeal.
87
36
1