Commercial Capital v Durman - [2007] NSWSC 869

No judgment structure available for this case.

Reported Decision:
(2007) 25 ACLC 1,242

New South Wales

Supreme Court

CITATION: Commercial Capital v Durman [2007] NSWSC 869

HEARING DATE(S): 07/05/07, 05/06/07

JUDGMENT DATE :
15 August 2007

JURISDICTION: Equity Division

JUDGMENT OF: Associate Justice Macready at 1

DECISION: Paragraph 74

CATCHWORDS: Corporations Law. Application under s459G of Corporations Act to set aside statutory demand. Discussion of Graywinter principle. Demand varied.

PARTIES: Commercial Capital Pty Limited v Christopher Charles Durman and Jennifer Anne Durman

FILE NUMBER(S): SC 2164 of 2006

COUNSEL: Mr J Drummond for plaintiff
Mr A Gruzman for defendants

SOLICITORS: Barringer Leather Lawyers for plaintiff
Stacks//Gray Lawyers for defendants

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Associate Justice Macready

Wednesday 15 August 2007

2164 of 2006 Commercial Capital Pty Limited v Christopher Charles Durman & Jennifer Anne Durman

JUDGMENT

1 His Honour: This is an application by the plaintiff seeking to set aside a statutory demand issued by the defendants. The statutory demand was dated 9 March 2006 and was served on the plaintiff on 14 March 2006. The present proceedings were commenced within time.

2 The demand claimed $256,251.81 due from the plaintiff to the defendants pursuant to a loan agreement dated 9 January 2003 together with costs of $1837.70, altogether totalling $258,089.51.

Background history

3 In late 2002, Mr Durman and Mr Fitzgerald decided to form the plaintiff company. The company was incorporated on 23 August 2002 and Mr Durman and Mr Fitzgerald became directors and shareholders of the company.

4 In order to fund the operations of the company Mr and Mrs Durman and Mr and Mrs Fitzgerald provided various funds. The first loan was on 16 December 2002. Mr and Mrs Durman agreed to advance to the plaintiff $100,000 on certain terms and conditions. Mr B J Fitzgerald and his wife, Melissa Fitzgerald, also advanced $100,000 on the same terms and conditions. Mr and Mrs Durman and Mr and Mrs Fitzgerald both borrowed $100,000 from third party lenders using the security of their respective homes.

5 In due course the plaintiff required additional funds and on 27 March 2003 Mr Durman together with Mr and Mrs Fitzgerald jointly acquired a further loan from ANZ Banking Group Ltd (“ANZ”) in the sum of $200,000 which was then advanced to the plaintiff on certain terms and conditions. Mrs Durman was not a party to that loan although she executed a mortgage debenture to secure the loan.

6 On 7 February 2005, Mr Durman resigned his employment with the plaintiff and on 23 February 2005 he resigned as a director of that company.

7 On 15 January 2005 Mr and Mrs Fitzgerald and Mr and Mrs Durman executed separate Loan Agreements with the plaintiff. However both Loan Agreements were dated 9 January 2003. Mr B J Fitzgerald witnessed the signatures of Mr and Mrs Durman in relation to the Loan Agreement between them and the plaintiff.

8 At the time of execution the schedules to the loan agreements, which specified as the repayment date, default interest and other matters, was left blank. Subsequently, Mr Durman inserted some details in this part of the loan agreement. I will return to the detail of this in due course.

9 As a result of the circumstances in which the loan agreements were signed it is said by the plaintiff that there is a genuine dispute as to whether or not the amounts claimed by the defendants in the statutory demand are presently due for repayment. The plaintiff relies upon the fact that the claim made in the statutory demand is for repayment of monies said to be due under the loan agreement.

10 The defendant Mr Durman says an available construction of the loan arrangements is that the money is repayable upon demand and the demand has been made. The defendant also suggests that there is interest payable upon the loan and by reason of default in payment of that interest the principal sum is presently due. The defendant had contended that there was a term that the monies would be repaid upon certain events, including the sale the plaintiff's interest in a company In Motion Technologies Pty Ltd. That evidence was in an inadmissible form and was not admitted.

The loan agreement

11 The evidence is clear that at the date when the loan agreement was signed and exchanged between Mr Fitzgerald and Mr Durman on 15 January 2003, the only item in the schedule to the Loan Agreement that was completed was item 1 which set out the principal sum as $200,000.

12 It is plain that after the execution of the loan agreement insertions were made by Mr Durman in his handwriting in the schedule. Relevantly he made the following insertions in the schedule:

13 According to Mr Fitzgerald, these were not made with his consent and accordingly the parties are at issue on this matter. The circumstances in which they occurred after the meeting will require careful analysis to determine which witness should be accepted on this point. That is not a matter to be determined in this hearing.

14 It is necessary to consider the terms of the Loan Agreement which are conveniently set out in submissions which I will incorporate with some modifications in this judgment.

15 Clause 3 of the Loan Agreement is headed “Repayment” and provides as follows:

16 Clause 7 of the Loan Agreement provides as follows:

(a) The Borrower breaches any of the covenants and agreements contained and incorporated by reference or implied in this Agreement or the Security.”

17 An examination of the Loan Agreement discloses that it contains no express term requiring interest be paid on the Loan. The term “Loan” is defined in clause 1.1 to mean:

“The Principal Sum together with interest calculated at the Rate which accrues on the Principal sum from time to time.”

18 The term “Rate” is defined in clause 1.1 to mean:

“The interest rate payable per annum specified in Item 3 of the Schedule.”

19 Clause 5 of the Loan Agreement is headed “Interest on Default”. It provided that interest in accordance with the “Rate” may be accrued daily

“if any payment to be made by the Borrower is not paid when due.”

20 The term “Completion Date” is defined in clause 1.1 to mean:

“the date specified in Item 2 of the Schedule.”

21 There was also a debenture executed about the same time. Clause 2.1 provided that the mortgagor would pay to the mortgagee, forthwith upon demand, all monies secured and would pay interest at the interest rate on the monies secured or the balance thereof, from time to time, which interest was payable upon demand. That covenant however only applied “unless otherwise agreed in writing". In this respect the Loan Agreement governs whether interest is payable as it specifies the circumstances in which interest is payable.

22 The plain construction of the loan agreement is that in the absence of default, there is no obligation to pay interest prior to the Completion Date, that being the first date upon which there could arise a default sufficient to activate clause 5. As no interest was payable prior to the Completion Date, there could be no default pursuant to clause 7.1 sufficient for the “Loan” to become due and payable by 9 March 2006 when the demand was issued, if the completion date had not arrived.

23 It seems plain that at the time of the original discussions for the advancement of funds to the company that no discussion occurred as to when the funds were to be repaid. In the middle of 2003, lawyers were engaged to draft Loan Agreements that were to be between the company and each of the directors and govern the terms on which each would be repaid their $200,000. The solicitors at some stage sought further information concerning, inter alia, the final date for repayment of the loans. Nothing further seems to have been done about the completion of these documents until the matter was reactivated in either late 2004 or early 2005, when draft documents were signed.

24 I have earlier referred to the fact that when the first loan was obtained the parties borrowed the necessary funds from the ANZ Bank based upon the security of their own homes. The second loan from the ANZ Bank was also secured by these securities. In respect of the first loan the relevant parties repaid their lenders from the sale of homes on 20 September 2005. This did not affect the fact that the parties were still owed amounts by the company. In respect of the second loan the ANZ bank was repaid on 24 March 2005. Mr Fitzgerald paid his amount of $100,000 and Mr and Mrs Durman refinanced their part of the loan against another security. These repayments naturally did not affect the liability of the company to the two parties for the amount lent to the company.

25 During the period of the borrowings to finance the company's business there were arrangements in place concerning the payment of interest on those borrowings from the bank. In respect of the first loan Mr Fitzgerald gave the following evidence on this aspect:

ComCap

26 Apart from on a few occasions, the parties paid the interest to the ANZ Bank during the period that the funds were borrowed from the bank.

27 In respect of the second loan, the conversation by Mr Fitzgerald concerning the matter was as follows:

ComCap

28 In accordance with the discussions, the company paid the interest on that borrowing up until its discharge on 24 March 2005.

29 A matter that has to be determined is what liability the company had to the two individuals on their loans in respect of interest which the parties met on their borrowings for the first loan and which the company paid on the borrowings for the second loan. The company’s accounts were charged with this interest expense and the shareholders loan accounts were credited with the interest they paid.

30 I return to the question of the date for repayment of loans as between the company and the individuals to see whether there is a genuine dispute as to whether the loans were due at the date of the demand.

31 I had the benefit of a number of submissions in respect of the principles to be applied and I think the most useful summation of what is a genuine dispute is that given by McLelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At page 671 His Honour made the following comments respect of the expression "genuine dispute":

Eng Mee Yong v Letchumanan

South Australia v Wall

Mibor Investments

'These matters, taken in combination, suggest that at least in most cases, it is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute.'

Re Morris Catering (Australia) Pty Limited

'There is little doubt that Division 3 prescribes a formula that requires the Court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the Court will examine the merits or settle the dispute. The specified limits of the Court's examination are the ascertainment of whether there is a "genuine dispute" and whether there is a "genuine claim".

It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.

The essential task is relatively simply - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).'

I respectfully agree with those statements."

32 If one looks at the matter as at 15 January 2006 when the parties signed the documents that had blanks as to the completion date, there certainly would be a patent ambiguity in the wider use of that term. The statement about completion date means nothing at all and it is incapable of any meaning (see Odgers Construction of Deeds and Statutes 5th ed at 76). Up until that time, there were no discussions between the parties as to the completion date or repayment date of the loans and accordingly in accordance with the usual principles the loan would be repayable upon demand although no demand was necessary for the debt to be due (see Collins v Benning (1701) 12 Mod Rep 444, Re McHenry, McDermott v Boyd, Barkers Claim [1894] 3 Ch 290, DFC New Zealand Ltd v McKenzie [1993] 2 NZLR 576 and Drinkwater v Craddyrack Pty Ltd (No 3), unreported, Young J, 28 November 1997 BC9706991. In the document the parties omitted something which it was necessary to state in order to completely define their contractual intentions. In cases of such a patent ambiguity, as a last resort, the Court may conclude that the parties had not reached agreement at all and the Court will declare the contract void for uncertainty. See Scammell & Nephew Ltd v Ouston [1941] AC 251 at 261.

33 However, with regard to this particular patent ambiguity a Court would not reach that result. That is because the law implies an obligation to repay in the absence of agreement when repayment is demanded.

34 The defendant puts forward the amended Loan Agreement as one that was agreed to by Mr Fitzgerald and thus there is a need to consider that document on the assumption that it may, as suggested by the defendant, be accepted as binding on the parties. If one looks at the completed document, all one has is some words that in the context of the completion date do not by themselves give a completion date. There is arguably an ambiguity in the document.

35 After the documents had the schedule completed by Mr Durman’s insertions there was further correspondence between him and the company’s solicitors in which he sought to have various documents registered. The solicitors raised the question as to the proper execution of the documents and the absence of details as to when the loans were to be repaid. In a letter of 2 February 2005, to the solicitors, Mr Durman had this to say in response:

” We will pass an internal resolution in regards to timing of the full repayment of the loan. This will be covered in terms of the wording in the agreements in that we will review the arrangements quarterly, but pass a resolution to have them repaid in full within five years from drawdown.”

36 There was no resolution subsequently passed but if the loans were to be repaid in full within five years from drawdown then the repayments would not be due until either 16 December 2007 or 26 March 2008. In the light of this letter, it becomes apparent that what Mr Durman was trying to do when he inserted words in the space for the completion date in the schedule was to refer to this quarterly review of arrangements for repayment. In his letter to the solicitors Mr Durman also referred to the fact that there would be a resolution passed that the company would pay interest payments to him and Mr Fitzgerald. There is no evidence of such a resolution. It does perhaps explain some of the insertions in the schedule by Mr Durman.

37 On the case put forward by Mr Durman, which has been adopted by the plaintiff as the basis of what they allege to be a genuine dispute the arrangement seems to be for an ultimate repayment in five years with a review on a quarterly basis to see if the parties could agree to change to an earlier repayment date. The events to which I am now referring have occurred after the execution of the loan agreement and after the insertions by Mr Durman. The thrust of modern authority is that such conduct cannot be used for the purpose of construing a written contract.

38 A convenient to modern starting point for this discussion is a decision of the full Court of the Supreme Court of Victoria in FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd (1993) 2 V.R. 343. The Court held that the conduct of the parties subsequent to the making of the contract was not relevant to the interpretation of the contract. There was an extensive review of English and High Court authority by Brooking J who gave the majority judgement. That decision has been doubted in one respect by a first instance decision of the New South Wales Supreme Court. In Spunwill Pty Ltd v Bab Pty Ltd (1994) 36 NSWLR 290, Santow J subjected the Victorian decision to detailed scrutiny and considered that there was one exception to the rule. At page 312 he concluded his discussion in these terms:

“ Rather than there being a special rule of construction specifically excluding consideration of post-contractual conduct, the weight of Australian authority seems to support the proposition that such extrinsic evidence is excluded only by the parol evidence rule. Thus, evidence of post-contractual conduct may in some circumstances be considered under recognised exceptions to that general rule, and in particular the surrounding circumstances exception. Though the relevance of subsequent conduct as an aid to construction is as evidence of a party’s subjective belief as to what the contract meant when it was made, use of such conduct will be legitimate under the objective theory of the contract in the limited circumstances where conduct evidences a clear and mutual subjective intention as to what the contract originally meant. There appears to be no justification in principle for excluding such evidence of a mutual subjective intention at the time of contracting merely because the evidence itself arises subsequent to the making of the contract. ”

39 Subsequent New South Wales first instance cases have varied and some have declined to follow this exception (see Bryson J in Sportsvision Australia v Tallglen Pty Ltd (1998) 44 NSWLR 103 at 116). Even if one were to accept the legal position as put forward by Santow J it is plain that the conduct which it is suggested one should have regard is not conduct which goes to what the parties originally meant. It is only conduct in which the parties are perhaps considering what they will do in the future, it having been pointed out and they no doubt knew, that there was no agreement as to when the loan was to be repaid.

40 However it seems that the Court of Appeal has now decided to accept the view expressed by Bryson J in Magill v National Australia Bank Limited [2001] NSWCA 221. The court per Ipp AJA, Meagher, Heydon JJA agreeing, said at 50-53:

“

"I must say that I had thought that it is now well settled that it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made. Otherwise one might have the result that a contract meant one thing the day it was signed, but by reason of subsequent events meant something different a month or year later".

41 In Independent Timber Importers (Aust) Pty Ltd v Mercantile Mutual Insurance (Aust) Ltd [2002] NSWCA 304, the Court reinforced its view in these terms:

“[17]

42 Given the absence of any further consideration it is hard to see how the letter of 2 February 2005 might be a variation of the agreement reached on the 15 January 2006.

43 Accordingly, it seems to me that we are concerned with an original oral agreement and a written loan agreement, both of which make no provision for repayment and thus is repayable on demand. In my view, the surrounding circumstances that occurred after the insertions in the document do not give rise to any genuine dispute. As I have said before, there are no surrounding circumstances to be considered prior to the execution of the loan agreement.

44 In supplementary submissions the plaintiffs argued the following:

45 It was submitted by the defendant that these were new matters raised outside the 21 day period. In respect of (b) above, this was apparent from the material filed within time and plainly the agreement was not a deed.

46 The arguments in (a) and (c) all presuppose that the only source of a liability to pay is the loan agreement. However, that is not the case because the oral arrangements at the time of advance clearly classified the advance of funds as a loan. The plaintiffs’ complaint is that all that was claimed in the demand was an amount under “the loan agreement” and not the original loan. This is specious as the parties are all aware of what is being demanded. The demand may have misdescribed the nature of the loan and to that extent there would be a defect in the demand.

47 In the circumstances of this case there is no confusion as to what is being demanded by the defendant and no substantial injustice occurs by reason of the misdescription.

48 As I have said, the original arrangement contained no term as to repayment and therefore under the original arrangement the loan was repayable upon demand.

49 In respect of the deed of the Deed of Priority this was included in the affidavit material filed within time with no particular reference to what was said to flow from the document. The tenor of the claims made in the affidavit was that the documents were not agreed and that the loan was not repayable for five years.

50 It was the plaintiffs’ submission that the Deed of Priority was an agreement between Mr Durman and Mr Fitzgerald, their wives and the company that neither Mr and Mrs Durman or Mr and Mrs Fitzgerald would receive any payment of the money advanced to the company in priority to the other. It followed according to this submission that there was an agreement that neither party was entitled to repayment of whole or part of the monies advanced in the absence of agreement between them and the company or equal payments being made to Mr and Mrs Durman and Mr and Mrs Fitzgerald.

51 It is necessary to see whether this submission could be entertained. A recent discussion of the extensive case law in this area and its development is that of Austin J in POS Media Online v B Family Pty Ltd [2003] NSWSC 147. There His Honour said:

28 In David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 the High Court of Australia held that an application to set aside a statutory demand is to be made within 21 days of service of the demand, and not at some time thereafter, and that to treat s 1322 as authorising the Court to extend the 21 day period would be to deprive the word 'only' in s 459(2) of effect (per Gummow J at 276). The David Grant case implied that the plaintiff must file and serve, within the 21 day period, not only the application but also an affidavit falling within the description of 'an affidavit supporting the application'; in assessing whether these requirements have been satisfied, the Court is not to have regard to any supplementary affidavit filed and served by the plaintiff at a later time.

29 Section 459G does not prescribe the content of the application. That is left to the Rules of Court, which are now substantially uniform. The application is made by an originating process, which according to R 2.2 of the Corporations Rules of the various Courts, and the associated Form 2, must set out the relief sought and the sections of the Corporations Act under which the proceeding is brought, but need not plead the grounds upon which the relief is sought. The defendant's interest in knowing the plaintiff's claim is catered for by the general rules of Court regarding particulars, and the Court's power to order that the matter proceed by pleadings or points of claim in an appropriate case.

'In a s 459H(1)(a) case, the affidavit must in my view disclose facts showing there is a genuine dispute between the parties. A mere assertion that there is a genuine dispute is not enough. Nor is a bare claim that the debt is disputed sufficient. It follows from the fact that the affidavit need not go into evidence, which is the customary function of affidavit, that it may read like a pleading.'

32 Those observations have been taken up and applied frequently in first instance decisions - for example, Zenaust Imports Pty Ltd v Olympic Chemicals Works Co Ltd (1998) 28 ACSR 465; Z-Tek Computers Pty Ltd v Aus Linx International Pty Ltd (1997) 15 ACLC 1233; SMEC International Pty Ltd v CEMS Engineering Inc (2001) 38 ACSR 595. In the Zenaust case, however, Santow J added (at 469) the qualification that an affidavit in support of a notice to set aside a statutory demand could not fairly be expected to rise higher than the level of articulation of the claimed debt in the statutory demand.

33 These cases dealt with the minimum content requirements for the affidavit in support of the application. A corollary of their reasoning is that if the affidavit discloses certain grounds only, the plaintiff should be limited to those grounds at the hearing. That proposition was accepted in D & S Group of Companies Pty Ltd v O'Connor Investments Pty Ltd (1997) 15 ACLC 1794, where Perry J remarked (at 1798), in respect of an affidavit filed on behalf of the plaintiff well after the expiration of the period of 21 days, 'in so far as it raises any ground offered in support of the application not identified in the affidavit ... filed within time, [it] could not be taken into account in determining the application'. The same point was accepted by Mandie J in Missay Pty Ltd v Seventh Cameo Nominees Pty Ltd (in liq) [2000] VSC 397.

'the legal consequences which follow are not required to be pleaded in such an affidavit'.

35 We now have the benefit of three decisions by an intermediate appellate court. The Full Court of the Supreme Court of Western Australia has followed Sundberg J's observations and their corollary in Meadowfield Pty Ltd v Gold Coast Holdings Pty Ltd (in liq) [2001] WASCA 360; Energy Equity Corporation Ltd v Sinedie Pty Ltd (2001) 166 FLR 179 and Financial Solutions Australasia Pty Ltd v Predella Pty Ltd (2002) 167 FLR 106. However, the Financial Solutions case has reduced the Graywinter 'principle' to a more fact-specific inquiry.

'there is reason to hesitate and hold back from acceptance of the apparent effect of the submission for Financial Solutions that the concluding paragraph of the passages cited earlier from Sundberg J's reasons in Graywinter reveal a settled and universal principle, which must be satisfied by an affidavit before it can be accepted as 'supporting the application' within the meaning of s459G(3)(a) and as satisfying the jurisdictional requirement being considered. The statutory yardstick remains that the affidavit should support the application. The precise nature of the application may well influence what this requires.'

'[21] It is thus reasonably clear that the relevant concept of "raising" or "identifying" a particular ground involves some verbal delineation of that ground in the s 459G(3)(a) affidavit. If a debt of $10,000 were claimed as one year's interest under a contract providing for interest at the rate of 9% per annum on a principal sum of $100,000, it would not, in my opinion, be sufficient for the affidavit to annex the loan agreement and say no more. It would have to refer at least to the connection between the contract and the debt claimed and put in issue the calculation of interest - even if it merely said, "The debt does not accord with the annexed contract". [22] The real point is that the application and affidavit filed and served within the 21 day period must fairly alert the claimant to the nature of the case the company will seek to make in resisting the statutory demand. The content of the application and affidavit must convey, even if it be by necessary inference, a clear delineation of the area of controversy so that it is identifiable with one or more of the grounds made available by s 459H and s 459J. That process of delineation may not be extended after the end of the 21 day period, although it is open to the plaintiff to supplement the initial affidavit by way of additional evidence relevant to the area of controversy identified within the period.'

52 In Tokich Holdings Pty Limited v Sheraton Constructions (NSW) Pty Limited (In liquidation) [2004] NSWSC 527 His Honour Justice White referred to the debate and concluded as follows: (at para 56)

53 This, as I said before, seems to have been an acceptance of the view put forward by Santow J in Callite. In Hansmar Investments Pty Ltd v Perpetual Trustee Company Ltd [2007] NSWSC 103, White J returned to the debate in these terms:

"26 However, whilst I hesitate to differ from any observations of Barrett J, I respectfully consider that the test enunciated in Process Machinery Australia Pty Ltd v ACN 057 260 950 Pty Ltd at [22] and repeated in Elm Financial Services Pty Ltd v MacDougal at [7] that the ground of challenge must be raised expressly or by necessary inference, is stated too strictly. The Graywinter principle is based upon an implication from the requirement in s 459G that an application to set aside a statutory demand be accompanied by an " affidavit supporting the application " which must be filed and served within 21 days after service of the demand. The implication is now firmly established. However, in my view, the implication is no more than that the grounds of the application to set aside the demand must be raised by the supporting affidavit.

27 Exceptionally in this area of the law, an affidavit under s 459G may read like a pleading ( Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund at 459). Thus, a supporting affidavit may raise a ground of dispute in a form which is inadmissible to prove the facts giving rise to the dispute, and those facts may be proved in a later affidavit filed and served outside the 21-day period. However, there is no requirement in s 459G that the supporting affidavit read like a pleading.

28 The implication is now firmly established that the grounds for applying to set aside a statutory demand must be raised in the supporting affidavit, so that a ground which is not so raised cannot be relied upon. It is one thing to draw that implication from the requirement that an application be accompanied by a supporting affidavit. It is quite another to imply from the requirement that there be a supporting affidavit anything as to the precision with which such a ground must be expressed, other than that it be raised. Whether it is raised expressly, by necessary inference, or by a reasonably available inference, provided it is raised, in my view the requirements of s 459G are satisfied.

29 In POS Media v B Family Pty Ltd (2003) 21 ACLC 533, Austin J observed that the observations of Barrett J in Process Machinery Australia Pty Ltd v ACN 057 260 590 Pty Ltd at [21] and [22] arguably took the observations of Sundberg J in Graywinter further than they were taken by the Court of Appeal of the Supreme Court of Western Australia in Energy Equity Corporation v Sinedie Pty Ltd (2001) 166 FLR 179, and might be inconsistent withCallite Pty Ltd v Adams [2001] NSWSC 52.

30 In POS Media v B Family Pty Ltd , it was arguable that the debt demanded in the statutory demand was not owed because no debt for the price payable on the transfer of shares arose until the shares were transferred. However, this ground of challenge to the statutory demand had not been raised in any way in the supporting affidavit. The agreement under which the alleged debt arose was not annexed to the supporting affidavit. Austin J said that it was unclear whether it would have been open to the plaintiff to have relied upon that ground if the affidavit had annexed the agreement without articulating the argument. His Honour observed that it might be argued that the ground was obvious on the face of the document.

31 Such a mode of reasoning would be consistent with Callite Pty Ltd v Adams . There, a solicitor served a statutory demand demanding payment of an amount of unpaid legal costs. One of the grounds of challenge to the demand was that the solicitor had failed to make the disclosure required by s 175 of the Legal Profession Act 1987 (NSW). Santow J (as his Honour then was) held that this ground of challenge was not available because no facts were deposed to from which one could infer that there was no fee disclosure and no costs agreement. However, the affidavit did depose to the receipt of accounts and those accounts were annexed. Santow J held (at [ 10]) that a perusal of the accounts showed that they lacked the prescribed statutory content as required by s 192 of the Legal Profession Act and Regulation 22A of the Legal Profession Regulations 1994. Section 192 of the Act precluded any action being taken for recovery of costs until 30 days had passed after the provision of a bill of costs which complied with the Act. Santow J held (at [12]) that the legal consequences which flowed from the form in which the accounts were rendered were not required to be pleaded in the affidavit. His Honour set aside the statutory demand on the basis that public policy precluded a statutory demand being used to bypass the safeguards of the Legal Profession Act .

32 I doubt that it could be said that in Callite Pty Ltd v Adams it was a necessary inference from the affidavit that this ground of challenge was raised. However, it was an available inference, so that it could fairly be said that the ground was raised in the supporting affidavit.

33 Having regard to the diversity of reasoning in these cases as to the precision with which a ground of challenge must be delineated in the supporting affidavit, I do not consider that comity requires me to follow the observations in Process Machinery Australia Pty Ltd v ACN 057 260 590 Pty Ltd at [21]-[22] that a supporting affidavit must clearly delineate the grounds of challenge to a statutory demand expressly or by necessary implication.

"The statutory yardstick remains that the affidavit should support the application. The precise nature of the application may well influence what this requires." "

54 There then is a clear dispute as to the formulation of the appropriate test. However, it may be that if a purposive approach was taken to the construction of the section the need to alert the defendant to the nature of the claim is of importance. The defendant has to consider whether it will contest the proceedings and if it chooses to contest the proceedings what evidence it should call. The purpose of the section is to ensure that the plaintiffs file their application in a timely fashion but, more importantly, to ensure that the defendant has the information necessary to effectively exercise the choice that it has on how to proceed. On the other hand the section is concerning itself with an affidavit, which in ordinary parlance does not address legal argument like a pleading and really deals with evidence in an application.

55 Adopting the approach of White J the grounds sought to be argued is merely an available inference and accordingly it could be said the ground was raised in the supporting affidavit. Before deciding this I will see whether there is any substance in the submission in respect of the Deed of Priority.

56 The document is a deed being expressed to be a deed and executed as a deed although the common seal of the company was not affixed. Mr and Mrs Durman and Mr and Mrs Fitzgerald as well as the company are the parties. The substantive part of the deed dealing with the order of priority are set out in clauses 2.1 to 2.4 which are as follows:

2.2 The order of priorities shall apply until either the Durman Mortgage Security or the Fitzgerald Mortgage Security have been discharged and satisfied in full notwithstanding that the monies secured pursuant to the Durman Mortgage Security or the Fitzgerald Mortgage Security may be from time to time reduced and subsequently increased or any other matter or thing whatsoever.

(g) any other matter or thing whatsoever.

57 It is interesting to note from clause 2.4 (b) that the provisions for priority recognise repayment in part of the monies. As appears from clause 2.3 the agreement contemplates the situation where following a course of repayment of monies only one person is left.

58 Clause 3 is in the following terms:

59 The deed thus contemplates that a person might enforce the mortgage security and is only obliged to give notice of its action. This is quite the contrary of any obligation not to seek repayment without the consent of the other lender.

60 A consideration of these clauses would seem to indicate that the purpose of clause 2.1 is to provide that there would be no competition between lenders when claiming against the company for monies. Whether this would be in a winding up or in some other circumstance it applies where both parties are claiming against the company. This is the evident purpose.

61 In the present case, of course, there is no claim by Mr Fitzgerald for monies and only a claim by Mr Durman. As the deed only purports to suggest that there is an order of priority when there is competition between them it seems to me that the terms of the agreement sought to be implied from the document by the plaintiff is contrary to the express terms and would not be so obvious that it goes without saying. In my view any argument to the contrary would not even raise a genuine dispute.

62 Another basis upon which the defendant suggests that the amount is presently due is because of the failure to pay interest from April 2005. The only written document namely the document executed on 15 January 2005 even in its amended form does not provide for interest unless there is a failure to pay the principal sum. By January 2005 the two individuals were aware that the ANZ loan on which the company was paying the interest was to be repaid. In an e-mail from Mr Fitzgerald to Mr Durman of 25 January 2005 he said inter alia:

“We will then have a circular resolution that after the ANZ loan is dissolved the interest payments be made separately to you and I.”

63 However there was no evidence of any such resolution being put into effect.

64 In an e-mail of 2 February 2005 from Mr Durman to Mr Fitzgerald he said inter alia:

“As I hadn't heard from you and we are trying to get them registered I told Cridland’s that until otherwise notified, interest that is to be paid to you would be by bank cheque. It is really not that important and certainly not fundamental to the agreement as to how you receive payment -- the important part is that you (and I) do get paid for the monies lent under those agreements and monthly in arrears.”

65 There was e-mail correspondence in May and June between Mr Fitzgerald and Mr Durman and in that correspondence reference was made to the non-payment of Mr Durman's interest. Mr Fitzgerald did not raise any objection to the payment, indeed he said that the interest would be paid and he expected to pay both their interest entitlements shortly. No interest was paid for 2005 and following on that part of the loan. The response of Mr Fitzgerald in his affidavit evidence to this complaint about the failure to pay interest was that the company was not in a position to make payments of interest either to Mr Durman or him.

66 It was not suggested that Mr Fitzgerald did not have the authority of the company to agree to make interest payments to himself and Mr Durman even though at the time this occurred there were by then two other directors of the company. The original loan agreement was not a deed and no doubt could be varied by persons with the appropriate authority. There would be consideration because the existing agreement to pay the ANZ Bank interest directly by the company would cease and there was a need to agree on the payment of interest to the principal lenders directly if their loans were not to be called up.

67 However the question is was there any agreement binding on the company to make those payments. No documents expressly providing for it exist and an available inference is that there may have been some common view between Mr Durman and Mr Fitzgerald on the matter but nothing decided at a company level. I would be reluctant to decide the case on this basis and therefore do not determine that there has been a failure to pay interest in accordance with a variation to the agreement. In these circumstances arguably there no default to make the loan become repayable under clause 7. It is still repayable under the other basis referred to above.

68 As I have determined that the loan is presently due it is necessary to determine the substantiated amount. The plaintiff concedes that if any amount is repayable the amount is between $66,391.10 and $75,397.53. The defendant suggests that by taking account of what is shown the company's balance sheet for 30 June 2004 and adding interest thereafter and after allowance of repayments there is a total of $176,731.32 due.

69 The figures that Mr Fitzgerald determined which I have first referred to in the preceding paragraph are set out in annexure A to his affidavit of 31 March 2006. That annexure is based inter alia upon spreadsheets provided by Mr Durman to him prior to Mr Durman leaving the company. It shows that the loan has been reduced by principal payments back to Mr Durman of $133,600 .90. Based on these repayments the amount owing is the figure of $66,391 .10. The spreadsheet also calculates the amount owing by adding interest as claimed by Mr Durman and on this basis Mr Fitzgerald concedes that there would be a figure of $75,397.53.

70 The alternative calculations to which I have referred were put forward by Mr Smith attached to his affidavit of 3 May 2007. They however take as a starting point the principal sum of the loan as shown in the company balance sheet at 30 June 2004. They thus do not take account the principal repayments, based on Mr Durman's material, which are now found in Mr Fitzgerald spreadsheet, which had in fact been made prior to 30 June 2004. The amount of the repayments prior to 30 June 2004 is in the order of $98,650. This substantially explains the difference between two figures. The remaining balance is probably accounted for by the inclusion of interest prior to 2005.

71 The upper limit of the amount, which may be owing to Mr Durman according to Mr Fitzgerald, is a sum of $75,397.53. That figure however is said to be a sum claimed by Mr Durman in his documents and is not fully explained on the evidence. I have not found that there were arrangements for interest after the departure of Mr Durman from the company.

72 Accordingly I determine the substantiated amount at $66,391.10.

73 The plaintiff has been substantially successful in the face of a demand that was obviously greatly in excess of any amount due. In these circumstances subject to submissions I think that the defendants should pay the plaintiff's costs.

74 The orders that I make are as follows:

1. I vary the demand served by the defendants on the plaintiff dated 9 March 2006 by reducing the amount to $66,391.10 such variation to take effect on and from 21 days after service of the demand.

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Citations

Commercial Capital v Durman [2007] NSWSC 869

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CITATION:	Commercial Capital v Durman [2007] NSWSC 869
HEARING DATE(S):	07/05/07, 05/06/07
JUDGMENT DATE :	15 August 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	Associate Justice Macready at 1
DECISION:	Paragraph 74
CATCHWORDS:	Corporations Law. Application under s459G of Corporations Act to set aside statutory demand. Discussion of Graywinter principle. Demand varied.
PARTIES:	Commercial Capital Pty Limited v Christopher Charles Durman and Jennifer Anne Durman
FILE NUMBER(S):	SC 2164 of 2006
COUNSEL:	Mr J Drummond for plaintiff Mr A Gruzman for defendants
SOLICITORS:	Barringer Leather Lawyers for plaintiff Stacks//Gray Lawyers for defendants