Crixus Pty Ltd v Ora Banda Mining Ltd
[2020] WASC 53
•27 FEBRUARY 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: CRIXUS PTY LTD -v- ORA BANDA MINING LTD [2020] WASC 53
CORAM: ACTING MASTER WHITBY
HEARD: 10 FEBRUARY 2020
DELIVERED : 27 FEBRUARY 2020
FILE NO/S: COR 216 of 2019
BETWEEN: CRIXUS PTY LTD
Plaintiff
AND
ORA BANDA MINING LTD
Defendant
FILE NO/S: COR 217 of 2019
BETWEEN: APOLLO CORPORATION (WA) PTY LTD
Plaintiff
AND
ORA BANDA MINING LTD
Defendant
Catchwords:
Corporations Act 2001 (Cth) s 459G and s 459H - Application to set aside statutory demand - Whether 'genuine dispute' established - Turns on own facts
Legislation:
Corporations Act 2001 (Cth)
Result:
Plaintiffs' applications to set aside the statutory demands are granted
Category: B
Representation:
COR 216 of 2019
Counsel:
| Plaintiff | : | J Slack-Smith |
| Defendant | : | D Suttner |
Solicitors:
| Plaintiff | : | Dentons Australia |
| Defendant | : | Minter Ellison |
COR 217 of 2019
Counsel:
| Plaintiff | : | J Slack-Smith |
| Defendant | : | D Suttner |
Solicitors:
| Plaintiff | : | Dentons Australia |
| Defendant | : | Minter Ellison |
Case(s) referred to in decision(s):
Britten‑Norman Pty Ltd v Analysis & Technology Australia Pty Lt (2013) 85 NSWLR 601
Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785
ACTING MASTER WHITBY:
The plaintiff in COR 216 of 2019, Crixus Pty Ltd (Crixus), and the plaintiff in COR 217 of 2019, Apollo Corporation Pty Ltd (Apollo), each make an application pursuant to s 459G and s 459H of the Corporations Act 2001 (Cth) (Act) to set aside a statutory demand served by the defendant dated 22 October 2019.
The defendant in each proceeding is the same and the parties rely upon common affidavits and submissions.
For the sake of efficiency, I deal with both applications as one in these reasons. I will refer to Crixus and Apollo jointly as the plaintiffs.
The plaintiffs rely upon:
(a)affidavit of Ashleigh Paige Fernandez sworn 14 November 2019;
(b)affidavit of Michael George Fotios sworn 14 November 2019; (First Fotios Affidavit) and
(c)supplementary affidavit of Michael George Fotios sworn 5 February 2020 (Supplementary Fotios Affidavit).[1]
[1] Almost identical affidavits are filed in each of COR 216 of 2019 and COR 217 of 2019. The affidavits only differ to the extent that each refers to figures and amounts unique to each of the plaintiffs.
The defendant relies upon:
(a)affidavit of Anthony James Brazier accompanying the Statutory Demand sworn 11 December 2019 (First Brazier Affidavit); and
(b)affidavit of Anthony James Brazier sworn 17 January 2020 (Second Brazier Affidavit).[2]
[2] Supra 1.
Those affidavits are taken as read.
Background
I find the following facts are not disputed on the evidence:
(1)Mr Fotios was a director of:
(a)each of the plaintiffs between 16 December 2014 and 30 April 2019;
(b)the defendant between 17 September 2012 and 28 August 2018;
(c)Investmet Limited (Investmet) between 24 May 2015 and 30 April 2019; and
(d)Azurite Corporation Pty Ltd (Azurite) between 16 December 2014 and 30 April 2019.[3]
(2)Mr Fotios and his wife, Ms Renee Fotios, were the only shareholders and directors of the plaintiffs and Azurite.[4]
(3)The defendant was previously known as Eastern Goldfields Limited. Mr Fotios was eligible under an Employee Option Plan Rule (Option Rules) for the issue of options to purchase shares in the defendant (Options).[5]
(4)Sometime before 6 April 2018, the defendant issued Options[6] in the defendant, with an exercise price of $0.168, as follows:
(a)5 million Options to Crixus; and
(b)2.5 million Options to Apollo[7].
[3] First Fotios Affidavit par 5.
[4] First Fotios Affidavit par 7 – 9; Annexure MGF 6.
[5] First Fotios Affidavit par 8; Annexure MGF 3.
[6] Mr Fotios accepted an offer to take options from the defendant and directed, with the consent of the Board of the defendant, that the Options be granted to Crixus and Apollo: Supplementary Fotios Affidavit par 5 and 6.
[7] First Fotios Affidavit par 10; First Brazier Affidavit par 5(a).
The procedure for exercise of the Options was prescribed by the Option Rules. Schedule 1 cl 5 of the Options Rules provides:
5. EXERCISE OF OPTIONS
(a)Subject to clause 3 of this Schedule, an Option is exercisable by the holder lodging with the Company Secretary of the Company:
(i)a notice of exercise of that Option in the form attached to this Schedule;
(ii)a cheque for the Exercised Price for each Share to be issued upon the exercise of that Option (subject to clause 6 of this Schedule); and
(iii)the holding statement or certificate for that Option issued under clause 1(a) of this Schedule.
…
6. CASHLESS EXERCISE FACILITY
(a)If a Participant wishes to exercise some or all of their Options, it may elect to pay the Exercise Price by using the cashless exercise facility provided for under this clause 6 (Cashless Exercise Facility).
(b)The Cashless Exercise Facility entitles a Participant to set‑off the Exercise Price against a number of Shares which the Participant is entitled to receive upon exercise of the Participant's Options. By using the Cashless Exercise Facility, the Participant will receive Shares to the value of the surplus after the Exercise Price has been set‑off…[8]
[8] First Fotios Affidavit annexure MGF 3.
On 6 April 2018, the plaintiffs exercised the Options.[9]
[9] Supplementary Fotios Affidavit par 12
The plaintiffs did not elect to use the Cashless Exercise Facility upon exercise of the Options.[10]
[10] Supplementary Fotios Affidavit par 14.
The plaintiffs did not provide a cheque to the defendant upon exercise of the Options.[11]
[11] Supplementary Fotios Affidavit par 15; First Brazier Affidavit par 5(c).
On 6 April 2018, shares in the defendant were issued as follows:
(a)to the value of $840,000 to Crixus;
(b)to the value of $420,000 to Apollo.[12]
[12] First Fotios Affidavit par 26; Second Brazier Affidavit par 5(b)
On 22 October 2019, the defendant issued a statutory demand (being monies owed in respect of the exercised Options) to:
(a)Crixus in the amount of $840,000; and
(b)Apollo in the amount of $420,000
(collectively referred to as the Debt).[13]
[13] Fernandez Affidavit APF 1.
Genuine Dispute – Legal Principles
The issue on an application to set aside a statutory demand is whether there is a genuine dispute about the existence of the debt. S459H of the Act provides:
459H(1)[Court satisfied of dispute or offsetting claim] This section applies where, on an application under section 459G, the Court is satisfied …:
(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 …
It is not the court's function to resolve the genuine dispute or contested issues of fact. In Eyota Pty Ltd v Hanave Pty Ltd McLelland CJ in eq stated:[14]
…[t]his 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, it may not be' not having 'sufficient prima facie plausibility to merit further investigation as to [its] truth' (cf Eng Mee Yong v Letchumanan [1980] AC 331 at 341.[15]
[14] Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 [787].
[15] Cited with authority in Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 [4] (Martin CJ).
In Createc Pty Ltd v Design Signs Pty Ltd,[16] Martin CJ held that:
(a)the test of genuine dispute which has the greatest judicial support describes 'genuine dispute' as connoting 'a plausible contention requiring investigation' and equates it to a 'serious question to be tried' which arises on an application for an interlocutory injunction;
(b)an applicant for an order setting aside a statutory demand must establish that the dispute is bona fide and truly exists in fact and that the grounds alleging the existence of the dispute are real and not spurious, hypothetical, illusory or misconceived; and
(c)the only function of the court is to determine whether there is a genuine dispute; the court is not expected nor is it appropriate for the court to undertake an extended inquiry or to weigh the merits of the dispute.
[16] Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 (Martin J) [44] – [46].
In Britten‑Norman Pty Ltd v Analysis & Technology Australia Pty Ltd the New South Wales Court of Appeal stated:[17]
However, the existence of evidence that casts doubt, even significant doubt, on an applicant's contention that there is a disputed debt or an offsetting claim is not the basis for a rejection of an application under s 459G. In the result, for the reasons that follow, we have come to the conclusion that the email correspondence did not so undermine the appellant's evidence as to make it implausible or to justify a conclusion that the claim was not genuine.
First, evidence does not have to be supported by contemporaneous documentation, …Whilst a witness's evidence may be more cogent if it is supported by such documentation, the absence of documentation does not, of itself, render a witness's evidence lacking in credibility, reliability or cogency.
[17] Britten‑Norman Pty Ltd v Analysis & Technology Australia Pty Lt (2013) 85 NSWLR 601 [60] – [61].
Plaintiffs' Submissions
The plaintiffs submit that the statutory demand must be set aside because there is a genuine dispute as to the existence of the Debt. The plaintiffs say that the defendant received consideration for the Debt by way of a reduction of a loan that the defendant owed to Azurite (or alternatively, to Investmet).
The plaintiffs rely upon the following evidence in support of that proposition:
(a)On or about 24 February 2017 Investmet and the defendant entered into a loan agreement pursuant to which Investmet agreed to provide unsecured advances to the defendant for an amount not exceeding $10 million (Loan Agreement); [18]
(b)Azurite, on behalf of Investmet, made advances to the defendant pursuant to the Loan Agreement;[19]
(c)Pursuant to cl 10.2 of the Loan Agreement, Investmet novated the Loan Agreement such that the amount owing by the defendant pursuant thereto became owing to Azurite;[20]
(d)by an email dated 14 March 2018 from Shannon Coates, who provided company secretary services to the defendant, to Squire Patton Boggs, solicitors for the defendant - Subject 'EGS ESOP Option Exercise' – Ms Coates stated 'Mike is to be set off against debt';[21]
(e)on or about 6 April 2018, by Circular Resolution of the board of shareholders of the defendant, the defendant authorised the issue of 5 million shares in the defendant to Crixus and 2.5 million shares in the defendant to Apollo; and[22]
(f)on 6 April 2018, the general ledger account of Azurite recorded credits of $840,000 and $420,000 respectively – which reflected payment for the exercise of the Options by reduction of the amount owed by the defendant to Azurite, alternatively Investmet, under the Loan Agreement.[23]
[18] First Fotios affidavit par 12; Annexure MGF 5; Supplementary Fotios affidavit par 10; Annexure MGF 4.
[19] First Fotios Affidavit par 15.
[20] Clause 10.2 of the Loan Agreement provides that 'the Lender may assign, transfer, novate or otherwise deal with all or any of its rights or obligations under the Finance Documents without the consent of any person'; First Fotios Affidavit par 16; Annexure MGF 5.
[21] Supplementary Fotios Affidavit par 16; Annexure MGF 6.
[22] First Brazier Affidavit par 5(a); Annexure AJB 1.
[23] First Fotios Affidavit par 23. Supplementary Fotios Affidavit par 9; Annexure MGF 3.
Defendant's Submissions
The defendant submits that the evidence relied upon by the plaintiffs to establish the reduction of the amount owed pursuant to the Loan Agreement is inconsistent with the books and records of the defendant and therefore, there is no genuine dispute as to the existence of the Debt.
The defendant relies upon the following evidence in support of that proposition:
(a)the half‑year financial report of the defendant for the period ended 31 December 2017 does not record any debt owed to Azurite. These accounts were signed by Mr Fotios on 13 March 2018 as Executive Chairman, on behalf of the board, as being a true and fair view of the defendant's financial position; [24] and
(b)on 10 December 2018 Azurite submitted a proof of debt in the administration of the defendant. The proof of debt is signed by Mr Fotios, as a director of Azurite. The proof of debt encloses a general ledger which does not contain any of the reductions in the loan balance to reflect the payment for the Debt.[25]
[24] First Brazier Affidavit par 10 – 12.
[25] Second Brazier Affidavit par 7 – 8; Annexure AJB 1. Azurite submits a revised proof of debt on 5 July 2019 to include the reduction by the amount of the Debt; Supplementary Fotios Affidavit MGF 7.
The defendant submits that, the inconsistency between the contemporaneous evidence and the plaintiffs' position leads to the inevitable conclusion that there is no genuine dispute as to the existence of the Debt.
Is there a genuine dispute as to the existence of the Debt?
While there may be evidence before me that casts doubt, potentially significant doubt, on the plaintiffs' contention that the Debt does not exist, such evidence is not the basis for rejection of an application made under s 459G of the Act.[26]
[26] Britten‑Norman Pty Ltd v Analysis & Technology Australia Pty Lt [60] – [61].
The question I must ask is 'Am I satisfied that the plaintiffs have established that there is a bona fide dispute and that the grounds relied upon to find that dispute are not spurious, hypothetical, elusory or misconceived?'
I am so satisfied for the following reasons:
(a)payment was a pre‑condition to the exercise of the Options pursuant to Sch 1 cl 5 of the Option Rules - it is not in issue that the Options were exercised. Therefore, there is an issue to be tried as to whether the Options were exercised upon the reduction of the loan balance;
(b)the contemporaneous email from Ms Coates to Squire Patton Boggs[27] gives rise to a contest on the facts as to what 'debt' was to be set off (and what it was to be set-off against); and
(c)the purported novation of the Loan Agreement from Investmet to Azurite gives rise to a legal issue as to wehter that was permitted and, if so, a factual issue as to whether that actually occurred.
[27] Supplementary Fotios Affidavit par 16; Annexure MGF 6.
I am not required to undertake a more detailed enquiry as to the existence of the Debt, or to form a view in relation to the merits of the dispute. It is enough that I am satisfied that there is a genuine dispute. In those circumstances, the plaintiffs' applications to set aside the statutory demands pursuant to s 459G of the Act are granted.
I will hear the parties as to final orders.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CB
Associate to Master Sanderson27 FEBRUARY 2020
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