D & S Group v O'Connor Investments and Ors No. Scgrg-97-661 Judgment No. S6436
[1997] SASC 6436
•27 November 1997
D & S GROUP OF COMPANIES PTY LTD v
O’CONNOR INVESTMENTS PTY LTD and ORS
Perry J
This is an application by a company, D & S Group of Companies Pty Ltd ("D & S") to set aside two statutory demands served on it pursuant to s459E of the Corporations Law. Both demands are dated 22 April 1997.
One of the demands was served by O’Connor Investments Pty Ltd ("O’Connor"), Port Gawler Pastoral Co Pty Ltd ("Port Gawler") and Buckland Park Pty Ltd ("Buckland Park"). That demand sought payment of $18,076.53. The debt is described in the notice as "moneys due on account of land tax paid by the Creditors with respect to land owned by the Creditors and the Company (D & S) as joint tenants".
The other demand is by O’Connor alone. That seeks payment of $91,746.85. The description of the debt in that notice is "moneys due by the Company (D & S) to the Creditor (O’Connor) on account of interest paid by the Creditor to Bank SA for and on behalf of the Company pursuant to an agreement dated 13 December 1990 between the Creditor, the Company, Duke Nominees Pty Ltd and the State Bank of South Australia".
In accordance with the requirements of s459E(3), each of the notices of demand is accompanied by an affidavit, sworn by Henry O’Connor ("Mr O’Connor"), on behalf of the creditors.
I have been invited to determine the application on the basis of that affidavit, and several other affidavits filed for and in answer to the application. The factual findings which I proceed to make are founded on the affidavits and on concessions made by counsel.
The debts are said to arise out of a joint venture relating to the purchase of a holding of land known Buckland Park South. This was bought in December 1990. In fact there were three separate holdings of land the subject of the joint venture and comprising Buckland Park South. The titles to the three separate holdings were registered variously between the joint venturers who were O’Connor, Port Gawler, Buckland, D & S and another company, Duke Nominees Pty Ltd ("Duke").
The acquisition of Buckland Park South ("the land") was facilitated by a loan of about $4 million made by State Bank of SA, now South Australian Asset Management Corporation ("SAAMC"). That loan was made pursuant to an agreement described by the parties as a facility agreement.
It appears that the joint venture was not successful. In May 1995 D & S transferred its interest in the land to SAAMC.
Earlier, in 1992, proceedings were brought in the Federal Court, South Australia District Registry, by Duke and one Chris Angelopoulos against D & S and other respondents which included SAAMC.
Those proceedings were complex and involved a number of cross claims between the various parties. Some of those cross claims were settled. The remaining claims proceeded to trial before Mansfield J in April and May this year. His Honour has reserved judgment, which is yet to be delivered.
By deed dated 27 September 1996 ("the September deed") (T108), SAAMC transferred the whole of the land (including the interests of the other joint venturers and that part of the land which had formerly been owned by D & S) to Duke. It did so, exercising its right as mortgagee, notwithstanding that by then it was the legal owner in its own right of a third share. The sale proceeded on a sale price which was based on a value of $2.8 million. The actual consideration for the sale was an amount which reflected various adjustments against that value, which it is unnecessary to detail for present purposes.
What is important to note is that at the time of the sale by SAAMC, D & S had long since ceased to own any interest in the land. It follows that any surplus arising on the sale over and above the amount due to SAAMC and the holders of any other encumbrances, would have been payable to the then legal owners, that is Duke, Buckland Park, O’Connor and SAAMC.
Against that background, it is necessary to have regard to the assertions made by Asterios Gerovasilis, a director of D & S, in his affidavit sworn 5 May 1997 which was filed in support of the application brought on the same day seeking an order setting aside the two statutory demands.
In the affidavit he asserts with respect to the sale of the land to Duke evidenced by the September deed, that the transaction evidenced by it was "a sham" -
"... the stated .... purchase price for the purchase of the land by Duke is $2,800,000 which is significantly under the value that the plaintiff believes that the land was at that time worth. If the land had been sold at its true value it would have realised more than sufficient to repay the outgoings and mortgage payments claimed by the defendant which are the subject of the first and second notices."
The notices which he there refers to are, of course, the statutory notices of demand now in question.
Mr Gerovasilis then goes on in the affidavit to refer to subsequent sales of various parts of the land, which together aggregate amounts substantially exceeding the consideration paid by Duke.
Initially the defendants to these proceedings were also respondents to the Federal Court action. However, that action was resolved as between them and D & S, and none of the defendants sued by D & S in this Court remain respondents to the Federal Court proceedings.
While it is true that in its cross claim against SAAMC in the Federal Court, a copy of which is exhibited to Mr Gerovasilis’s affidavit, there is the assertion that the sale by SAAMC to Duke was at under value, there is no reference in that cross claim to the debts the subject of the statutory notices now in question.
Mr Gerovasilis further asserts in his affidavit:
"If the plaintiffs are successful in those proceedings (the Federal Court proceedings) the defendants’ claim (that is, the claim under the statutory notices) is completely extinguished."
That assertion simply cannot be true. The defendants are no longer parties to the Federal Court proceedings and no judgment in those proceedings could extinguish the claim made by them. Furthermore, from the mere glimpse of those proceedings afforded by the copy of the plaintiff’s cross claims which it has seen fit to bring in to this Court, no relief is sought which lends any support to that assertion made by Mr Gerovasilis.
The summons instituting the proceedings now before me simply seeks an order that the statutory notices "issued by the defendant (sic) against the plaintiff dated 22 April 1997 be set aside".
S459 is in the following terms:
"459H(1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b) that the company has an offsetting claim.
The Court must calculate the substantiated amount of the demand in accordance with the formula:
Admitted total - Offsetting total
where:
‘Admitted total’ means:
(a) the admitted amount of the debt; or
(b) the total of the respective admitted amounts of the debts;
as the case requires, to which the demand relates;
‘Offsetting total’ means:
(a) if the Court is satisfied that the company has only one offsetting claim - the amount of that claim; or
(b) if the Court is satisfied that the company has 2 or more offsetting claims - the total of the amounts of those claims; or
(c) otherwise - a nil amount.
If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.
If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:
(a) varying the demand as specified in the order; and
(b) declaring the demand to have had effect, as so varied, as from when the demand was served on the company.
In this section:
"admitted amount", in relation to a debt, means:
(a) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt - a nil amount; or
(b) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt - so much of that amount as the Court is satisfied is not the subject of such a dispute; or
(c) otherwise - the amount of the debt;
"offsetting claim" means a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates);
"respondent" means the person who served the demand on the company."
As to s459H(1), there is no dispute as to the existence or the amount of the debts to which the statutory demands relate. The debts are conceded.
Having regard to the definition of "offsetting claim" in sub-paragraph (5), none of the assertions in Mr Gerovasilis’s affidavit to which I have so far referred could substantiate a finding that there was an offsetting claim in the relevant sense. The claim against SAAMC that it sold land in question at under value cannot give rise to any sort of claim, let alone an "offsetting claim", against any of the defendants to these proceedings.
Neither could the suggestion made during the course of argument by Mr Scragg of counsel for D & S that if successful in the Federal Court proceedings, D & S will obtain sufficient money to pay out the statutory notices issued by the defendants, a matter which could advance the claim to set aside the demands on the basis of an offsetting claim. It is an all too familiar story in cases of insolvency for the debtor to say that if somebody else who owes it money pays up, it will be able to pay the creditor. Neither does that suggestion gain any weight by reason of the fact that the Federal Court proceedings had to do with land which was at one time the subject of the joint venture involving D & S and the defendants.
Late in the day, D & S made a further attempt to bring evidence into court and support the contention that there exists an offsetting claim within the meaning of s459H(1).
Dennis Xenephon Savvas, a director of D & S, deposes to other matters in an affidavit sworn on 6 August 1997. Part of the affidavit is as follows:
The D & S Interests, which are essentially Naura Pty Ltd have been the victim of misappropriation of funds by the defendant. Some $30,000.00 was taken out of a joint account held with the State Bank in January 1990. Since then, a further $15,000 has been taken out. That money is the property of the D & S Interests. It has been appropriated by the defendant without their consent.
There was an agreement between the D & S Interests and the defendant that the property from deer that defendant ran upon the property would be divided equally, two years after the purchase of the property by the D & S Interests. The deer in question were purchased in 1990. No payment has been made to the D & S Interests in respect of the deer in question. At present, the land is being used for deer shooting. No money has been received for that undertaking.
I am aware that timber has been sold from the property by the defendant at the rate of $70.00 per ton. That timber is situated adjacent to the Gawler River. Half of that timber belongs to the D & S Interests. There was a substantial amount of timber taken. No payment has been made in respect of that timber."
The assertion in paragraph 4 may be shortly disposed of. Mr Scragg conceded in argument that it concerned an alleged loss said to have been suffered by Naura Pty Ltd and not D & S. Whatever truth there may be in the assertion in that paragraph of misappropriation of funds by the defendant, it cannot in those circumstances assist D & S.
In an affidavit sworn on 20 August 1997, Mr O’Connor replies to the assertions in paragraphs 5 and 6 of the affidavit of Mr Savvas in the following terms:
As to paragraph 5 thereof I say that matters deposed to therein are generally correct other than that:-
5.1 The agreement was not between the Plaintiff but rather was between Naura Pty Ltd and Two Wells Pastoral Co Pty Ltd, O’Connor Investments Pty Ltd and Buckland Park Pty Ltd.
5.2 The agreement provided that three years after the purchase of the property by Naura Pty Ltd, those proceeds would be divided in the manner set out in the agreement referred to in paragraph 5.1. Until that time O’Connor Investments Pty Ltd, Buckland Park Pty Ltd and Two Wells Pastoral Co Pty Ltd would be entitled to such monies.
5.3 Naura Pty Ltd and O’Connor Investments Pty Ltd, Buckland Park Pty Ltd and Two Wells Pastoral Co Pty Ltd have at all times jointly operated a bank account under the name ‘Buckland Park Estates’ (‘the Account’).
5.4 Insofar as any deer have been disposed of three years or more after the purchase of the property by Naura Pty Ltd the proceeds of such sale have been paid into the Account.
5.5 Where money has been received for deer shooting on the land those monies have been deposited in the Account.
As to paragraph 6 thereof the contents thereof are generally correct. Insofar as any timber has been sold the proceeds of such sale have been paid into the Account."
The difficulty for D & S is that, even if the assertions in paragraphs 5 and 6 of the affidavit of Mr Savvas were to be taken at face value, there is simply no detail offered as to the amounts which D & S might, by reference to those paragraphs in Mr Savvas’s’ affidavit, be entitled to offset. In order for the Court to be satisfied of an offsetting claim within the meaning of s459H, it must be able to be satisfied as to the total of that claim so that the calculation of the substantiated amount may be effected in accordance with s459H(2).
Indeed, even where (unlike the assertion here) the assertion is advanced in specific money terms, it may not be sufficient to satisfy the section if it is asserted as a claim for damages in general terms. See John Shearer Ltd and Anor v Gehl Co (1995) 134 ALR 1 per von Doussa, Hill and Tamberlin JJ at 12:
"Another difficulty in the way of Shearer is that there is nothing in the material before the court which can be said to amount to more than a mere allegation that damage of the kind specified has been suffered. While it must be accepted that it is not contemplated that, in an action to set aside a statutory demand, evidence needs to be adduced of the kind that would need to be adduced at a trial of the issues between the parties, it is simply not enough for Shearer to assert damage in the most general of terms without more, particularly in a case where damages of the requisite amount, that is to say damages that are at least equal to or exceed the debt of the creditor, are not self-evident."
In applying those comments to the material brought forward by D & S in support of its application, including Mr Savvas’s affidavit, there is nothing which could amount to proof of an offsetting claim sufficient to support dismissal of the statutory notices.
There is a further difficulty in connection with the matters raised in Mr Savvas’s affidavit.
That affidavit was filed well outside the time within which the application for a setting aside of the demands may be made. S459G(2) provides:
"An application may only be made within 21 days after the demand is so served."
The manner in which the application is to be made is set out in s459G(3) which provides:
"An application is made in accordance with this section only if, within those 21 days:
(a) an affidavit supporting the application is filed with the Court; and
(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company"
In David Grant & Co Pty Ltd (Receiver Appointed) v Westpac Banking Corporation and Ors , Gummow J (with whom Brennan CJ, Dawson, Gaudron and McHugh JJ concurred) observed:
"... the temporal requirements in sub-ss (2) and (3) of s459G operate to define the jurisdiction of the court in respect of an application to set aside a statutory demand."
It seems to be implicit in that observation and from the terms of s459G(3) that if an affidavit is to be used in support of the application, it must be filed within the defined period of 21 days.
It seems to me then that the affidavit of Mr Savvas having been filed and served well after the expiration of the period of 21 days, insofar as it raises any ground offered in support of the application not identified in the affidavit of Mr Gerovasilis filed within time, it could not be taken into account in determining the application. Furthermore, David Grant is authority for the proposition that there is no ability to extend the time limit.
It follows that insofar as the application is based on s459H, it must fail.
In the alternative, Mr Scragg advanced an argument that the application should be granted by reference to the court’s powers under s459J, which provides:
On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b) there is some other reason why the demand should be set aside.
Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect."
Mr Scragg did not attempt to advance a case under subs(1)(a), but based this part of his argument on subs(1)(b). His argument is based on other matters sworn to by Mr Gerovasilis in his affidavit to which I have referred.
The two paragraphs of his affidavit which bear on the matter are as follows:
Pursuant to the deed the defendants have an arrangement with Duke for reimbursement for the payments set out in the first and second notice from the proceeds of the sale of the final allotments of land. That arrangement is set out in paragraph 8.5.3 of the deed and 8.5 of annexure no 2 of the deed. I believe at present a sufficient amount of the land has been sold to fully reimburse the defendants for the payments in question. I believe that if it has not occurred it is likely to occur in the very near future. The plaintiff are not party to the negotiations in relation to the sale of the land and in that respect it is completely dependent upon the information provided by the defendants and the representatives of Duke.
The purpose of the present notices is part of a scheme by the defendants and the representatives of Duke to liquidate the plaintiff and thereby prevent it from pursuing its lawful claim against Duke in the Federal Court. That is evidenced by the fact that the affidavit by Mr Henry O’Connor supporting the notice, refers to discussions between himself and Mr Angelopoulos, a director of Duke, that the notices in question were prepared on the 22nd April 1997, being the second business day after the completion of the last hearing day of the case between the plaintiffs and Duke and the various clauses set out in the deed and its annexures."
The deed referred to in paragraph 11 is the September deed. That deed in part provides that certain clauses in an earlier deed executed on 21 April 1996 ("the April deed") are to be "of no further force or effect" and in their place certain other clauses are to be substituted. I should say that the parties to the April deed are Duke Nominees Pty Ltd and Chris Angelopoulos (described as the "Duke interests") and Port Gawler, Buckland, O’Connor and Henry O’Connor (described as the "O’Connor interests").
Clause 8, being one of the substituted clauses, provides:
In the event that the Duke interests or any nominee thereof ("the Owner") being an associated corporation of Duke within the meaning of the Corporations Law, purchases the O’Connor and D & S Land and the Shortfall Debt, it is agreed that:
8.1 Subject to Clause 8.2 hereof, the Owner is to be entitled to exercise, as against the O’Connor Companies, all of the rights, powers and remedies previously existing in favour of SAAMC with respect to the Shortfall Debt other than in respect of the O’Connor Investments Debenture which shall be discharged;
8.2 Subject to the O’Connor interests complying with Clause 8.3 hereof, the Owner will not demand any part of the Shortfall Debt from any of the O’Connor Companies until all of Buckland Park South has been sold, settled upon and the proceeds of sale received;
8.3 The O’Connor interests will pay to the Owner:
8.3.1 every month until all of Buckland Park South has been sold, an amount of interest equal to one third of one percent of the sum of the NAB Debt and the Shortfall Debt; and
8.3.2 one half of the rates and taxes assessed from time to time on Buckland Park South.
8.4 Subject to paragraph 13A of the September Settlement Deed, upon sale of all of Buckland Park South, or upon any default under Clause 8.3 hereof:
8.4.1 the full balance of the then outstanding Shortfall Debt shall be due and payable by the O’Connor Companies to the Owner; and
8.4.2 all interest accrued on the Shortfall Debt plus an amount equal to one half of all interest paid or payable in respect of the NAB Debt less interest paid under Clause 8.3 hereof will be due and payable by the O’Connor interests to the Owner.
8.5 The net proceeds of any sales by the Owner of any part of Buckland Park South are to be applied:
8.5.1 firstly, in repayment of the NAB Debt;
8.5.2 secondly, in payment to the Owner of any amounts referred to in Clause 8.4 hereof which remain unpaid;
8.5.3 thirdly, equally to O’Connor Investments and the Duke interests by way of reimbursement of the interest and expenses (including rates and taxes) and interest thereon paid by them for and on behalf of D & S Group of Companies Pty Ltd whether before or after Settlement;
8.5.4 fourthly:
8.5.4.2 as to two-thirds to the Owner; and
8.5.4.2 as to the remaining one third thereof, to O’Connor Investments by way of a management fee in consideration for the assistance to be rendered by O’Connor Investments to the Duke interests and/or the Owner in the development and sale of Buckland Park South."
In that clause the "Owner" refers to Duke. Duke is progressively selling off the Buckland Park South land.
As to paragraph 8.5.1, the NAB debt, is a debt due to National Australia Bank on a loan by Duke which financed its purchase of the land from SAAMC.
As to paragraph 8.5.2, the shortfall debt is an amount of $767,741.91. There is no material before me to quantify the amount of "interest accrued on the shortfall debt" as referred to in paragraph 8.4.2.
It was conceded by counsel on both sides that the reimbursement referred to in 8.5.3 included the amounts in the two notices of demand now in question.
Other evidence before the Court indicates that sales of Buckland Park South land made so far by Duke have totalled of the order of $1.586 million, and that other parts of the land are "under contract" for amounts totalling in the order of $3.752 million.
Given that the sale price to Duke was at a net figure, after allowing the adjustments to which I have referred, of the order of $1.4 million, even allowing for interest payable to NAB, Mr Scragg suggested that either with respect to sales already made or under contract, sufficient would be likely to be generated from sales of the land to give rise to moneys beyond that required to service the obligations under 8.5.1 and 8.5.2 of the amended April deed, and that in those circumstances, it would be wrong to allow the notices of demand to stand.
In my opinion, the superficial attraction of that argument does not bear close scrutiny.
In the first place, the evidence before the Court does not satisfy me that there is any certainty that the funds being generated by the sales of Buckland Park South land will give rise to that result.
Furthermore, D & S is not a party to either the September or the April deeds. It does not seem to be that D & S is in a position to force O’Connor and Duke to reimburse by way of adjustment as between themselves from the proceeds of sale of Buckland Park South land, the debts the subject of the demands. The provisions of clause 8.5.3 appear to me to be nothing more than an expression of arrangements struck between O’Connor and Duke. It is part of the formula for the application of the proceeds of sale of Buckland Park South land, land in which D & S no longer has any interest and over which it has no control.
There is an additional argument against the contention advanced by D & S. Clause 13A.1 of the September deed provides:
"Nothing herein shall affect, prejudice, detract from or otherwise impair or restrict the rights of the O’Connor Companies to subrogation or contribution with respect to the Facility Agreement, the Personal Guarantee, the Company Guarantee or the Current Debt whether such rights arise by way of statute law or equity."
As I have already indicated, the Facility Agreement was the agreement under which the moneys were advanced by SAAMC to sustain the purchase of Buckland Park South in 1990. Insofar as that clause speaks of "contribution with respect to the facility agreement", that expression is apt to comprehend the demand relating to the larger of the two debts in question, that is to say, the demand for reimbursement of the moneys admitted to be due by D & S to O’Connor with respect to the interest paid to SAAMC which is an amount in excess of $91,000.
One way in which the situation may be tested is to imagine that clause 8.5.3 of the April deed as varied by the September deed took effect in the sense that sufficient monies were to be generated from sales of the land to satisfy the amounts payable under clauses 8.5.1 and 8.5.2 and the amount of the reimbursement referred to in clause 8.5.3. In those circumstances, could D & S oblige O’Connor and Duke to satisfy the amounts due under the demands now in question from those monies? Or if they did do so, could their reimbursement as between themselves be pleaded in law as a defence to proceedings to recover the monies the subject of the demands?
I would answer both questions in the negative.
In the first place, as D & S is not a party to the April deed, I do not see how it can force the parties to it to comply with its terms, or seek relief from a court directed to that end. Furthermore, as I have said, clause 8.5.3 operates only as an adjustment as between O’Connor and Duke of monies which belong to them. In any event, clause 13A.1 of the September deed seems to me to stand in the path of D & S seeking to avail itself of the amendments effected by that deed to the April deed.
In reaching that view, I have had regard to first principles. If A from his own monies pays off B’s debt owed to C, the payment no doubt discharges the debt. But if A and B voluntarily agree to pay off C’s debt owed to D, with no consideration moving from C, the latter could not enforce the agreement.
If A and B voluntarily (in the sense that C gives no consideration for the promise) agree to treat monies received by them in their own right as discharging the debt owed to them by C, I do not see how C can properly hold them to the agreement which they have reached between themselves. After all, insofar as they have applied what would otherwise be their own monies to make the adjustment, I do not see how C can take advantage of that.
A similar situation would arise if a trader wrote off in its books a debt due by a debtor who did not appear to be able to pay it. If, subsequently, the debtor came into funds, there would be nothing to stop the creditor successfully suing for the debt. The debtor could not, in such circumstances, plead the act of the creditor in writing the debt off in its books as a bar to the action.
In my opinion, the propositions which I have just enunciated are consistent with the decision of the High Court in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd.
In that case, the High Court held that the doctrine of privity of contract did not operate so as to disentitle a contractor, who was within the definition of the "assured" in a public liability policy of insurance, from taking the benefit of the policy, even though the contractor was not specifically named in it.
While Mason CJ and Wilson J in their joint judgment seemed prepared to recognise the right of a third party to enforce a contract for his or her benefit, this was expressly subject to:
"... the preservation of the contracting party’s right to rescind or vary, in the absence of reliance by the third party to his detriment ..."
There is no evidence of reliance in the relevant sense in this case. As for the other Judges who made up the majority, Toohey J clearly confined his decision to insurance contracts. He put it in this way:
"The proposition which I consider this Court should now endorse may be formulated along these lines. When an insurer issues a liability insurance policy, identifying the assured in terms that evidence an intention on the part of both insurer and assured that the policy will indemnify as well those with whom the assured contracts for the purpose of the venture covered by the policy, and it is reasonable to expect that such a contractor may order its affairs by reference to the existence of the policy, the contractor may sue the insurer on the policy, notwithstanding that consideration may not have moved from the contractor to the insurer and notwithstanding that the contractor is not a party to the contract between the insurer and assured."
On the other hand, Gaudron J based her view of the matter upon what she saw as the desirability of recognising "an obligation on the part of the promisor who has accepted agreed consideration for a promise to benefit a third party ...". In advancing that view of the matter, she had regard to principles of unjust enrichment. The considerations adverted to by her are not applicable to this case.
In this case, it seems to me that, in any event, by clause 13A.1 of the September deed the parties expressly evinced an intention not to impair the rights which O’Connor had vis a vis D & S, at least any right of "subrogation or contribution with respect to the facility agreement" which clearly at least one of the debts now in question is.
I add that irrespective of those matters, whether or not sufficient moneys will be generated by the sale of land to give rise to any arguable right to reimbursement under clause 8.5.3 is entirely speculative.
In those circumstances, it does not seem to me that there is any reason why the demands should be set aside by reference to the provisions of the April deed as varied by the September deed. Neither of the deeds give rise to circumstances which could properly be regarded as a reason why the demands should be set aside under s459J.
The application is dismissed.