Dynamic Window Systems Pty Ltd v Robinson
[2016] VSC 152
•13 April 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2016 00452
| DYNAMIC WINDOW SYSTEMS PTY LTD (ACN 143 691 445) | Plaintiff |
| v | |
| LARAINE MARGARET ROBINSON | Defendant |
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JUDGE: | EFTHIM AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 2 March 2016 |
DATE OF JUDGMENT: | 13 April 2016 |
CASE MAY BE CITED AS: | Dynamic Window Systems Pty Ltd v Robinson |
MEDIUM NEUTRAL CITATION: | [2016] VSC 152 |
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CORPORATIONS – Winding up – Statutory demand – Application to set aside statutory demand – Corporations Act 2001 (Cth) s 459G – Whether the loan was due and payable at the time the statutory demand was served – Whether the agreement was void for uncertainty – Whether the defendant was estopped from seeking repayment – Application dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C R Brown | Frenkel Partners |
| For the Defendant | Mr R Greenberger | Indovino’s Lawyers |
HIS HONOUR:
The plaintiff, Dynamic Window Systems Pty Ltd, applies to set aside a statutory demand served on it by the defendant, Laraine Margaret Robinson. The demand claims that the plaintiff is indebted to the defendant in the sum of $250,000.00. The schedule of the statutory demand describes the debt as follows:
- Loan funds advanced by the creditor to the company on 3 July 2014: $11,000.00;
- Loan funds advanced by the creditor to the company on 21 July 2014: $239,000.00;
- Total debt $250,000.00.
The plaintiff relies on an affidavit of Christopher Mark Banks (a director of the plaintiff) sworn on 9 February 2016 and an affidavit of Duncan Adair Johnson (a director of the plaintiff) sworn 25 February 2016. The defendant, in response, relies on an affidavit of its solicitor, Gaetano Indovino, sworn 22 February 2016.
The plaintiff is a supplier of aluminium doors, windows and associated products which it manufactures from its factory in Bairnsdale, Victoria. It employs 53 staff.
The plaintiff purchased the business in June 2013. The purchase was negotiated on behalf of the plaintiff by its directors, Mr Johnston and Mr Banks. Negotiations were held with Warren James Robinson and Christopher Leslie Newton, on behalf of the company known as ACN 006 709 253 Pty Ltd (formerly Dynamic Window Systems Pty Ltd).
As part of the sale, the plaintiff agreed to take over responsibility for the majority of the debts of the former Dynamic Window Systems Pty Ltd and assume its employee liabilities and continuation of guaranteed contracts. Mr Robinson was personally liable for some of those debts as he had personally guaranteed them. He told Mr Banks that he faced bankruptcy if the purchase did not go through. The plaintiff also agreed to take over a superannuation loan from Mr Robinson to the former Dynamic Window Systems Pty Ltd and to appoint Mr Robinson as its General Manager of the business.
After the purchase of the business, Mr Johnston and Mr Banks discovered a number of serious issues with the disclosure of financial information of the business that had been provided by Mr Robinson and Mr Newton, including overstatement of stock and an undisclosed loan.
As the financial position of the plaintiff became clear, it was necessary for the shareholders to inject a substantial amount of additional capital into the plaintiff in order for it to continue to trade and to meet its financial obligations. Capital was initially provided by loans from Mr Banks and Mr Johnston and they encumbered private assets to secure other loans of the plaintiff and the plaintiff’s $400,000.00 overdraft.
In July 2014, Mr Johnston and Mr Banks told Mr Robinson that given his responsibility for the plaintiff’s financial position, he also needed to help with the capital. Mr Johnston was informed by Mr Robinson that his wife, the defendant, would loan $250,000.00 to the plaintiff, provided that the plaintiff gave a letter that acknowledged that it was a loan. A letter was provided and there were no discussions about the loan being repayable on demand. The plaintiff subsequently received $250,000.00 from the defendant in two tranches, $11,000.00 on 3 July 2014 and $239,000.00 on 21 July 2014.
There were ongoing issues with Mr Robinson’s conduct as General Manager and it was agreed that he would finish up in April 2015. No demand for payment of the loan was received from the defendant or Mr Robinson prior to that time.
Mr Johnston deposes that in 2014 he had discussions about the repayment of the loan. He said to Mr Robinson that the loan would rank equally with the existing shareholder loans and would be repayable when the plaintiff could afford to do so. Mr Robinson told him that this was acceptable to him but he wanted it in writing for his wife. A letter dated 21 July 2014 was provided to the defendant, confirming the payment terms.
The letter forwarded to the defendant reads as follows:
This letter is written to recognise the loan being provided by you to Dynamic Window Systems Pty Ltd for $260,000.
The loan will rank equally with the other shareholder loans and will be repaid as soon as practible [sic].
At present we can give no specific date for repayment we can provide you with continuing updates as to the performance of the business and will give at least 2 months’ notice of any repayments.
We thank you for supporting us.
The defendant has not filed any affidavit which contradicts the facts deposed to by Mr Johnston and Mr Banks regarding the circumstances of the loan.
The plaintiff seeks to set aside the statutory demand on two grounds:
- There is a genuine dispute regarding repayment of the loan pursuant to s 459G of the Corporations Act 2001 (Cth) (‘the Act’); and
- Alternatively, the defendant may be estopped from seeking repayment in circumstances where a representation was made that the loan would not be repayable until the plaintiff had funds.
Section 459G of the Act provides:
(1)A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2)An application may only be made within 21 days after the demand is so served.
(3)An application is made in accordance with this section only if, within those 21 days:
(a)an affidavit supporting the application is filed with the Court; and
(b)a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.
The meaning of a genuine dispute in the context of the challenge of a statutory demand was formulated by McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd.[1] His Honour said:
It is, however, necessary to consider the meaning of the expression ‘genuine dispute’… in my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the ‘serious question to be tried’ criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. 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, it may 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), or ‘a patently feeble legal argument or an assertion of facts unsupported by evidence’: cf South Australia v Wall (1980) 24 SASR 189 at 194.[2]
[1](1994) 12 ACSR 785.
[2]Ibid 787.
In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd,[3] Dodds-Streeton JA, with whom Neave and Kellam JJA agreed, referred to the principles that are to be taken into account in determining a genuine dispute and off-setting claim. Her Honour said:
As the terms of s 459H of the Corporations Act and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off‑setting claim. It is required to evidence the assertions relevant to the alleged dispute or off‑setting claim only to the extent necessary for that primary task. The dispute or off‑setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something “between mere assertion and the proof that would be necessary in a court of law” may suffice…[4]
[3](2008) 66 ACSR 67.
[4]Ibid [71].
It is not for the Court to determine the merits of a dispute when an application is made to set aside a statutory demand. In Mibor Investments Pty Ltd v Commonwealth Bank of Australia,[5] Hayne J said:
…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 the dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute.[6]
[5](1993) 11 ACSR 362.
[6]Ibid 366.
However, in Delnorth Pty Ltd v State Bank of New South Wales,[7] Cohen J said:
[7](1995) 17 ACSR 379, 384.
Section 459H(1) refers to the court finding that there is a genuine dispute. The parties have argued this case on the issue of whether the proper construction of the agreement and the facts results in the plaintiff owing money to the defendant. The facts were not in dispute and there was thus no question of whose evidence would be accepted on a final hearing. Under the previous legislation, when there was a claim that there was a bona fide dispute on substantial grounds as to the debt claimed, the court could decide that dispute if it arose from a question of law or was of short compass. See, for example, Offshore Oil NL v Acron Pacific Ltd (1984) 2 ACLC 8.
I consider that under the provisions of the Corporations Law, the same approach can be taken. Although questions of disputed fact will not be decided on an application to set aside a statutory demand, the issue of whether there is a genuine dispute can be resolved on that application where the question arises on a short point of law or the construction of documents or agreed facts. In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; 12 ACLC 669, McLelland CJ in Eq said that the expression “genuine dispute” connotes a plausible contention requiring investigation. Where no further investigation is required, I consider that the court on an application under s 459g may decide as a matter of law if there is a genuine dispute. The occasions when this is possible may be few, but in my view this is one of them.
The defendant does not dispute any of the facts raised by the plaintiff. The plaintiff submits that there appears to be a dispute as to the terms of the loan and specifically the terms of the repayment. It says that some of those terms appear to be oral and in those circumstances, the Court will first need to hear from the relevant witnesses to make a determination of the facts regarding what the terms of the loan were and its terms of repayment.
I do not accept that submission. The terms of the loan are clear and are contained in the letter forwarded to the defendant on 21 July 2014. Conversations deposed to by Mr Johnston have not been contradicted. If there was anything further the plaintiff needed to raise, it had ample opportunity to do so in its affidavits. In my view, there are no questions of disputed fact and this is an appropriate matter to determine in the context of an application under s 459G of the Act.
The defendant submits that the loan of $250,000.00 made by the defendant is due and payable and was due and payable at the time the statutory demand was served. It contends that the terms of the agreement, which the plaintiff relies upon in support of its contention that the loan is not due and payable, are void for uncertainty and cannot be enforced. The defendant submits that the letter signed by the two directors of the plaintiff on 21 July 2014 is riddled with uncertainty in multiple ways.
In Bailes v Modern Amusements Pty Ltd,[8] Sholl J considered a claim by a shareholder for repayment of a loan made to a company. There was an agreement in place that loans by the shareholders would be repaid to the company when the company considered that it was in a position to repay them.
[8][1964] VR 436.
His Honour held that the agreement was void for uncertainty.[9] That decision was referred to and applied by Drummond J in Argyll Park Thoroughbreds Pty Ltd v Glen Pacific Pty Ltd (rec and mgr apptd).[10] That case related to an application to set aside a statutory demand. The plaintiff had borrowed money from the defendant. The directors of the plaintiff deposed that there were loans owed, however the loans were only repayable when the plaintiff was in a position to repay the loans. Drummond J dismissed the application to set aside the statutory demand and held that the term of the borrowing arrangements was void for uncertainty. His Honour said:
[9]Ibid 441.
[10](1993) 11 ACSR 1.
It may be that the true distinction between Head v Kelk[11] and Bailes[12] is that if the question whether the agreed time for repayment has arisen can be determined objectively, then the term will be valid; but, if the agreed time for repayment operates in a subjective way by leaving it to the borrower to decide for himself when, if ever, he will repay, the term will be void as illusory (citations omitted).
Having regard to what Mr Leitch says in para 27 of his affidavit, if there was an agreement between Argyll and Glen Pacific that was intended to have contractual effect and under which the moneys now demanded were loaned, it seems clear, and counsel for Argyll was not able to make any countervailing submissions, that the stipulation as to repayment is such as to leave it to the subjective determination of Argyll when, if ever, it will repay. This would be enough to make the whole agreement of loan void. But it is quite clear that the moneys in question were loaned by Glen Pacific to Argyll. That is how so much of the amount now demanded as had been advanced by 30 June 1990 was treated in Argyll's accounts and how it was treated by Mr Leitch himself in para 24 of his affidavit. Although the term as to repayment contended for has gone as an illusory stipulation, there remains an agreement for a loan. In Bailes at 442, Sholl J stated:
In those circumstances I consider that the term limiting the right to repayment is void for uncertainty, but that in its absence there remains an agreement for a loan.
The law is that where there is an agreement for a loan and the time for repayment is not fixed by the agreement, any money advanced will be repayable on demand…[13]
[11][1963] 63 SR (NSW) 340.
[12]Bailes v Modern Amusements Pty Ltd [1964] VR 436.
[13]Ibid 4.
In Universal Greening Pty Ltd v Sabine,[14] Kenny J dismissed an application to set aside two statutory demands. The defendant in that case made loans to the plaintiff which were allegedly to be repaid only when the plaintiff came into funds so it could afford to make the repayments. Kenny J held that the term was void for uncertainty and the loans were repayable on demand. Her Honour said:
By his statutory demand, Dr Sabine claims that he is owed $37,275. That amount is constituted by three separate loans in the sums of $5,000, $13,775 and $18,500, made to, or on behalf of, Universal Greening on 4 November 1994 (an earlier date is also mentioned but the parties made nothing of the difference) 1 September 1995 and 15 April 1996 respectively. Sabine Holdings, by its statutory demand, claims that it is owed $52,000, constituted by the sums of $20,000 and $32,000, made to Universal Greening on 3 April 1995 and 20 December 1995 respectively. Universal Greening admits that all these moneys were advanced to it, or on its behalf, as the respondents allege. On this review, Universal Greening principally submitted, that, whilst the moneys were advanced on behalf of the company and for its benefit, the moneys were advanced on the understanding that they would be repaid only when Universal Greening could afford to do so. In other words, the respondent's loans were not repayable on demand. Because the time had not yet come when Universal Greening could afford to repay the loans, it was its counsel's submission that no obligation to repay had yet arisen. In written submissions filed on 10 December 1998, the applicant also asserted that some of the advances relied on by the respondents were made without Universal Greening's authority.[15]
[14][1999] FCA 529.
[15]Ibid [4].
Her Honour concluded:
Let it be assumed that the respondents made the loans (or part of them) upon terms that they were repayable by Universal Greening only when Universal Greening could afford to make repayment. If such were the case, then, in my view, the term as to repayment was void for uncertainty. That conclusion is supported by the decision of Sholl J in Bailes v Modern Amusements Pty Ltd [1964] VR 436 and by the decision of Drummond J in Argyll Park Thoroughbreds Pty Ltd v Glen Pacific Pty Ltd (1993) 11 ACSR 1.[16]
[16]Ibid [20].
I am of the view that here the agreement is also void for uncertainty. The requirement that “the loan… will be repaid as soon as practible [sic]” is too uncertain and unable to be enforced. It is entirely dependent upon the subjective intention of the plaintiff, via its directors, as to when that will occur, and there are numerous factors which could come in to play. For example, would the plaintiff need to satisfy every liability that it has and then save up enough money to pay the shareholders loans before the defendant’s loan was repaid? If the plaintiff needed to buy new plant and equipment, would that be done rather than repay the loans?
The defendant submitted that she would never be able to sue the plaintiff for repayment of the loan because she would never be in a position to determine when it was practicable to repay the loan. The plaintiff submitted that there has been an obligation created by the letter dated 21 July 2014 to keep the defendant informed as to the position of the company and that there was an intention that she would be paid pari passu. There is no evidence before the Court that any accounts have been given to the defendant demonstrating the affordability of the payment of the loan, and there is no evidence from the plaintiff that the defendant has been informed of the position of the company. Even so, it would make no difference, in my view, because the terms of the loan are clearly uncertain.
The defendant submitted that the second paragraph of the 21 July 2014 letter also creates uncertainty, by reason of the concluding words of the paragraph, which states, “[the plaintiff] will give at least two months’ notice of any repayments.” The defendant submitted that the question arises, ‘when does the plaintiff have to give notice and how much notice does the plaintiff have to give?’ It was submitted that the 21 July 2014 letter does not specify any time limit within which the plaintiff is required to give notice of the repayment and it is totally at the discretion of the plaintiff as to when it gives the required notice. The plaintiff could therefore defer giving notice indefinitely. I agree that the giving of notice is at the discretion of the plaintiff and it does create some uncertainty, but not as much uncertainty as is created by stating that the loan will be repaid as soon as practicable.
In my view the agreement is void and therefore the loan should be repayable immediately, because there has been no time for payment agreed. There is also no need for any demand for repayment.[17]
[17]See Ogilvie v Adams [1981] VR 1041, 1043 and 1053; VL Finance Pty Ltd v Legudi [2003] VSC 57, [39]–[58].
The plaintiff also seeks to set aside the statutory demand because it says the defendant may be estopped from seeking repayment in circumstances where representation was made that the loan would not be repayable until the plaintiff had funds and a demand has been made prior to that time. Here the plaintiff must show that it has relied on the representation to its detriment.
The plaintiff submits that the defendant gave a loan, but the plaintiff did not pursue the former Dynamic Window Systems Pty Ltd or Mr Robinson for misleading and deceptive conduct regarding the purchase of that business. A further detriment is alleged, in that the loan was given as capital for the company and the loan has been used for purposes in a way that it cannot be pulled out and paid on demand.
I do not accept that there can be an estoppel in this case. A loan was given to the plaintiff and it was the plaintiff’s decision to use it as capital. There was no inducement to borrow the money based on some representation that was made by the defendant.
The application to set aside the statutory demand will be dismissed.
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