FBM Corporation Pty Ltd v Redsilk Enterprises Pty Ltd
[2014] WASCA 51
•7 MARCH 2014
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: FBM CORPORATION PTY LTD -v- REDSILK ENTERPRISES PTY LTD [2014] WASCA 51
CORAM: MARTIN CJ
PULLIN JA
NEWNES JA
HEARD: 17 DECEMBER 2013
DELIVERED : 10 JANUARY 2014
PUBLISHED : 7 MARCH 2014
FILE NO/S: CACV 126 of 2013
BETWEEN: FBM CORPORATION PTY LTD
Appellant
AND
REDSILK ENTERPRISES PTY LTD
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :MASTER SANDERSON
Citation :[2013] WASC 398
File No :COR 157 of 2013
Catchwords:
Corporations - Application to set aside statutory demand - Whether genuine dispute as to debt - Corporations Act 2001 (Cth), s 459H(1)(a) - Whether some other reason statutory demand should be set aside - s 459J(1)(b) - Assignment of debt to third party - Statutory demand allegedly served by third party solely to impede debtor's ability to pursue claim for damages against original creditor - No evidence of alleged purpose
Legislation:
Corporations Act 2001 (Cth), s 459H(1)(a), s 459J(1)(b)
Result:
Appeal dismissed
Category: B
Representation:
Counsel:
Appellant: Mr J M Healy
Respondent: Mr M N Solomon
Solicitors:
Appellant: MKI Legal
Respondent: Tottle Partners
Case(s) referred to in judgment(s):
Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5
Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85; (2009) 71 ACSR 602
FBM Corporation Pty Ltd v Redsilk Enterprises Pty Ltd [2013] WASC 398
Meehan v Glazer Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229
Tired Horses Films Holdings Pty Ltd v Property About Pty Ltd [2012] WASC 478
JUDGMENT OF THE COURT: This is an appeal against a decision of Master Sanderson dismissing an application by the appellant under s 459G of the Corporations Act 2001 (Cth) (the Act) to set aside a statutory demand served on it by the respondent: FBM Corporation Pty Ltd v Redsilk Enterprises Pty Ltd [2013] WASC 398. The appellant contends that the master erred in finding there was no genuine dispute about the debt (s 459H(1)(a)), or alternatively, in finding that there was not some other reason why the statutory demand should be set aside (s 459J(1)(b)).
On 10 January 2014, we dismissed the appeal with reasons to be delivered later. These are the reasons.
Background
The respondent's statutory demand is dated 11 July 2013. The debt which is the subject of the demand is described in the schedule to the demand as follows:
Description of the Debt
Amount of Debt
Loan repayment due pursuant to a deed poll made by the debtor company on or about 17 April 2012 and a notice of assignment in favour of the creditor dated 24 June 2013.
$250,000.00
Interest incurred thereon in accordance with the deed poll in the amount of 10% per annum, calculated daily, from 17 April 2012 to 10 July 2013.
$32,720.20
Total amount
$282,720.20
The statutory demand is supported by an affidavit of 11 July 2013 sworn by Ms Heidi Emery, the sole director of the respondent.
The appellant applied to set aside the statutory demand, primarily on the basis that it does not owe the sum claimed to the respondent. The appellant does not dispute that it received the sum of $250,000 by way of a loan but says that the loan was made to it by Mr Alistair MacKinlay, a solicitor, and it is to Mr MacKinlay that the sum claimed is owed. The respondent, on the other hand, says that the loan was made, not by Mr MacKinlay, but by Barralong Capital Pty Ltd (Barralong), a company controlled by Mr MacKinlay, and that the debt was subsequently assigned by Barralong to the respondent.
The application to set aside the statutory demand was accompanied by an affidavit sworn on 2 August 2013 by the sole director of the appellant, Kubashen Naidoo. Mr Naidoo swore a further affidavit in support of the application on 5 September 2013. Affidavits in opposition to the application were sworn by Mr Alistair MacKinlay, in his capacity as a director of Barralong, and Mr Guy Le Page, a director of RM Capital Pty Ltd, a stockbroking firm.
In his affidavit, Mr Naidoo says that he is the inventor of a building product referred to as 'R9', which was an asset of the appellant. Mr Naidoo says that in late 2011 or early 2012, RM Capital was engaged to provide the appellant with advice regarding a possible listing of the appellant on the Australian Stock Exchange (ASX). In the course of that work, Mr Naidoo met Mr Barboutis, a corporate advisor with RM Capital.
Mr Naidoo says that, early in 2012, he had discussions with Mr Barboutis regarding proposals to list the appellant on the ASX or to transfer pending patents for R9 to a new entity and listing that entity. In the course of those discussions, Mr Barboutis advised Mr Naidoo that the appellant should raise further capital of $500,000 by way of loans which might be converted into convertible notes, the terms of which would be set out in a deed poll. The appellant retained a law firm, Steinepreis Paganin, to prepare the necessary documents, including a deed poll.
In or about April 2012, Mr Barboutis introduced Mr Naidoo to Mr MacKinlay, a solicitor and a principal of the law firm, MacKinlays Solicitors. Mr MacKinlay expressed an interest in investing $250,000 in the appellant.
Mr Naidoo says he subsequently had several discussions with Mr MacKinlay about the investment. According to Mr Naidoo, in the course of those discussions Mr MacKinlay did not mention that he would be investing through a company. There was also an exchange of email correspondence between Mr MacKinlay and Mr Naidoo in April 2012 regarding the investment. In his affidavit of 5 September 2013, Mr Naidoo acknowledges that some of the emails from Mr MacKinlay were signed by Mr MacKinlay on behalf of Barralong, but says that he did not notice that at the time as all the emails were sent from the email address of Mr MacKinlay's law firm.
Mr Naidoo says that, on 16 April 2012, he signed the deed poll and emailed a scanned copy of it to Mr Barboutis.
It is necessary to digress briefly to describe the relevant effect of the deed poll. The deed poll recited that:
1.the appellant was the owner of the intellectual property in R9 and was in need of a short term loan facility to enable it to meet outstanding creditor payments and to fund working capital;
2.the appellant intended to restructure its operations by granting a licence to use and exploit the R9 intellectual property to a new company (Newco) which would subsequently list on the ASX; and
3.pursuant to the deed poll, the appellant was seeking funding of up to $500,000 with a view to those funds either being repaid within three months or, alternatively, the principal and any interest being assigned to Newco and thereafter being applied towards the subscription for convertible notes.
There were four schedules to the deed poll. Schedules 1 to 3 related to convertible notes, in the event that a loan was subsequently assigned to Newco and applied toward the subscription for convertible notes. Schedule 4 was an 'application form' to be completed by a lender who agreed to advance a loan to the appellant pursuant to the terms of the deed poll.
The deed poll was expressed to be made by the appellant 'in favour of each Lender'. A 'Lender' was defined to mean (relevantly) 'a person who has advanced a Loan to [the appellant]'. The deed poll provided that each Lender, by completing an application form substantially in the form of Schedule 4 and advancing the principal amount to the appellant, agreed to make a loan to the appellant on the terms set out in the deed poll. Under the terms of the deed poll, interest at the rate of 10% per annum was payable on the principal sum and, subject to the assignment of the loan to Newco, was repayable on 30 June 2012. (It was not in issue that there was no such assignment).
Mr Naidoo says that the signed copy of the deed poll he sent to Mr Barboutis contained Schedule 1 to the deed poll but not Schedules 2, 3 or 4. He says he initialled each page 'JN', as he is known as Jerome Naidoo. Mr Naidoo says that in Schedule 1 (which was a document by which the holder of a convertible note might elect to convert the note into shares in Newco) he had written the name 'Alistair MacKinlay'. He says he did so because he understood from his discussions with Mr MacKinlay that Mr MacKinlay was agreeing to provide the loan of $250,000 in his personal capacity. I might observe that Mr Naidoo does not explain why he sent the deed poll to Mr Barboutis without Schedule 4, the application form, or why he inserted Mr MacKinlay's name in Schedule 1, which was of no relevance to the proposed loan, rather than in Schedule 4.
Mr Naidoo asserts that RM Capital and Mr Barboutis were given authority to deal on behalf of the appellant with Mr MacKinlay in his personal capacity, not with Mr MacKinlay's company, Barralong. How that limitation was conveyed to RM Capital is not explained. It is not alleged that any such limitation was known to Mr MacKinlay.
Mr Naidoo acknowledges that the sum of $250,000 was provided to the appellant by means of funds transferred from the trust account of Mr MacKinlay's law firm but says that the loan was made by Mr MacKinlay personally and not by Barralong. Accordingly, Barralong could not assign the debt to the respondent, who therefore has no claim against the appellant for it.
In his affidavit of 20 August 2013, Mr MacKinlay says that he did not make the loan of $250,000 to the appellant but that it was made by Barralong pursuant to the deed poll, a copy of which he attaches to his affidavit. That deed poll is identical to the deed poll attached to Mr Naidoo's affidavit, save that the deed poll attached to Mr MacKinlay's affidavit:
1.does not bear the endorsement of Mr MacKinlay's name in Schedule 1, which Mr Naidoo says he wrote on the copy of the deed poll he sent to Mr Barboutis;
2.attaches an application form in the form of Schedule 4, that application form having been executed by Mr MacKinlay on behalf of Barralong;
3.does not bear Mr Naidoo's initials; and
4.has Schedules 1 to 4 attached to it.
In his affidavit, Mr MacKinlay says that prior to seeing Mr Naidoo's affidavit of 2 August 2013 he had never seen a deed poll with Schedule 1 bearing his (Mr MacKinlay's) name. He says that the sum of $250,000 which was transferred by electronic transfer from the trust account of his firm, MacKinlays Solicitors, to the appellant was provided by Barralong. Mr MacKinlay says that Barralong assigned the debt of $250,000 to the respondent and gave notice of the assignment to the appellant on 24 June 2013. Mr MacKinlay says that he did not complete an application form on his own behalf.
Mr Le Page is a director of RM Capital. He says that RM Capital was appointed by the appellant as a broker to raise up to $500,000 by way of a loan or loans which might then be converted into convertible notes. He says the opportunity to invest in the appellant by way of subscription for the loan/convertible note was offered by RM Capital to a number of sophisticated investors, including Barralong. Mr Le Page says that, on or about 16 April 2012, he received a copy of the deed poll from Barralong to which was attached Schedule 4, the application form, executed on behalf of Barralong. He provided a copy of the deed poll to Mr Naidoo who subsequently returned a copy to him, executed by Mr Naidoo on behalf of the appellant. The copy of the executed deed poll attached to Mr Le Page's affidavit is identical to the copy attached to Mr MacKinlay's affidavit. Mr Le Page says that as far as he is aware Mr MacKinlay did not subscribe for the 'loan/convertible note or execute a deed poll … or any like document'.
The appellant, in the alternative to alleging that no debt was owed to the respondent, submitted that there was some other reason, within the meaning of s 459J(1)(b) of the Act, why the statutory demand should be set aside. That submission was based on a contention that the statutory demand was issued solely in an attempt to impede the appellant's ability to pursue a claim for damages against Mr MacKinlay, Mr Barboutis, and FBM Licence Pty Ltd, a company which now owns the intellectual property rights to R9.
The appellant's version of that claim, in substance, is as follows. On 23 October 2012, Mr Naidoo, Mr MacKinlay, Mr Barboutis and the appellant entered into an agreement, referred to by the appellant as the 'Complete Agreement', to give effect to the commercialisation of R9. The agreement is said to be partly oral, partly written and partly implied by conduct. According to Mr Naidoo, the key terms were that the appellant would transfer the intellectual property rights in R9 to FBM Licence, which would be listed on the ASX; Mr Naidoo would be paid $500,000; the appellant would be paid $250,000 for the transfer of the intellectual property rights; FBM Licence would assume liability to repay approximately $800,000 owing to the Deed Poll creditors (including the $250,000 which is the subject of the statutory demand); and Mr Naidoo would own 56% of FBM Licence.
Mr Naidoo says at the time that agreement was made, the directors of the appellant were Mr Naidoo and Mr Barboutis, and Mr MacKinlay was a de facto director. He says that he (Mr Naidoo) and the appellant entered into the agreement by reason of breaches of fiduciary duty on the part of Mr Barboutis and Mr MacKinlay, with the result that the intellectual property rights in R9 were transferred to FBM Licence without any obligation on FBM Licence to repay the deed poll creditors. That debt was left with the appellant.
On 21 August 2013, proceedings were commenced by the appellant and Mr Naidoo against FBM Licence, Mr MacKinlay and Mr Barboutis. In the proceedings, the appellant and Mr Naidoo claim, in substance, a declaration that the transfer of the intellectual property rights in R9 to FBM Licence was procured by the undue influence and breach of fiduciary duties of Mr MacKinlay and Mr Barboutis; rescission of the agreement transferring the intellectual property rights to FBM Licence; and damages for breach of the Competition and Consumer Act 2010 (Cth). A copy of the writ of summons was attached to Mr Naidoo's affidavit of 5 September 2013.
The appellant claimed that the statutory presumption of insolvency which would arise if the disputed amount is not paid to the respondent would significantly impede the appellant's ability to pursue the claim. It was submitted that as the statutory demand had been issued solely for that purpose it should be set aside under s 459J(1)(b) of the Act
The master's reasons
The master found there was no genuine dispute that the debt was due and owing by the appellant to the respondent [12]. He considered there was nothing in evidence which suggested that the deed poll executed by Barralong was not of full force and effect.
The master rejected an argument that there was doubt as to the validity of the assignment of the debt to the respondent because the notice of assignment referred to the assignee simply as 'Redsilk' rather than Redsilk Enterprises Pty Ltd. The master found that that was not a matter which could be taken into account because it had not been raised within 21 days of the service of the statutory demand [13]. That finding is not in issue on the appeal.
The master also rejected a submission by counsel for the appellant that there were other reasons, within the meaning of s 459J of the Act, why the statutory demand should be set aside. The appellant's first contention was that the debt was part of a complex web of transactions and to allow the statutory demand to stand in relation to the debt would be unfair because it would isolate one aspect of the relationship without examining its totality. The master considered that the fact the debt was part of a complex commercial relationship did not, on the facts, mean that the statutory demand should be set aside [16].
The second contention was that if the demand stood and was not complied with the appellant would be forced into liquidation and any rights the appellant may have against Mr MacKinlay or Mr Barboutis in respect of the Complete Agreement might not be enforced [15]. The master did not accept that that gave rise to a reason to set aside the statutory demand, observing at [16] that, unlike the position in Tired Horses Films Holdings Pty Ltd v Property About Pty Ltd [2012] WASC 478, on which the appellant's counsel had relied, in this case no proceedings to enforce such rights had been commenced.
Grounds of appeal
The appellant's grounds of appeal, in substance, are as follows:
1.the master erred in law in finding that there was no genuine dispute as to the appellant's indebtedness to the respondent for the sum of $282,720.20 claimed in the statutory demand;
2.the master erred in fact in finding that the appellant had not commenced proceedings against Mr MacKinlay and Mr Barboutis in relation to the Complete Agreement; and
3.the master erred in law and fact in finding that there was not some other reason to set aside the statutory demand in circumstances in which there was an abuse of process in issuing the statutory demand and where the appellant's obligation to repay the debt arose by reason of a failure by Mr MacKinlay to transfer the obligation to repay it to FBM Licence.
The disposition of the appeal
Ground 1
The principles to be applied in determining whether there is a genuine dispute as to the existence of a debt within the meaning of s 459H(1)(a) of the Act were not in dispute. For present purposes, the relevant principles can be shortly stated.
The expression 'genuine dispute', within the meaning of s 459H(1)(a) of the Act, connotes a plausible contention requiring investigation. A demand will be set aside if there is a bona fide disputed issue of fact or law, which the court is satisfied is not plainly frivolous or spurious but may have some substance. Once such a dispute is raised, it is not necessary for a company to satisfy the court as to where the merits of the dispute lie. The court will not attempt to weigh or examine the merits of any dispute. The onus is on the recipient of the demand to establish a genuine dispute. See Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85; (2009) 71 ACSR 602 [44] ‑ [46]; Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 [9] ‑ [13].
There is no merit in this ground of appeal. It is clear on the objective evidence that the loan was made by Barralong. The deed poll did not identify any intended lender but was expressed to be made in favour of each person who (relevantly) 'has advanced a loan to [the appellant]'. A loan was made by completing an application form and advancing the principal sum to the appellant. The copy of the deed poll, signed on behalf of the appellant, attached to the respective affidavits of Mr MacKinlay and Mr Le Page contains an application form completed and executed on behalf of Barralong. It is not in issue that the appellant received the sum of $250,000, transmitted from the trust account of Mr MacKinlay's law firm. It is Mr MacKinlay's uncontroverted evidence that the funds were provided by Barralong. Mr MacKinlay says that he did not complete an application form in his own name and the appellant does not contend otherwise.
Mr Naidoo's belief that Mr MacKinlay was to make the loan in his personal capacity is of no consequence. There is nothing to suggest that it was a matter of any significance to the appellant whether the loan was made by Mr MacKinlay personally or by a company which he controlled, and the contract was not of such a nature that the identity of the other party would ordinarily be of any significance.
This is not a case where there are or may be competing parties claiming to be entitled to the repayment of the money. There is no dispute between Mr MacKinlay and Barralong as to by whom the loan was made to the appellant. Mr MacKinlay says that it was made by Barralong and the amount claimed is owed to the respondent, as a result of the assignment of the debt to it by Barralong. It would not be open to Mr MacKinlay subsequently to seek to assert that the debt was owed to him. The validity of the assignment of the debt to Barralong is not separately in issue.
The master was, with respect, correct to conclude that there was no genuine dispute as to the appellant's indebtedness to the respondent.
Grounds 2 and 3
These grounds can conveniently be considered together.
Section 459J(1) of the Act provides that a court may set aside a statutory demand if it is satisfied that because of a defect in it a substantial injustice will be caused (s 459J(1)(a)) or that 'there is some other reason why the demand should be set aside' (s 459J(1)(b)). The appellant relies upon s 459J(1)(b).
It is not possible to describe exhaustively the circumstances in which it will be appropriate to exercise the discretion conferred by s 459J(1)(b) and any temptation to attempt to do so must be resisted. However, whilst the discretion is wide it is not unlimited. Its exercise must be consistent with the legislative scheme and relevant to the purposes for which the power exists. A demand cannot be set aside merely on the basis of subjective views as to fairness: Meehan v Glazer Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229 [61].
In the present case, it was contended by the appellant that the statutory demand was not served for a legitimate purpose but rather solely for a collateral purpose, namely to 'hobble' the appellant's ability to pursue the claim against Mr MacKinlay, Mr Barboutis and FBM Licence. While none of those parties has any interest in the respondent, the appellant points to the fact that Ms Emery, the sole director and shareholder of the respondent, and Mr MacKinlay are 'in a romantic relationship'. Mr MacKinlay says (presumably by way of clarification rather than correction) that Ms Emery is his wife. Suffice it to say that there is a close personal connection between Ms Emery and Mr MacKinlay. It is that connection upon which the appellant's contention rests.
It is the case that the master's statement that no proceedings had been commenced by the appellant in connection with the Complete Agreement was incorrect. We do not, however, consider that the master's error is material. The existence of proceedings by the appellant in respect of its claim against Mr MacKinlay, Mr Barboutis and FM Licence does not alter the fact that no basis has been made out for the statutory demand to be set aside under s 459J(1)(b).
It is, as we have said, neither possible nor desirable to describe the metes and bounds of the operation of s 459J(1)(b). For present purposes, suffice it to say that assuming (without deciding) that a statutory demand issued by a creditor for the collateral purpose of undermining the debtor's ability to pursue a claim against a third party may fall within s 459J(1)(b), there would need to be clear and cogent evidence of that collateral purpose. In this case there was a conspicuous lack of evidence that the statutory demand was issued for such a purpose. Not only does the personal relationship between Ms Emery and Mr MacKinlay of itself provide no proper basis for such an inference to be drawn but there was no evidence that the financial position of the appellant is such that the statutory demand might have been calculated to have that effect. The appellant's case on this point does not rise above mere assertion.
Similarly, the fact that the appellant's indebtedness to the respondent is alleged by the appellant to be a result of Mr MacKinlay's failure to ensure that the liability was assigned to FBM Licence is not to the point. If that allegation can be made good the appellant will have a claim against Mr MacKinlay. It does not, however, provide a ground upon which the statutory demand served by the respondent, a company in which Mr MacKinlay has no interest, should be set aside.
We would dismiss these grounds of appeal
Conclusion
It was for those reasons that we dismissed the appeal.
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