Fieldmont Holdings Pty Ltd v Scrutiny (WA) Pty Ltd - [2000] WASC 237

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: FIELDMONT HOLDINGS PTY LTD -v- SCRUTINY (WA) PTY LTD [2000] WASC 237

CORAM: MASTER SANDERSON

HEARD: 19 SEPTEMBER 2000

DELIVERED : 28 SEPTEMBER 2000

FILE NO/S: COR 216 of 2000

BETWEEN: FIELDMONT HOLDINGS PTY LTD (ACN 009 470 044)
Plaintiff
AND
SCRUTINY (WA) PTY LTD (ACN 008 700 329)
Defendant

Catchwords:

Corporations law - Application to set aside statutory demand - Turns on its own facts

Legislation:

Corporations Law, s 459G, s 459H, s 459J

Result:

Demand set aside

Representation:

Counsel:

Plaintiff: Mr J C Giles
Defendant: Mr P A Kyle

Solicitors:

Plaintiff: Solomon Bros
Defendant: Kyle & Company

Case(s) referred to in judgment(s):

Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379
Eyota Pty Ltd v Havana Pty Ltd (1994) 12 ACLC 669
Goldspar Australia v KWA Design Group (1999) 17 ACLC 456
Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290
Spencer Constructions Pty Ltd v G & M Aidridge Pty Ltd (1997) 15 ACLC 1,001
Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294
Universal Greening Pty Ltd v Savine & Anor (1999) 17 ACLC 880

Case(s) also cited:

Asian Century Holding Inc v Fleuris Pty Ltd [2000] WASCA 59
Ataxtin Pty Ltd v Gordon Specific Development Pty Ltd (1991) 5 ACSR 10
Blair v Curran (1939) 62 CLR 464
Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502
David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265
Dewina Trading Sdn Bhd v Ion International Pty Ltd (1996) 21 ACSR 35
Dimos v Dikeakos Nominees Pty Ltd (1996) 149 ALR 113
Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 25 ACSR 675
Goldsmith v Sperrings Ltd [1977] 1 WLR 478
House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 21 ACSR 527
Pacific Communication Rentals Pty Ltd v Walker (1994) 12 ACLC 5
Re Majory [1955] Ch 600
Varawa v Howard Smith Co Ltd (1911) 13 CLR 35
Williams v Spautz (1991) 174 CLR 509

MASTER SANDERSON: This is the plaintiff's originating process seeking to set aside a statutory demand. The application is brought under the provisions of s 459G, s 459H and s 459J of the Corporations Law. As an alternative remedy, the plaintiff seeks an injunction restraining the defendant from taking any steps or bringing any proceedings on the basis of the plaintiff's non-compliance with the statutory demand. For reasons which will become apparent later in these reasons, it is not necessary for me to deal with this alternative claim.
The facts of the case can be simply stated. In mid‑1995, the plaintiff and the defendant entered into what is described as a "Non‑Recourse Loan Agreement" ("the Agreement"). A copy of this Agreement appears as part A to annexure "SAS2" to the affidavit of Shane Anthony Stewart, sworn 17 August 2000 and filed in support of this application. The Agreement contained the following recitals:
"A.The Lender has agreed, at the request of the Borrower, to provide a loan facility to the Borrower, the principal amount of which is $450,000.
B.The loan facility is provided for the purpose of a property acquisition and redevelopment project being carried out by the Borrower in North Fremantle, Western Australia.
C.It is agreed that the Lender will receive by way of fee for any loan drawn under the facility a fixed fee in lieu of orthodox interest on the amount of the loan.
D.It is further agreed that in consideration of the Lender's expectation of a fee substantially in excess of interest calculated at usual commercial rates any loan shall be unsecured and shall be repayable only out of the proceeds of the project.
E.The Lender and the Borrower have agreed to enter into this Agreement to set out the terms and conditions of the loan facility."
Clause 1.1 contained certain definitions. Relevantly for present purposes, the following terms were defined:
"(1)'advance' means an amount of $450,000 provided or, where the context requires, to be provided under this Agreement by the lender to, or at the direction of, the Borrower;
(9)'loan' means, at any time and from time to time, the principal amount of the advance outstanding at that time;
(12)'Project' means the acquisition and development of a commercial/residential complex on the Land located in North Fremantle, Western Australia by rezoning, subdivision and sale or development by the Borrower;
(13)'Project Completion Date' means the date next following completion of the sale or notional sale of all lots derived from the Project;
(15)'Repayment Date' means the date 60 business days after Project Completion Date or Five (5) years from the date of this Agreement, whichever is the earlier;"
To complete the picture, it is appropriate if I refer to a number of other provisions of the Agreement. Relevant for present purposes are:
"4.1In consideration of the provision of the advance the Borrower shall pay to the Lender on Repayment Date a fee calculated in accordance with Clause 4.2.
4.2The fee payable to the Lender by the Borrower under Clause 4.1 shall be a sum equivalent to 1.50% of the net profit of the Project.
6.1Subject to the following provisions of this clause and Clause 7 the Borrower must repay and finally discharge the loan on the Repayment Date. The Borrower must also pay any fee payable under Clause 4 and not then paid, and all other amounts payable under this Agreement and unpaid, to the Lender on or before the Repayment Date.
6.2The Lender agrees that the Borrower may pay all other expenses and debts relating to the Project in priority to the loan except that if an order for winding up the Borrower is made the Lender may lodge a proof of debt for the whole of the loan and shall rank equally with other unsecured creditors.
6.3The Lender agrees that except in the event that the Borrower is wound up that the loan shall be liable to be repaid solely from the income (and cash reserves) of the Project and the Lender shall be without recourse to the income and assets of the Borrower which are unrelated to the Project.
6.4If as at Project Completion Date all income and cash reserves of the Project have been appropriated in satisfaction of the expenses and debts of the Project and the loan remains wholly or partly unsatisfied then the Lender shall be deemed to have released the Borrower from the liability to repay the outstanding balance of the loan.
6.5The Lender's release of the Borrower under Clause 6.4 shall be conditional upon a winding up order not being made against the Borrower within 6 months of Project Completion Date.
13.1All moneys received by the Lender under or by virtue of Clause 12.1 will be applied in the following order and manner:
(1)first, in payment of all costs, charges and expenses properly incurred in, or incidental to, the exercise or performance, or attempted exercise or performance, of any of the powers or authorities conferred on the Lender by this Agreement or otherwise arising in relation to this Agreement;
(2)secondly, in or towards payment of such other properly incurred costs, charges and expenses in relation to the enforcement of this Agreement as the Lender thinks fit to pay;
(3)thirdly, in or towards repayment to the Lender of the loan; and
(4)fourthly, in or towards payment to, or at the direction of, the Lender of any other amount or amounts payable by the Borrower under this Agreement.
The surplus, if any, will not carry interest and will be paid to the Borrower."
I pause at this point to note that the structure of the Agreement is somewhat complicated. Pursuant to cl 6.1, the loan was to be discharged on the repayment date. All debts and expenses of the Project (as that term is defined in the Agreement) are to be paid in priority to repayment of the loan. Clause 6.4 makes the Project Completion Date the final accounting date in relation to whether or not the income from the Project has been sufficient to allow for repayment of the loan and the fee. In other words, the loan might well become repayable under cl 6.3 while final determination of whether or not any repayment of the loan was required could not then be determined. Such an arrangement is rather confusing.
On 8 July 1999, the parties entered into a further agreement (the Variation Agreement). This document appears as part B to annexure "SAS2" to Stewart's affidavit. The Variation Agreement has only three operative clauses. By cl 1, the whole of cl 4 of the Agreement was deleted and a new cl 4 was inserted. For present purposes, cl 4.1 and cl 4.2 are relevant. They read as follows:
"4.1The Borrower shall pay interest to the Lender on the advance calculated from the date or dates as the case may be of draw down of the advance by the Borrower at the rate of twenty percent (20%) per annum computed on a non compounding daily basis until the date of repayment of the whole of the advance.
4.2The Borrower shall use its reasonable endeavours to pay the interest to the Lender for the period from the commencement of the Loan until the date of payment of the interest on or before 1 July 1999 provided however that in any event the interest shall be payable in full on the Repayment Date or on such earlier date as the advance shall be repaid in full."
The remaining two clauses of the Variation Agreement are also of significance. They read as follows:
"2.The parties mutually covenant and agree that notwithstanding any other provision of the Loan Agreement, for all purposes the Repayment Date shall be 14 June 2000.
3.The parties mutually covenant and agree that subject only to the variations detailed above the Loan Agreement shall remain in full force and effect and binding on all parties."
There is no doubt that the Agreement and the Variation Agreement do not sit happily together. Pursuant to the new cl 4.1, the 1.5 per cent of net profit which was to comprise the fee payable under the Agreement is replaced by an obligation to pay interest at the rate of 20 per cent. So, what the defendant was required to repay on the repayment date under cl 6.1 was the loan and interest (cl 1.2 of the Variation Agreement amended cl 6.1 to delete the word "fee" and replace it with the word "interest"). Pursuant to cl 2 of the Variation Agreement, the repayment date was fixed as 14 June 2000. Accordingly, pursuant to cl 6.1 of the Agreement, the plaintiff was liable to repay to the defendant the loan, together with interest as at 14 June 2000. However, that still leaves the remaining provisions of cl 6. The evidence establishes that the Project is not complete because not all lots have been sold. Therefore, there is no Project Completion Date and under cl 6.4 it is not possible to calculate whether or not repayment of the loan can be satisfied after all the expenses and debts of the Project have been met.
There is also a difficulty with the calculation of interest. Clause 4.2 clearly anticipates that, whether or not the loan is repaid, interest shall be paid in full on the repayment date. However, cl 6 clearly anticipates that interest, as well as the loan, would be repaid after the Project Completion Date once it had been ascertained whether or not the Project made a profit. It is not entirely clear whether cl 4.2 means that the provisions of cl 6.2 which allows payment of all other expenses and debts in priority to repayment to the defendant is bypassed with the effect that interest is repayable in any circumstances. In other words, is the effect of cl 4.2 to render what was a non‑recourse loan, a recourse loan?
The plaintiff took the view that, pursuant to the provisions of the Variation Agreement, both the loan and the interest became repayable on 14 June 2000. On 26 July 2000, it issued a statutory demand claiming payment of $307,536, pursuant to the Agreement and the Variation Agreement. The amount of the debt is made up of $150,000, being portion of the non-recourse loan (the description found in the statutory demand), together with interest of $154,536 and legal costs of $3,000, said to be owing under the Agreement. It is to be noted that the statutory demand referred only to part of the loan. The reasons why part only rather than all of the loan amount was not referred to gave rise to considerable argument during the hearing of the application. However, as I have concluded that there is a genuine dispute between the parties as to whether or not the loan and interest are presently repayable, it is not necessary for me to deal with this issue. The injunction application was tied to this question and both can be conveniently put to one side.
There was no dispute between the parties as to the test to be applied when an application is brought under s 459G of the Corporations Law. In Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294, Owen J, delivering the judgment of the court, referred to Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 and a number of other relevant authorities, including Eyota Pty Ltd v Havana Pty Ltd (1994) 12 ACLC 669 and Spencer Constructions Pty Ltd v G & M Aidridge Pty Ltd (1997) 15 ACLC 1,001, Goldspar Australia v KWA Design Group (1999) 17 ACLC 456 and Universal Greening Pty Ltd v Savine & Anor (1999) 17 ACLC 880. His Honour concluded that in considering whether there is a genuine dispute it is appropriate to ask whether there is a serious question to be tried, the same test which applies in relation to interlocutory injunctions. Both counsel accepted this as the proper approach.
Based upon what I have said above, I think there is a serious question to be tried as to the contractual relationship between the plaintiff and the defendant. In my view, it is not at all clear what effect the Variation Agreement had on the Agreement and the liability of the parties one to the other. Nor is it a simple question of interpreting a contract. If that were the case, it might be appropriate to decide the question, even given the limited nature of the statutory demand procedure: see Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379. But this is a case where, as a consequence of the interaction of the Agreement and the Variation Agreement, there is ambiguity. That may, in turn, lead to the parties calling parol evidence as to the proper meaning of the Agreement. It may even give rise to a claim by one party or the other for rectification of either the Agreement or the Variation Agreement. All these are matters which must be worked out in other proceedings. The matter cannot be resolved on this application.
The statutory demand ought be set aside. The defendant should pay the costs of the application.