Jolimont Heights Pty Ltd v Ryan
[2018] VSC 678
•9 November 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2018 00273
IN THE MATTER OF JOLIMONT HEIGHTS PTY LTD (ACN 052 243 802)
| JOLIMONT HEIGHTS PTY LTD (ACN 052 243 802) | Plaintiff |
| v | |
| ANNE RYAN | Defendant |
---
JUDICIAL REGISTRAR: | Matthews JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 8 October 2018 |
DATE OF JUDGMENT: | 9 November 2018 |
CASE MAY BE CITED AS: | Jolimont Heights Pty Ltd v Ryan |
MEDIUM NEUTRAL CITATION: | [2018] VSC 678 |
---
CORPORATIONS – Corporations Act 2001 (Cth), s 459 – Application to set aside statutory demand by reason of alleged genuine dispute in respect of the debt – The combination of issues raised by the Plaintiff means that it has established the existence of a genuine dispute – Statutory demand should be set aside – Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Di Pasquale | Moores Legal |
| For the Defendant | Mr M Ravech | Rotman & Morris |
JUDICIAL REGISTRAR:
Introduction
The plaintiff, Jolimont Heights Pty Ltd (‘JH’), makes an application pursuant to s 459G of the Corporations Act 2001 (Cth) (‘Act’) by originating process dated 9 July 2018 to set aside a statutory demand dated 19 June 2018 (‘Statutory Demand’) served on JH by the defendant, Anne Ryan.
The application is made on the grounds set out in s 459H, further or alternatively s 459J, of the Act. JH submits that the Statutory Demand should be set aside on the basis that there is a genuine dispute as to the existence of the debt. Further or alternatively, that it ought to be set aside due to some other reason, being that the Statutory Demand is defective as it did not contain an address for service. At the hearing, JH informed the Court that it no longer pressed this second ground.
In support of its application, JH relied on the following affidavits:
(a) William Hugh Ellis sworn 3 July 2018 (‘First Ellis Affidavit’). Mr Ellis is the sole director of JH;
(b) Antony Rutherford sworn 13 July 2018 (‘Rutherford Affidavit’). Mr Rutherford is a solicitor at Moores Legal, solicitors for JH;
(c) Mr Ellis sworn 31 July 2018 (‘Second Ellis Affidavit’); and
(d) Mr Ellis sworn 5 October 2018 (‘Third Ellis Affidavit’).
In opposition to the application, Ms Ryan relied on the following affidavits:
(a) Ms Ryan sworn 27 July 2018 (‘Second Ryan Affidavit’);
(b) David Graj sworn 31 July 2018 (‘First Graj Affidavit’). Mr Graj is a solicitor at Rotman & Morris, solicitors for Ms Ryan;
(c) Mr Graj sworn 31 August 2018 (‘Second Graj Affidavit’).
Both parties filed written outlines of submissions, as well as making oral submissions at the hearing.
For the reasons which follow, I consider that JH has established that there is a genuine dispute in relation to the debt which is the subject of the Statutory Demand. It follows that the Statutory Demand should be set aside.
Legal Principles
Section 459G of the Act provides as follows:
459G Company may apply
(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.
Section 459H of the Act relevantly provides as follows:
459H Determination of application where there is a dispute or offsetting claim
(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 of Appeal in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq)[1] has summarised the principles applicable in applications to set aside statutory demands as follows (citations omitted):
[1][2015] VSCA 330, [47]–[51] (‘Malec’).
[47]The terms of s 459H of the Corporations Act and the authorities make clear that, on an application to set aside a statutory demand, the applicant is required only to establish a genuine dispute or offsetting claim. The applicant is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task. It is not necessary for the applicant to advance a fully evidenced claim. Therefore, the task faced by an applicant is by no means at all a difficult or demanding one.
[48]In determining such an application, it is not necessary or appropriate for a court to engage in an in-depth examination or determination of the merits of the alleged dispute. This is because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction and requires the applicant to establish that there is a ‘plausible contention requiring investigation’ of the existence of either a dispute as to the debt or an offsetting claim. It is therefore not helpful to perceive that one party is more likely than the other to succeed or that the eventual state of the account between the parties is more likely to be one result than another. Further, the determination of the ‘ultimate question’ of the existence of the debt at a substantive hearing should not be compromised.
[49]The court is required to determine whether the dispute or offsetting claim is ‘genuine’. It has been said that the criterion of a ‘genuine’ dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of a dispute be real and not spurious, hypothetical, illusory or misconceived. It has also been observed that the dispute or offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion. It must also have sufficient factual particularity to exclude the merely fanciful or futile. A rigorous curial approach is essential to the effective operation of the statutory scheme.
[50]The court is not required to accept uncritically 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, as it may not have sufficient prima facie plausibility to merit further investigation as to its truth. The court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence, although this should not be read as suggesting that the applicant must formally or comprehensively evidence the basis of its dispute or off-setting claim. Except in such extreme cases, the court should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on by the applicant to set aside a statutory demand.
[51]Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd involved a demand for payment of a debt alleged to be due under a contract for the supply of goods. The applicant relied on four matters, each of which had the potential to affect the respondent’s entitlement to be paid the entire amount of the debt. Barrett J held that all four matters were sufficiently plausible to raise a genuine dispute. He relevantly stated:
The [applicant] will fail in [the] task [of establishing a genuine dispute] only if … the contentions upon which it seeks to rely … are so devoid of substance that no further investigation is warranted. Once the [applicant] shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the [applicant], it must find that a genuine dispute exists, even where any case apparently available to be advanced against the [applicant] seems stronger.
The parties were not in dispute as to the applicable principles.
I further note that in Powerhouse Australasia Pty Ltd v Viarc Pty Ltd,[2] Dodds-Streeton J considered the approach and standard to be applied when dealing with applications to set aside statutory demands:
While it is not a very exacting standard, on the other hand mere, assertion of a dispute or off-setting claim, mere bluster or advancing grounds which are illusory or spurious or insufficiently particularised will not suffice. The Court must not enter into the merits of the dispute, but it is not crossing the line in relation to its legitimate role in these applications to consider evidence which ‘bears on whether or not the asserted dispute or off-setting claim is genuine’. Indeed, that is its necessary function.
[2][2006] VSC 508 [48].
The parties’ evidence
The Statutory Demand
Mr Ellis deposes that on 22 June 2018 he received an email from Rotman & Morris, attaching a copy of a cover letter addressed to JH along with a copy of the Statutory Demand and Ms Ryan’s affidavit in support of the Statutory Demand (‘First Ryan Affidavit’).[3] In the email to Mr Ellis, Mr Graj stated that the Statutory Demand and First Ryan Affidavit were served on JH earlier that week by post to JH’s registered office and principal place of business.[4]
[3]First Ellis Affidavit, [3]; Exhibit WHE-2.
[4]Exhibit WHE-1 to the First Ellis Affidavit.
The Statutory Demand claimed payment of the amount of $337,378.08, being the amount of the debt (‘Debt’) described in the schedule to the Statutory Demand. That described the debt in the following terms (‘Debt Description’):[5]
The Company is indebted to William Hugh Ellis (“Ellis”) in the amount of $350,000 (‘the Ellis Debt’). The Ellis Debt is payable at call.
Pursuant to a Loan Agreement (“the Loan Agreement”) and an Assignment Agreement (“the Assignment”) both dated 21 September 2015, Ellis assigned to the Creditor [ie Ms Ryan] all his rights, remedies and title in relation to the Ellis Debt, as security for the outstanding loan balance, interest and costs payable by Ellis to the Creditor under the Loan Agreement. A copy of the Loan Agreement and The Assignment is annexed hereto and marked “A”).
Ellis is indebted to the Creditor in the sum of $337,378.08 for the outstanding loan balance and interest under the Loan Agreement, and as a consequence of the Assignment, the Company is also indebted to the Creditor in that amount.
[5]Exhibit WHE-1 to the First Ellis Affidavit.
The First Ryan Affidavit described the Debt in virtually identical terms and Ms Ryan stated that she believed there was no genuine dispute about the existence or amount of the Debt.[6]
[6]Exhibit WHE-1 to the First Ellis Affidavit.
JH’s evidence in support of the application
Mr Ellis deposes that Ms Ryan has been a long-time family friend of him and his wife, Sharon Ellis, for 50 years in his case and approximately 59 years in Ms Ellis’ case.[7]
[7]First Ellis Affidavit, [4].
In relation to the loan to him from Ms Ryan, Mr Ellis deposes as follows:
(a) in or around September 2015, he asked Ms Ryan whether she would be willing to lend him $300,000 on a short-term basis. At that time, his daughter Rhiannon had committed to purchase a property but there was a shortfall in the funds available for settlement, and Mr and Ms Ellis did not at that time have the funds to assist her;[8]
[8]First Ellis Affidavit, [5].
(b) Ms Ryan agreed to lend him $300,000. He told her that he would prepare a written loan agreement and send it to her for her consideration. On or around 17 September 2015 he prepared the documents titled ‘Loan Agreement’ and ‘Assignment Agreement’ which were attached to the First Ryan Affidavit as Annexure A (respectively, ‘Loan Agreement’ and ‘Assignment Agreement’, collectively, ‘Loan Documents’).[9] He signed the Loan Documents and sent them to Ms Ryan, with a cover letter asking her to review them and provide any comments.[10] He says he signed the Loan Documents before sending them, so that if Ms Ryan had no comments she could countersign and return them;[11]
[9]Exhibit WHE-1 to the First Ellis Affidavit.
[10]First Ellis Affidavit, [6]; Exhibit WHE-2.
[11]First Ellis Affidavit, [6].
(c) on or around 21 September 2015, he spoke with Ms Ryan by telephone about the Loan Documents, where she told him ‘A written loan agreement is not necessary, I will lend you $300,000 for 60 days’.[12] During that conversation, Ms Ryan did not tell him that interest was required on the loan or that security must be provided. He accepted her offer to lend him $300,000 for 60 days. He says it was his understanding that the Loan Documents had been rejected by Ms Ryan;[13]
[12]First Ellis Affidavit, [7].
[13]First Ellis Affidavit, [8].
(d) Ms Ryan transferred $300,000 to his bank account on or around 26 September 2015 (‘Loan’). He was unable to repay the Loan within 60 days, but made a payment of $50,000 on or around 7 March 2017;[14]
(e) at Ms Ryan’s home during a visit to celebrate her birthday, on 18 October 2017 he discussed the outstanding amount of the Loan with her. Ms Ryan said to him ‘Your kids are going to receive an inheritance from me. I don’t need you to repay the loan, I will just reduce what Rhiannon will receive by $250,000’ (‘Alleged Loan Forgiveness’);[15] and
(f) he did not receive a countersigned copy of the Loan Documents until November 2017, when he received them by post.[16] On or around 9 February 2018, he received a letter from Rotman & Morris attaching another countersigned copy of the Loan Agreement,[17] however the signature for Ms Ryan on this document is different to the one he had received in November 2017.[18] He does not know when Ms Ryan first signed the Loan Documents.[19]
[14]First Ellis Affidavit, [9]-[10].
[15]First Ellis Affidavit, [11].
[16]First Ellis Affidavit, [15]; Exhibit WHE-5.
[17]First Ellis Affidavit, [16]; Exhibit WHE-6. The email (which is part of Exhibit WHE-6) which attached this letter and copy of the Loan Agreement was sent on 15 February 2018, not 9 February as deposed to by Mr Ellis. The letter was dated 9 February, however. Nothing turns on this.
[18]First Ellis Affidavit, [16].
[19]First Ellis Affidavit, [17].
Mr Ellis also states that he believed the Loan had been forgiven, due to the alleged representation made to him by Ms Ryan on 18 October 2017, and had he known it had not been, he would have called in a loan of approximately $500,000 owed to his family trust, the Twin Gums Trust (‘Trust’), by Rasputen Pty Ltd (‘Rasputen’) in which he also holds an interest. He says that Rasputen’s only asset is a company located in Mallacoota (‘Mallacoota Property’), which was valued at approximately $990,000 to $1,089,000 (including GST) as of 3 March 2018, but an estimate provided on 2 July 2018 by a local real estate agent suggested a value of $700,000.[20] These events are said to give rise to an estoppel claim: Mr Ellis says that Ms Ryan is estopped from resiling from the Alleged Loan Forgiveness as he has relied on that representation to his detriment such that it would be unconscionable for Ms Ryan to resile from it (‘Estoppel Claim’).
[20]First Ellis Affidavit, [12]–[14]; Exhibit WHE-4.
On 30 May 2018, Ms Ryan commenced proceedings against Mr Ellis and others (but not JH) in this Court, in proceeding number S CI 2018 02016 (‘Other Proceeding’). One of the claims made by Ms Ryan against Mr Ellis in the Other Proceeding relates to the Loan and the amount purporting to be owing under the Loan Agreement.[21] On 20 July 2018, Moores Legal filed a defence on behalf of Mr Ellis and the other defendants to the Other Proceeding.[22] Mr Ellis’ defence in relation to the Loan Agreement is relevantly identical to the matters he has deposed to in this proceeding, being his allegations that the Loan Documents had been rejected, that the Loan was made pursuant to an oral agreement, that the Loan had been forgiven, and that he had relied on the Alleged Loan Forgiveness such that Ms Ryan is estopped from departing from the representation that the Loan had been forgiven.[23]
[21]First Ellis Affidavit, [18]; Exhibit WHE-7 is a copy of the writ and statement of claim issued in the Other Proceeding.
[22]Second Ellis Affidavit, [7].
[23]Exhibit WHE-12 to the First Ellis Affidavit is a copy of the defence filed in the Other Proceeding.
Ms Ryan’s evidence in opposition to the application
In response to the matters referred to above, Ms Ryan deposes as follows:
(a) in relation to the telephone conversation on or around 21 September 2015 referred to by Mr Ellis, Ms Ryan says she did not say any words to him to the effect alleged, then or at all.[24] In other words, she did not tell Mr Ellis that a written loan agreement was not necessary;
[24]Second Ryan Affidavit, [3(a)].
(b) she did not reject the Loan Agreements: rather, she accepted them and was content with their terms;[25]
(c) she has signed ‘multiple copies’ of the Loan Documents. The copy of the Loan Documents which are Annexure A to the Statutory Demand is a copy of the ones she signed and returned to Mr Ellis on or about 21 September 2015, and that was the first time that she signed the Loan Documents. She says that she does not recall when she signed the copy of the Loan Agreement which appears as Exhibit WHE-5;[26] and
(d) she did not say any words to Mr Ellis on 18 October 2017 or at all to the effect he has alleged, and she has never forgiven the Loan.[27]
[25]Second Ryan Affidavit, [3(b)].
[26]Second Ryan Affidavit, [3(e)].
[27]Second Ryan Affidavit, [3(c), (d)].
Relevant terms of the Loan Agreement and the Assignment Agreement
Relevantly, the Loan Agreement provided for a loan of $300,000 from Ms Ryan (the Lender) to Mr Ellis (the Borrower) for a term of 60 days, with interest payable at 6% for the term, and a default interest rate of 12% per annum until repayment in full of principal and interest. In addition, it stated the following at clause 4:[28]
[28]Exhibit WHE-1 to the First Ellis Affidavit.
4.The Borrower has agreed to provide the following as security for the loan;
a.Assignment of debt due by GFM Exploration Pty Ltd (Principal $240,000 and interest of $20,000 approximately) from the Twin Gums Trust,
b.Assignment of debt due at call by Jolimont Heights Pty Ltd to the Borrower in the amount of $350,000.
c.Signed transfer of shares held by the Trustee of the Twin Gums Trust in GFM Exploration Pty Ltd being 3,788 Ordinary shares.
The Parties hereto confirm that in the event of any default or late payment under this loan agreement the Lender may realise or otherwise deal with the security assets to recoup the outstanding loan balance, unpaid interest and costs.
The Assignment Agreement was between Mr Ellis (as assignor) and Ms Ryan (as assignee), and relevantly provided as follows:[29]
IT IS AGREED AS FOLLOWS:
That the assignor appoints the assignee to stand in the place of the assignor in relation to all rights, title and remedies for repayment of loan funds due to the assignor. Such that the assignee can exercise all the rights formerly held by the assignor to recover from Jolimont Heights Pty Ltd. all monies and benefits due to the assignor in support of any debt due to the assignor.
DETAILS OF LOAN FUNDS DUE by JOLIMONT HEIGHTS PTY LTD WHICH ARE THE SUBJECT OF THIS ASSIGNMENT
The sum of $350,000 due to the assignor being loan funds advanced and repayable on demand.
The parties’ evidence regarding correspondence about the Loan, prior to the Statutory Demand being issued
[29]Exhibit WHE-1 to the First Ellis Affidavit.
Both parties have exhibited correspondence between them or their solicitors in relation to the Loan prior to the Statutory Demand being issued. It is convenient to describe this in one section here, regardless of who has adduced it, so that it can be set out in chronological order.
There is no evidence before the Court as to any correspondence or conversations between Ms Ryan and Mr Ellis regarding the Loan in the period after the advance was made on 26 September 2015 until the conversation Mr Ellis says occurred on 18 October 2017 when the Alleged Loan Forgiveness is said to have occurred. The only exception to this is the payment of $50,000 towards repayment of the Loan on or about 7 March 2017.[30]
[30]First Ellis Affidavit, [10].
On 31 January 2018, Mr Ellis received a letter dated 24 January 2018 from Rotman & Morris.[31] That letter made a number of demands on behalf of Ms Ryan, one of which was in relation to the Loan. That letter described the Loan in the following terms, and demanded the repayment of the Loan and accrued interest of around $84,000: [32]
On or about 21 September 2015, Ms Ryan advanced you the sum of $300,000 for a period of 60 days (“the Loan”) for the purpose of assisting your daughter to purchase a property, and that the Loan attracted a default interest of 12% per annum. We are further instructed that you repaid $50,000 towards the Loan in March 2017.
[31]Second Ellis Affidavit, [3].
[32]Exhibit WHE-8 to the Second Ellis Affidavit.
On 6 February 2018, Mr Ellis sent an email to Rotman & Morris in response.[33] In relation to the Loan, Mr Ellis stated the following:[34]
The $300,000 loan from Anne Ryan is acknowledged and yes, $50,000 has been repaid. I advise that I have not seen a version of the loan document signed by Anne Ryan, or received any comments from her on the detail of the document I provided relating to the loan terms, she did however lend me the money, and I regret my inability to repay the loan within the 60 day period nominated. I have discussed these circumstances with her. I advise that during family related social meetings with her in August and October 2017, she advised me that she no longer required me to repay the outstanding balance. Your request for immediate repayment has therefore taken me by surprise.
[33]Second Ellis Affidavit, [4].
[34]Exhibit WHE-9 to the Second Ellis Affidavit.
On 15 February 2018, Mr Ellis received an email from Rotman & Morris attaching a letter dated 9 February 2018, a loan agreement and an assignment agreement, each dated 21 September 2015.[35] The letter, addressed to JH, referred to the Loan, the Loan Agreement and the Assignment Agreement and stated that Mr Ellis was in default under the Loan Agreement ‘and as a consequence’ Ms Ryan was entitled to call on her security for the Loan, being the assignment of the debt owed by JH to Mr Ellis.[36] By that letter, Ms Ryan demanded that JH pay her the amount of $335,000 by 23 February 2018, failing which Rotman & Morris would confirm Ms Ryan’s instructions to either issue proceedings against JH or to issue a statutory demand. In relation to the latter, Rotman & Morris stated that Ms Ryan maintains that there is no genuine dispute in relation to the Debt or the Assignment Agreement.[37]
[35]Second Ellis Affidavit, [5]. These appear to be the same documents as Mr Ellis deposes to in the First Affidavit at [16], as set out in paragraph 16(f) above.
[36]Exhibit WHE-10 to the Second Ellis Affidavit.
[37]Exhibit WHE-10 to the Second Ellis Affidavit.
Mr Ellis responded by letter dated 20 February 2018, which he emailed to Rotman & Morris on 21 February 2018.[38] In relation to when he received signed copies of the Loan Documents, Mr Ellis stated that he had that day checked his records and found that in early November 2017 he had received an envelope mailed from Ms Ryan with some documents inside it, which included the Loan Documents that up until then he had not ever received back. He notes the different signatures referred to above.[39] Mr Ellis describes obtaining the Loan in similar terms to that contained in the First Ellis Affidavit, along with the conversation about an agreement in the form he had provided not being necessary and the Alleged Loan Forgiveness. Later in that letter, he goes on to say the following, which Ms Ryan characterises as an acknowledgement of the debt (‘First Alleged Debt Acknowledgment’):[40]
That being said without prejudice and without the need at this stage to formally challenge the legality of the agreement being in place or being binding and Anne’s rights of the collection on same; and now having actually been notified of the agreement from your clients point and view [sic] to it being in force and Anne’s intention of collecting it immediately but some 27 months after it would have been due, I believe it would only be fair and just let alone legal to allow me more time to pay this debt back to Anne, which I do intend to do.
[38]Second Ellis Affidavit, [6].
[39]Exhibit WHE-11 to the Second Ellis Affidavit.
[40]Exhibit WHE-11 to the Second Ellis Affidavit.
On 28 February 2018, Mr Graj sent an email to Mr Ellis, responding to his 20 February letter.[41] In that email, Mr Graj stated that Mr Ellis had not provided any substantive legal arguments in response to Ms Ryan’s demands and that she was entitled to serve a statutory demand on JH.[42] By that email, Mr Graj sought information about a range of matters referred to in Mr Ellis’ letter as to his ability (and that of JH) to raise funds, so as to consider the position from a commercial viewpoint.[43]
[41]Graj Second Affidavit, [3].
[42]Exhibit DG-2 to the Graj Second Affidavit.
[43]Exhibit DG-2 to the Graj Second Affidavit.
In response, Mr Graj received an email from Mr Ellis on 5 March 2018.[44] In that email, Mr Ellis refers to his efforts to raise funds, and says the following, which Ms Ryan also characterises as an acknowledgment of the debt (‘Second Alleged Debt Acknowledgment’):[45]
You will see from correspondence that the minimum amount being sort [sic] to be borrowed by Jolimont is $400K against a property valued at $1.2 (in recent val) which will pay back the loan account owed to my family and allow me to pay Anne Ryan back what is owed to her.
My preferred strategy is for Jolimont to have the Company borrow the funds to pay me against the security of its land holding and paid on to Anne as quickly as possible [rather than a quick market sale of the property]
[44]Graj Second Affidavit, [2].
[45]Exhibit DG-1 to the Graj Second Affidavit.
In that same email, Mr Ellis states:[46]
I note that we strongly disagree with the point in your letter that we do not have any strong legal argument to prevent or indeed to strike out any statutory demand from Anne and we are comfortable with our legal position on same. We suggest that any attempt to take action by way of Statutory Demand against Jolimont Heights P/L is now and will prove to be counterproductive to the current vigorous efforts of the Company to the raise [sic] the funds to pay Anne Ryan.
[46]Exhibit DG-1 to the Graj Second Affidavit.
Consideration
Key issues
The key issues raised by the parties and which fall for consideration are as follows:
(a) whether the Loan is governed by the oral agreement made on or around 21 September 2015 as alleged by Mr Ellis (‘Oral Agreement’), or whether it is governed by the Loan Documents;
(b) if the Loan Documents govern the Loan, are they to be read together? In other words, is the Assignment Agreement in the nature of an absolute assignment? Does it meet the requirements of s 134 of the Property Law Act 1958 (Vic) (‘PLA’) for it to be a legal assignment? If not, is it an equitable assignment and is that sufficient?
(c) has there been a forgiveness of the Loan (irrespective of whether it is governed by the Oral Agreement or the Loan Documents)? If so, is the Alleged Loan Forgiveness effective?
(d) if the Alleged Loan Forgiveness is ineffective, then does the Estoppel Claim prevent Ms Ryan from recovering the Debt from JH?
I shall consider each of these issues in turn, but it is important to note that I am not required to, and nor should I, make any findings in relation to these issues. [47] Rather, the question is whether these issues give rise, either each on their own or in combination, to a genuine dispute as to the existence of the Debt.
[47]Malec [2015] VSCA 330, [48].
Is the Loan governed by the Oral Agreement or the Loan Documents?
JH’s submissions
JH submits that there is a factual controversy between Mr Ellis and Ms Ryan as to the status of the Loan Documents. He says that the Oral Agreement applies, as Ms Ryan rejected the Loan Documents and told Mr Ellis that a written loan agreement was not necessary. Mr Ellis says that Ms Ryan’s statements to him amounted to a counter-offer, which he accepted, and that the terms of the Loan were that it was for $300,000 and was for a term of 60 days. He says that there were no terms as to interest or to security for the Loan.
JH also relies on Mr Ellis’ statements that he did not receive the signed copies of the Loan Documents from Ms Ryan until November 2017, that is, after the Alleged Loan Forgiveness. It also submits that it was not open to Mr Ryan to ‘accept’ the Loan Documents by signing and returning them over two years later, as offers are to be accepted within a reasonable period of time if a time for acceptance is not stated.[48] Further, JH refers to the very different signatures for Ms Ryan on the different copies of the Loan Agreement.
[48]Relying on Khaled Abdul Latif al Hamad & Ors v Athanas Bros (Aden) Limited 1967 UKPC 25, p. 7.
JH says that if the Oral Agreement applies, then there was no security for the Loan and JH’s debt to Mr Ellis has not been assigned to Ms Ryan.
Ms Ryan’s submissions
As noted above, Ms Ryan denies that she told Mr Ellis a written loan agreement was not necessary and she says that she signed the Loan Documents and returned them to Mr Ellis at the time in 2015. She says that she signed multiple copies of the Loan Documents.
Counsel for Ms Ryan submitted that there was no objective evidence to support Mr Ellis’ contention and that it is highly implausible. Ms Ryan submits that if she had indeed told Mr Ellis a written agreement was not necessary, then she would have done so in their initial conversation when he told her he would prepare a written agreement, rather than waiting until he had done so.
She also submits that if Mr Ellis had received the signed Loan Documents in November 2017, he had not dissented from or objected to them until he was contacted by Rotman & Morris in early 2018, and that this is consistent with his acceptance of its binding effect.
Further, even if she did tell Mr Ellis that a written loan agreement was not necessary and if her statement on 21 September 2015 to Mr Ellis had been a counter-offer, Ms Ryan submits that there is no evidence as to how Mr Ellis had communicated his acceptance of that offer such that it did not result in a concluded agreement, being the Oral Agreement.
Analysis
In my view, it is not highly implausible that the Mr Ellis and Ms Ryan agreed that the Loan would be as per the Oral Agreement. These were persons who were long-standing friends, and it is not implausible that they may not have conducted themselves in what might be seen as an ordinary commercial manner. It does not matter, for these purposes, that the better view may be that the Loan Documents apply, as that is not the relevant test for me to apply in an application of this type.
If the Oral Agreement applies, then there is a plausible contention that there was no security for the Loan, which would mean that Ms Ryan could not call upon JH’s debt to Mr Ellis.
Although Ms Ryan deposed that she has signed multiple copies of the Loan Documents, there is no explanation for how her signature differs to the extent that it does on the two copies of the Loan Agreement I was taken to.
While Mr Ellis does not deal with it in his affidavit, as noted in paragraph 27 above, in correspondence with Rotman & Morris he says he did not realise until 20 February 2018 that he had received the signed Loan Documents from Ms Ryan in November 2017.
I accept JH’s submission that the factual controversy between Mr Ellis and Ms Ryan as to the status of the Loan Documents is one that will require cross-examination of witnesses and possibly forensic evidence in respect of the documents.
In my view, even if the Oral Agreement does not apply, there is a ‘plausible contention requiring investigation’ into whether,[49] if the Loan Documents were not signed and returned in September 2015, it was open to Ms Ryan to accept them and return them in November 2017.
[49]Malec, [48].
The Loan Documents and the nature of the assignment
JH’s submissions
JH submits that the Loan Documents, if they apply, are to be read together. It says that it is clear from the Loan Agreement that the assignment by Mr Ellis of the debt owed to him by JH was as security for the Loan and was not an absolute assignment. In this regard, JH relies on the terms of clause 4 of the Loan Agreement, saying that it was only upon default or late payment under the Loan Agreement that the security could be realised or otherwise dealt with.
For these reasons, JH submits that the assignment is not absolute as it is done by way of charge. Section 134 of the PLA deals with the legal assignment of debts or other legal things in action, but excludes from that an assignment ‘not purporting to be by way of charge only’. Even if this is not the case, s 134 of the PLA provides that if the assignment is disputed by the assignor (ie Mr Ellis) or any person claiming under him (ie the assignee, Ms Ryan), then the debtor (ie JH) may call upon the persons making claim thereto to interplead. JH then says that this means a statutory demand procedure is not the correct mechanism for resolving this: rather, JH should be joined as a party to the Other Proceeding and Ms Ryan should make her claims in that proceeding against JH.
JH also submits that this is consistent with the Debt Description itself, as contained in the Schedule to the Statutory Demand. In particular, the Debt Description refers to Mr Ellis being indebted to Ms Ryan under the Loan Agreement and that ‘as a consequence’ of the assignment JH is also indebted to Ms Ryan for that amount.[50] The First Ryan Affidavit describes it in similar terms.
[50]Exhibit WHE-1 to the First Ellis Affidavit.
Ms Ryan’s submissions
Ms Ryan submits that the Assignment Agreement, by its own terms, is absolute. It does not refer to the Loan Agreement and Ms Ryan submits that the language of the Assignment Agreement is clear and unequivocal insofar as it assigns to Ms Ryan the interests of Mr Ellis in the debt owed to him by JH.
Ms Ryan also submits that it meets the conditions of s 134 of the PLA, and that no issue of interpleader arises given that Mr Ellis is the guiding mind, or alter ego, of JH, so that he knows what is going on. In the Second Ryan Affidavit, Ms Ryan says that she did not include her claims against JH in the Other Proceeding, as she was entitled to use the statutory demand procedure and had elected to do so.
Further, Ms Ryan submits that even if there has not been a legal assignment by Mr Ellis of the debt owed to him by JH, there has been an equitable assignment and that is sufficient to enable Ms Ryan to serve a statutory demand on JH in respect of the debt. Mr Ravech relied on Rohan Trading Company Pty Ltd v Glengor Pastoral Company Pty Ltd in this regard.[51]
[51][2003] NSWSC 1265, [14].
Analysis
In oral submissions, Mr Ravech agreed with Mr Di Pasquale that when documents are executed together and they relate to the same transaction, the documents are not interpreted in isolation but are interpreted together, akin to collateral contracts.[52] Mr Di Pasquale relied on ACN 004 443 627 (Southern Region) Ltd & Anor v Wallington Hardware & Timber Pty Ltd & Anor in this regard.[53]
[52]Transcript, 23.4-24; 38.10-14.
[53][2010] VSC 95, [30]-[32].
Given that the documents are to be interpreted together, my view is that there is a plausible contention requiring further investigation as to whether the assignment is absolute or whether it is only by way of charge. That being the case, there is a plausible contention that the Assignment Agreement can only be enforced if the pre-conditions for realising or dealing with the security have arisen.
The question of whether the assignment is a legal one or an equitable one is irrelevant for my purposes, since either can lead to a statutory demand. Rather, the issue is whether Ms Ryan is entitled to rely on the Assignment Agreement for the reasons referred to in the previous paragraph.
Has there been a forgiveness of the Loan? If so, what is its effect?
JH’s submissions
JH submits that the Loan was forgiven by Ms Ryan, relying on Mr Ellis’ evidence as to the Alleged Loan Forgiveness. It submits that it is not implausible that this occurred, since the parties had a personal friendship spanning many decades and it is not to be expected that they would necessarily conduct themselves in a commercial manner.
Noting its primary submission that the Oral Agreement applies such that there was no security given for the Loan, JH submits that if that is not the case and security was given in the form of the Assignment Agreement, then as a result of the Alleged Loan Forgiveness, Ms Ryan cannot enforce that security. In effect, JH says that as the assignment was by way of a charge, rather than absolute, then if there is no longer any money owing on the Loan then there is no work for the charge to do.
Ms Ryan’s submissions
Ms Ryan submits that Mr Ellis’ claims about the Alleged Loan Forgiveness should be rejected, as they:
(a) are self-serving bald assertions that have no objective existence and are highly implausible;
(b) are unrealistic and warrant no further investigation, because the benefit Mr Ellis would have obtained and the detriment Ms Ryan would have suffered is of such a magnitude that it cannot be explained by normal commercial practice;
(c) having produced the Loan Documents, it ‘beggars belief’ that Mr Ellis would not have documented the Alleged Loan Forgiveness;[54] and
(d) the objective evidence is consistent with Ms Ryan’s case, which is eminently plausible.
[54]Transcript, 51.4-8.
Ms Ryan also submits that Mr Ellis has admitted, in correspondence with her solicitors, that he remains liable to repay the Loan.[55]
[55]Relying on the First Alleged Debt Acknowledgment and the Second Alleged Debt Acknowledgment (together, the ‘Alleged Debt Acknowledgments’).
Further, Ms Ryan submits that even if it was made, then the Alleged Loan Forgiveness was ineffective as there was neither valuable consideration nor a deed, with the result that the Loan was neither released nor extinguished. Mr Ravech relied on Lewis v Cook, where Austin J stated:[56]
The plaintiff submits that a debt can only be released and extinguished by an agreement for valuable consideration or an instrument of release under seal: Commissioner of Stamp Duties v Bone [1977] AC 511, 519; Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723, 739, discussing Foakes v Beer (1884) 9 App Cas 605.
That proposition is not entirely beyond argument, since there are cases which suggest that equity may recognise the voluntary release of a legal right by writing not under seal, or even orally: Meagher, Gummow and Lehane, Equity Doctrines and Remedies (3rd ed, 1992), para [3502]. However, the bulk of authority favours the view that, in the absence of valuable consideration, equity will not consider a legal right to be released unless it has been released at law, as the learned authors point out.
In my view the plaintiff's submission is correct. The purported forgiveness of the debt was ineffective, there being neither valuable consideration nor a deed. The defendant does not challenge the plaintiff's proposition of law, or its application in this manner. Instead, the defendant relies upon estoppel and waiver, to which I now turn.
[56][2000] NSWSC 191, [16]-[18].
JH’s reply submissions
JH rejected the contention that Mr Ellis had admitted he remained liable to repay the Loan.
JH did not dispute Ms Ryan’s submission that the Alleged Loan Forgiveness, in order to be effective, had to either be contained in a deed or there had to have been valuable consideration for it. There was no submission that either of these had taken place.
Analysis
In my view, the question of whether the representation as to the Alleged Loan Forgiveness was made is one that can only be answered at trial. While in ordinary circumstances the proposition that a substantial loan had been forgiven in this way is one that is quite likely to be implausible and not one which requires further investigation, the fact that this was not an ordinary commercial relationship (Mr Ellis’ evidence as to the long-standing friendship not being contested), means that these are not ordinary circumstances.
Ms Ryan submitted that it was ridiculous, on Mr Ellis’ case, that the Alleged Loan Forgiveness had occurred on 18 October 2017 but less than a month later she sent him the signed Loan Documents.[57] However, there has been no attempt made by either party to explain what is undoubtedly a lengthy silence of around two years in respect of the Loan,[58] particularly when there is no contest that the Loan was for a term of 60 days. Nor has there been any attempt to explain what occurred between the parties so as to turn a long-term family friendship (as alleged by Mr Ellis and not denied by Ms Ryan) into what appears to be an acrimonious dispute, with at least two pieces of litigation (being this application and the Other Proceeding) having been initiated. In my view, the relationship between the parties and this gap in the evidence mean that I should be slow to draw a conclusion that Mr Ellis’ case in this regard is ridiculous.
[57]Transcript, 48.16–49.8.
[58]See paragraph 23 above.
Given that JH did not dispute Ms Ryan’s submission that even if the representation was made, the Alleged Loan Forgiveness was ineffective as a release or extinguishment of the Loan, it can be taken as read that the Loan was not effectively forgiven. However, the question remains live, due to the Estoppel Claim.
Further, in the context in which the Alleged Debt Acknowledgments occurred, particularly viewing the entirety of the relevant correspondence from Mr Ellis, it cannot be said that these statements were unequivocal debt acknowledgments rather than attempts to negotiate an outcome. In relation to the First Debt Acknowledgment, Mr Ellis refers to what he says would be fair and just, prefacing it by specifically stating that he does so without at this stage formally challenging the legality of the position put by Ms Ryan. In the Second Alleged Debt Acknowledgment, he puts forward possibilities and expressly says he disagrees with Rotman & Morris’ view about the legal position. It follows that I do not regard the Alleged Debt Acknowledgments as a basis for saying that the Alleged Loan Forgiveness is implausible or that there is not a genuine dispute as to it.
Does the Estoppel Claim prevent recovery of the Debt from JH?
JH’s submissions
JH submits that on 18 October 2018, Ms Ryan represented to Mr Ellis that the Loan had been forgiven, which Mr Ellis had relied upon to his detriment, such that Ms Ryan should be estopped from resiling from that representation.
The detriment is said to be that if he had known the Loan had not been forgiven and was to be enforced, he would have called in a loan of approximately $500,000 owed to the Trust by Rasputen. As noted above, Rasputen’s only asset is said to be the Mallacoota Property which is said to have declined in value between 3 March 2018 and 2 July 2018.
In the Third Ellis Affidavit, Mr Ellis exhibited a copy of the trust deed for the Trust, which shows that he is a beneficiary of the Trust.[59] He also provides a copy of Rasputen’s balance sheet as at 30 June 2017 (‘Balance Sheet’), which records a loan from the Trust as at that date of $506,366.72. The Balance Sheet refers to freehold property held as at that date in the amount of $2,775,621.55. It is open to me infer, from the information contained in the First Ellis Affidavit, that Rasputen previously held additional properties and that these were disposed of between 30 June 2017 and the making of the First Ellis Affidavit, since Mr Ellis says that the Mallacoota Property is its only asset. There is no evidence before the Court to explain what happened to the other properties or to explain what happened to the proceeds of any such sale.
[59]Third Ellis Affidavit; Exhibit WHE-13.
Ms Ryan’s submissions
In her counsel’s written outline, prepared before service of the Third Ellis Affidavit, Ms Ryan submitted that there was no objective evidence of the Trust or the loan from the Trust to Rasputen. This was said to mean that it was not possible for the Court to assess whether the Estoppel Claim was genuine.
This point was not pressed at the hearing, although the gist of Ms Ryan’s submission was that a number of questions remained which made the Estoppel Claim speculative at best.[60]
[60]Transcript 59.31–62.7.
First, any loss suffered by a decline in value of the Rasputen Property would be a detriment suffered by Rasputen, and it was not clear how that detriment could be said to translate into a detriment suffered by the Trust, let alone Mr Ellis personally.
Second, Ms Ryan submitted that on the information contained in the Balance Sheet, particularly since the Mallacoota Property was now its only asset, Rasputen is ‘hopelessly insolvent’ since now the liabilities are more than double Rasputen’s assets.[61] The Court was asked to assume that all of the liabilities shown on the Balance Sheet remain liabilities, but that the assets have decreased. Counsel submitted that ‘the only thing that we’re told has changed is the fact that there’s only one property now, a property of $1,089,000. So let’s just assume that the rest of the balance sheet is correct, because we’re not told anything to the contrary.’[62] Therefore, although Mr Ellis was the sole director of Rasputen and had the power to cause Rasputen to pay back the Trust’s debt, in reality he could not do so as Rasputen was hopelessly insolvent.
[61]Transcript 36.14-22.
[62]Transcript 36.7-23.
Third, the only evidence of Rasputen’s financial position is the Balance Sheet, which is now quite out of date.
Fourth, Ms Ryan’s solicitors had sent letters of demand to Mr Ellis, beginning in January 2018, so he was on notice since that time that repayment of the Loan was being demanded. If the Mallacoota Property was worth up to $1,089,000 in March 2018, as per the valuation given on 3 March 2018,[63] then Ms Ryan submits it would have been worth at least that amount in January 2018 and Mr Ellis could have caused Rasputen to put the Mallacoota Property up for sale earlier.
[63]Exhibit WHE-4.
Fifth, there is no evidence that the Mallacoota Property could have actually been sold, at either amount.
Sixth, there was no evidence of the financial position of the Trust, such that it is not known whether, even if Rasputen repaid its $500,000 loan, the Trust would be in a position to make a distribution to Mr Ellis of that amount.
Analysis
I do not accept the submission that the Court should assume that Rasputen’s liabilities remain as listed on the Balance Sheet. While Mr Ellis could have, but did not, provide more up to date financial information about Rasputen, I do not think that his failure to do so means that I should make the assumption I was invited to make. In reply, Mr Di Pasquale made submissions that the liabilities listed to shareholders on the Balance Sheet actually represented equity and so were not liabilities, but I do not accept that submission either. There was simply no evidence before me to allow me to accept that submission.
What is clear is that I simply do not have enough information or evidence to form any sort of view as to the solvency of Rasputen.
There is some force as to the remainder of Ms Ryan’s submissions in relation to the Estoppel Claim (with the exception of the one referred to in paragraph 69 above). However, it seems to me that while the detriment element of the Estoppel Claim may be described as speculative, the other elements cannot be described in those terms. While the alleged detriment may be speculative, it is not so implausible, improbable or hypothetical that it means there is not a genuine dispute.
Even if I am wrong about that, in my view it is the combination of all of the issues which have been raised and discussed in this judgment that lead me to the overall conclusion that there is a genuine dispute in respect of the Debt.
Conclusion
For the above reasons, the combination of the matters raised by JH means that there is a genuine dispute in respect of the Debt and the Statutory Demand should be set aside.
I will hear the parties as to the form of orders and as to costs.
0
3
0