Madagascar Australia Trading Pty Ltd v Ramsay, Margaret Anne
[1998] FCA 974
•14 August 1998
FEDERAL COURT OF AUSTRALIA
CORPORATIONS - statutory demand - genuine dispute - whether moneys paid by respondent to applicant constituted loans or subscription for shares - conflicting evidence
Corporations Law s 459G
Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 147 ALR 444 applied
Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 followed
MADAGASCAR AUSTRALIA TRADING PTY LTD v MARGARET ANNE RAMSAY
NO. VG 3085 of 1998
JUDGE: HEEREY J
DATE: 14 AUGUST 1998
PLACE: MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VG 3085 of 1998
BETWEEN:
MADAGASCAR AUSTRALIA TRADING PTY LTD
ACN 065 270 484
APPLICANTAND:
MARGARET ANNE RAMSAY
RESPONDENTJUDGE:
HEEREY J
DATE OF ORDER:
14 AUGUST 1998
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
The statutory demand dated 25 February 1998 be set aside.
The respondent pay the costs of the application, including reserved costs.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VG 3085 of 1998
BETWEEN:
MADAGASCAR AUSTRALIA TRADING PTY LTD
ACN 065 270 484
APPLICANTAND:
MARGARET ANNE RAMSAY
RESPONDENT
JUDGE:
HEEREY J
DATE:
14 AUGUST 1998
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
The applicant applies under s 459G of the Corporations Law for an order setting aside a statutory demand by the respondent Margaret Anne Ramsay (Mrs Ramsay). The demand is dated 25 February 1998 and gives particulars of the alleged debt as follows:
Date Description of debt Amount of debt 23.12.1994
30.01.1995
29.03.1995
Miscellaneous
Loan Agreement
Loan Agreement
Loan Agreement
Refundable Travel Expenses
$50,000.00
$25,000.00
$35,000.00
$6,632.45
$116,632.45
The hearing of the application was mainly concerned with the applicant’s contention that the alleged loans were in truth part of an agreed subscription for shares in the applicant.
The applicant had an interest in a company called Madagascar-Australia SARL (MATSOC) which is incorporated under the laws of Madagascar. MATSOC held a gaming licence for the operation of gaming machines in Madagascar and was desirous of undertaking further ventures. The applicant had a management agreement with MATSOC. The directors of the applicant were directors of MATSOC but the latter company also had some Madagascan citizens on its Board.
Another entity relevant to this case is a partnership called Equatorial Group Organization (EGO), the members of which were Messrs Peter Roche, Brendan Beattie, Bill Kent and Patrick Liu.
The First Loan
In late 1994 Mr Geoff Gorrie, who resides in Madagascar and who is a director of the applicant and of MATSOC, put to EGO a proposition that the latter become a Project Manager for the applicant’s various businesses in Madagascar and that EGO take a shareholding in the applicant in return for an investment of $250,000. Following a meeting on 21 December 1994 Mr Gorrie wrote on the letterhead of MATSOC a letter to Mr Roche in the following terms:
“Dear Peter
The following summarises the result of this morning’s meeting between directors of Equatorial Group Organisation (EGO) – yourself, Bill Kent and Patrick Liu, and directors and shareholders of Madagascar Australia Trading Pty Ltd (MAT) – myself, Michael Pagonis and Geoff Sinclair.
1. MAT owns 10% of the shareholding of Madagascar Australia Trading SARL (MATSOC) a company legally registered in Madagascar, and which owns the licence to operate gaming machines in Madagascar.
2. EGO will place Aus$250,000 in MAT as an investment, and in return, will receive 50% of the issued shares of MAT, and two seats on the Board of MAT.
3. EGO Directors will be Peter Roche and William Kent, while Directors for the MATSOC group will be Geoff Gorrie and Michael Pagonis.
4. EGO shareholders will be Peter Roche, William Kent and Patrick Liu, while shareholders from the MATSOC group will be Geoff Gorrie, Geoff Sinclair, Michael Pagonis and William Rakotozafy.
5. Geoff Sinclair and Patrick Liu will be, where possible, specially invited guests to each board meeting of MAT.
6. Shares will be allocated once all funds have been deposited to the account of MAT.
7. By this arrangement, it is understood that all shareholders in MAT will participate proportionally in any and all future projects initiated by MAT or MATSOC.”
The letter goes on to detail current projects for which MATSOC had secured licences from the Malagasy Government or which were currently under discussion, including gaming rooms in Madagascar, trading in spices, agricultural produce and minerals, and business travel packages for Australian companies.
The letter concludes:
“We believe the potential for our enterprise in Madagascar and other countries is very significant, and welcome the opportunity of working with you and your partners in these ventures.
Yours sincerely
MADAGASCAR AUSTRALIA TRADING Sarl(Sgd)
GEOFF GORRIE
President”
EGO replied with a letter dated 3 January 1995 from Mr Roche to Mr Gorrie in the following terms:
“Dear Geoff
I refer to your letter of 21st December 1994 summarising the meeting between EGO and MAT and comment as follows on points contained therein:
2.[sic] EGO will provide funds in the form of a priority loan and in return will receive 50% of the issued shares of MAT, and two seats on the Board of MAT.
3.EGO Directors will be Peter Roche and Margaret Ramsay, while Directors for the MATSOC group will be Geoff Gorrie and Michael Pagonis.
4.EGO shareholders will be Peter Roche, William Kent, Patrick Liu, Margaret Ramsay and Brendon [sic] Beattie. Shareholders from the MATSOC group will be Geoff Gorrie, Geoff Sinclair, Michael Pagonis and William Rakotozafy.
5.Where possible all shareholders as per 4. above should attend each board meeting of MAT.
6.Shares are to [sic] allocated immediately given that the first transfer of funds ($50,000) has now occurred.
7.Timber concession to be included as a current project.
Yours faithfully,
(Sgd)
Peter Roche”
Mr Gorrie replied by a letter of 4 January as follows:
“Dear Peter,
In response to your letter of January 3rd, I advise the following:
*we note that funds from EGO will be provided in the form of an interest-free priority loan;
* we note that EGO Directors will be Margaret Ramsay and yourself;
*we note that EGO shareholders are William Kent, Patrick Lui [sic], Margaret Ramsay, Brendan Beattie and yourself;
*a timber concession is added as a current project; and
*we should discuss a timetable for the allocation of shares once the transfer of funds has been completed.
Yours sincerely
MADAGASCAR AUSTRALIA TRADING SARL
(Sgd)
GEOFF GORRIE
President”
I was told by counsel for Mrs Ramsay that the letters of 3 and 4 January 1995 did not come to the notice of his client until recently, and indeed after the application to set aside the statutory demand was served.
Against the background of the three letters to which I have referred, there was conflicting affidavit evidence as to certain meetings and conversations.
Mrs Ramsay deposed that in early December 1994 she was approached by Mr Roche, “then a friend of mine”, to ascertain her “interest in financing a project in Madagascar”. She attended a meeting on 23 December attended by Mr Gorrie, Mr John Phillips (an accountant) and Mr Beattie. Mr Gorrie said that the applicant “required short term loan funds to enable the company to finance part of its operations in Madagascar”. Mr Gorrie told her that the applicant had been granted an exclusive licence for gaming in Madagascar and that the licence had been valued at several million dollars by the manager of Melbourne’s Crown Casino. Mrs Ramsay asked Mr Gorrie “as to the time frame that the loan funds were required”. He said that the applicant only required the funds for a short time during 1995. He asked her whether she was prepared to provide the loan funds. Mrs Ramsay deposed:
“Gorrie did not at any stage during the discussions ever suggest that the loan funds should be channelled through any other legal entity. Furthermore, I was unaware of the existence of EGO or any arrangement between EGO and the Applicant at any time prior to the provision of the first loan. I was not, and never have been, a shareholder or director of EGO.”
She further deposed that in reliance upon Mr Gorrie’s representations she agreed to provide “a short term loan of $50,000.00” to the applicant. Mr Gorrie told her that the loan funds would be returned to her “in mid 1995”. On the day of the meeting she electronically transferred $50,000 from her personal bank account directly to the applicant’s account.
On 4 January 1995 a further meeting occurred attended by Messrs Kent, Liu, Beattie, Roche, Gorrie, Michael Pagonis (another director of the applicant) and Mrs Ramsay. She deposed that she was requested to provide an additional $20,000 but refused. She says Mr Pagonis then told her that “further loan funds in the sum of $200,000.00 were required from me”. Mrs Ramsay deposed:
“This was the first time I had heard of further loan funds being required. I refused to provide any further loan funds at this meeting. I further requested return of my previous loan funds.”
The applicant’s version of events to this stage is as follows. Mr Roche approached Mrs Ramsay with a view to her financing EGO’s participation in the applicant’s investment activities in Madagascar. He invited her to the meeting of 23 December with the intention that she should become involved by funding EGO’s participation in it.
Mr Gorrie had already met Mrs Ramsay in early November 1994 and before the meeting on 23 December had discussed the applicant’s business activities with her. At the meeting on 23 December he outlined the general nature of the applicant’s operations in Madagascar but did not mention short term loan funds. He discussed with her the matters that had been already discussed with EGO representatives at the meeting on 21 December and referred to in his letter of that date. It was his understanding that Mrs Ramsay was “a part of EGO”, although he did not know what was her exact relationship. There was a discussion of a time frame in relation to the payment of dividends on shareholdings. In that regard he said that the payment of dividends would be dependent upon the time which was involved in getting the business activities up and running in Madagascar. The $50,000 paid on 23 December was not a short term loan but Mrs Ramsay providing funds for EGO to take up its position as a shareholder in the applicant.
Mr Roche deposed that his discussions with Mrs Ramsay were on the basis that she would take either an equity position in EGO or alternatively lend funds to it. As at the time the $50,000 was paid the position had not been clarified as between himself and Mrs Ramsay. EGO did not otherwise have the funds to make the investment.
At the meeting on 6 January Mr Gorrie asked Mrs Ramsay for a further payment towards the total of $250,000 required of EGO. She said she did not want to be involved in EGO but was nonetheless interested in pursuing the matter. Mr Pagonis did not say that further loan funds of $200,000 were required, but rather that $200,000 was required to take up the original shareholding offer. Mr Gorrie deposed that the context of the meeting of 6 January was that he was pushing EGO to provide the funds for the balance of its shareholding in the applicant and that at the meeting Mrs Ramsay said she would not provide any further funds for EGO. Subsequent to that meeting he had further discussions directly with Mrs Ramsay in which she stated that she wished to take up the shareholding previously offered to EGO. Mr Gorrie agreed to deal with her on the same basis as the applicant had dealt with EGO.
The Second Loan
Mrs Ramsay’s version is that on 25 January she attended a further meeting at the applicant’s office. Mr Gorrie gave her a letter dated 23 January 1995 on the letterhead of the applicant in the following terms:
“Dear Margaret
Re: SHARE OWNERSHIP IN THIS COMPANY
It is now several weeks since the agreement for EGO to take up a 50% shareholding in Madagascar Australia Trading Pty Ltd (MAT), but EGO has not performed and delivered the funds promised. As you know, there also have been disclosures regarding misleading statements about your position, made by EGO personnel.
As you have generously accepted our offer to remain with MAT as a director, we would now like to place on record this formal offer to you of a reciprocal shareholding in Madagascar Australia Trading SARL (MATSOC) based on the formula applied to MAT, ie, for the funds invested by you (through EGO), we will issue to you 1% of the issued shares in MATSOC, and that percentage will be increased by 1% for each $50,000 invested. All funds originating from you or resulting from your guarantees will be treated as loan funds.
We also discussed the possibility of obtaining an overdrafft [sic] facility at the National Australia Bank, 271 Collins Street, Melbourne, of up to $250,000. Michael and I would provide shares in Australian Copper and Gold NL to the value of that overdraft which would be transferred to your name, as security against your guarantee to the Bank. The reason for making the shares available to you is that, in our opinion, the Bank would not treat the shares as security.
I was a little unsure whether we had actually reached agreement on the final amount you would be prepared to underwrite by your guarantee.
Regarding our current debts, the following should be added to the accounts on your list: SNAP printing $268, and airfares for the Minister and his party about $20,000. Next week, we also have to find funds for the airfares of Vice-President and his Delegation, plus we also have to meet the costs of accommodation and ground transport for both groups.
Today, I will be paying into MAT’s account $4,000, plus I have a commitment for a further $10,000 which I should receive today or tomorrow.
Margaret, we do appreciate your interest in, and support of, our Madagascar projects. We believe we are now very near to finalising the major funding package for MATSOC, and look forward to working closely with you on the venture over the coming months.
With warmest regards,
Sincerely
MADAGASCAR AUSTRALIA TRADING PTY LTD(sgd)
GEOFF GORRIE
Managing Director”
Mr Gorrie told Mrs Ramsay that her “loan funds would effectively be secured by the issue of shares in … MATSOC”. On 29 January she had a further conversation with Mr Gorrie who sought to solicit additional loan funds from her. She expressed concern in relation to the recovery of her funds as she was unsure about the real nature of the applicant’s projects in Madagascar. Mr Gorrie asked her to provide “a further short term loan of $25,000.00”. She agreed to provide that sum, which on 30 January she transferred into the applicant’s bank account.
The applicant’s version denies that Mr Gorrie said anything about short term loan funds from Mrs Ramsay or their being secured by the issue of shares in MATSOC. The discussion was “again on the basis that (Mrs Ramsay) would provide further funds for her shareholding acquisition in the applicant”.
As to the letter of 23 January 1995, Mr Gorrie deposed:
“The matters raised in the second paragraph confirmed that Mrs Ramsay was to take over the position that had previously been offered to EGO. The sentence dealing with funds originating or resulting from guarantees in fact deals with the matters referred to in the third paragraph, that is an overdraft facility arranged with the National Australia Bank, which was to be provided subject to Ms Ramsay providing a guarantee.
…
The arrangement to which she refers in the letter is confirmation of her shareholding and the different treatment of funds originating from her guarantee under the overdraft facility.”
The Third Loan
Mrs Ramsay deposed that on 29 March 1995 Mr Gorrie telephoned her. He said that the applicant “was facing a desperate short term financial problem and that an urgent injection of funds was required”. He assured her that the funds were “only required for a short period of time and that they would be treated as loan funds”. She then, “somewhat foolishly”, transferred $35,000 directly into the applicant’s bank account.
Mr Gorrie however deposed that the purpose of the call was to obtain from Mrs Ramsay the payment of further moneys which she had agreed to provide for the purpose of her share acquisition.
Subsequent events
On 6 September 1995 Mrs Ramsay wrote to a friend, Mr John Campbell. Apparently she was herself then herself in Madagascar. The letter was as follows:
“Dear John,
I thought you may be interested in the Madagascan news today.This morning Geoff Gorrie phoned and said he expected a fax from here, by 7/9/95 with our decision as to whether we pull out of Madagascar or not. If we stay he cannot guarantee return of my investment funds, if we leave he can!
This raises several questions & comments.
1. This should be a board decision!
2.What is my holding in MAT & MATAG [presumably a reference to MATSOC]? MATAG is a company registered in Madagascar. Madagasy interests hold 10%, Geoff Sinclair 80% in trust for Australian persons, & 10% for Brontes (Geoff Gorrie’s Company)[.] I have a shareholding in MAT, which should receive a small % of the 80%. This is not acceptable.
3.Our requests for information from Australia have mainly been ignored, so therefore many excellent projects are on hold.
4.Apart form the Villa in which we reside, our existence here has been frugal, and no funds have been available to enable travel, which would identify other projects.
5.As evidenced by my faxes to you and my conversations, I have no intention of handing my excellent J.V. projects to MATAG, if we can use MIDTHORPE and benefit from the hard work & good contacts which I have.
6.Are the other investors in the same position as I am, in regard to losing funds?
7.I wish to return home for a break. If I do so, I need to inform my contacts here that I will return to complete trade or J.V details. I am unable to do this without the help of experienced Directors such as Steve and you. You also need to speak with Greg.[sic] when he arrives from Madagascar in one or two weeks, to understand the situation here.
8.Before I left Australia, Steve foretold me that this would happen, “only I do not receive an additional $100,000”. Steve suggested that I should appoint two proxies. Could I please ask you and Steve to act as such for me.
9.I will discuss further when I return.
10.Will contact you tomorrow. I will be out until midday.
11.Please find my response Sorry for the problem,
to Melbourne by fax but I do have excellent
projects and connections”.
Mrs Ramsay deposed that since 16 December 1995 she had “continually requested (her) loan funds to be returned”. She has not been issued with any shares in the applicant or served with any company documents, annual reports or the like.
In September 1996 she met with her then solicitor, Mr George Zindilis, and Mr Christopher Kallonis, Mr Gorrie and Mr Pagonis. She deposed:
“Gorrie and Pagonis acknowledged at the meeting that the monies which I had advanced were priority paid loan funds and that they would forward written confirmation of this to George Zindilis. Despite repeated requests from my solicitor, this was never provided.”
No affidavit from Mr Zindilis was tendered, nor was there any evidence of a letter from him to Messrs Gorrie and Pagonis confirming the alleged acknowledgment.
The applicant tendered an affidavit from Mr Dean Cleary who was formerly a Business Banking Manager with the National Australia Bank, the applicant’s banker. At a date which he cannot specifically recall, but at some time after February 1995, he met Mr Gorrie and Mr Pagonis by appointment at the Bank. Mrs Ramsay also attended. Mr Gorrie and Mr Pagonis introduced her to Mr Cleary as a shareholder in the applicant. The purpose of the meeting was to discuss an overdraft facility to be provided to the applicant in which she was to provide a guarantee. The form of guarantee was provided to her at the meeting. She took it away for legal advice.
Mrs Ramsay deposed that she met with Mr Cleary at the Bank on 2 June 1995 but that neither Mr Gorrie nor Mr Pagonis were present. She denied that she was introduced as a shareholder to Mr Cleary. She never saw him in the presence of Pagonis and Gorrie. The meeting was to discuss an overdraft facility for another company called C G M Nominees Pty Ltd.
Reimbursement of expenses
The applicant disputes that the sum of $6,632.45 claimed by the respondent as “refundable travel expenses”. Mrs Ramsay’s solicitors provided details of this. Some of them appear related to travel to Madagascar. Some expenditure seems to be unrelated to the applicant. Mrs Ramsay deposed that Messrs Gorrie and Pagonis requested that she pay various expenses on the basis that the applicant would reimburse her.
The statutory criterion
The beguilingly simple expression “genuine dispute” has generated much litigation and many reported decisions since it was introduced by Div 3 of Pt 5.4 of the Corporations Law in 1993. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 147 ALR 444 the Full Court of this Court reviewed the authorities. Their Honours said (at 455):
“In our view a ‘genuine’ dispute requires that:
·the dispute be bona fide and truly exist in fact;
·the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.
We consider that the various formulations referred to above can be helpful in determining whether there is a genuine dispute in a particular case, so long as the formulation used does not become a substitute for the words of the statute.”
Amongst the authorities referred to by the Full Court with approval is the decision of Hayne J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 at 295 where his Honour 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 that dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute.”
Conclusion
I am satisfied that in the present case the applicant has established that there is a genuine dispute as to the alleged loan debts. There is no doubt that, notwithstanding the payment of substantial sums of money, all concerned acted in a hasty manner, without proper legal advice or documentation. There are starkly conflicting versions of conversations and arguments as to the competing probabilities. In such a setting, one should be cautious before seizing on one piece of evidence favourable to the creditor and concluding that there is no genuine dispute.
In the present case counsel for Mrs Ramsay relied strongly on the phrase in the letter of 23 January 1995:
“All funds originating from you or resulting from your guarantees will be treated as loan funds”.
Also he pointed to the letters, said to be recently discovered, of 3 and 4 January 1995.
But there is much in that correspondence which supports the applicant’s version. The letter of 21 December 1994 speaks of EGO receiving “50 per cent of the issued shares” of the applicant and refers to the “EGO shareholders”. The whole thrust of the letter is that, for an investment of $250,000, the EGO shareholders are to become equal equity participants with the existing shareholders in the applicant and its various enterprises. EGO’s letter of 3 January uses virtually identical language. The reference to a “priority loan” may, arguably at least, be read as an indication that until the full amount is paid and the shares issued – seemingly something anticipated as likely to occur in the near future – the funds will be treated as a loan.
Likewise, the letter to Mrs Ramsay of 23 January 1995, however ambiguous, is headed “Re: SHARE OWNERSHIP IN THIS COMPANY”. And there is much in Mrs Ramsay’s letter to Mr Campbell of 6 September 1995 which is consistent only with her being a member (albeit with some confusion as to her correct shareholding entitlement) and nothing which suggests she regarded herself as a loan creditor.
Further conduct of Mrs Ramsay which is inconsistent with her present case is that although she deposes that as early as 4 January 1995 she requested return of $50,000, she then went on to pay over further sums of $25,000 and $35,000 on 23 January and 29 March respectively. And although Mrs Ramsay claims that Mr Gorrie told her that the loans would be repayable “in mid 1995”, on her own account she did not make any request for repayment until 16 December 1995. It is odd that there is no evidence from her solicitor Mr Zindilis in September 1996 as to the alleged acknowledgment that the monies were loan funds and no letter at the time confirming this.
And notwithstanding that Mrs Ramsay’s case is that there was a short term loan repayable by mid 1995, and although she had legal advice in the following year, there is no evidence of any written demand for repayment prior to the serving of the statutory demand. The demand was served three years after the loans were made and two and a half years after they are said to have been repayable.
Also, if the transactions were, as Mrs Ramsay says, unsecured short term loans, it is surprising that on her version there was no discussion, let alone agreement, as to interest rates.
There is also the evidence of Mr Cleary. True it is this is disputed, but it is direct sworn evidence consistent with the applicant’s case and inconsistent with that of Mrs Ramsay. For present purposes it supports a finding of genuine dispute.
Reimbursement claim
There was very little argument about this. The amount is relevantly small and given that I am satisfied there is a genuine dispute as to the alleged loans it is clear the relationship of the parties as ultimately found by a Court would bear on a determination of that claim also.
Orders
There will be orders that the statutory demand dated 25 February 1998 be set aside and that the respondent pay the costs of the application , including reserved costs.
I certify that this and the preceding thirteen (13) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey
Associate:
Dated: 14 August 1998
Counsel for the Applicant: T Davies Solicitor for the Applicant: Oakley Thompson & Co Counsel for the Respondent: J Selimi Solicitor for the Respondent: Testart Robinson Date of Hearing: 10 August 1998 Date of Judgment: 14 August 1998
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