MBD Energy Limited v Harmony BD Pty Ltd
[2012] VSC 236
•6 June 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST E
S CI 2011 6534
| MBD ENERGY LIMITED (ACN 117 957 383) | Plaintiff |
| V | |
| HARMONY BD PTY LTD (ACN 117 577 956) | Defendant |
---
JUDGE: | DALY AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 8 March 2012 | |
DATE OF JUDGMENT: | 6 June 2012 | |
CASE MAY BE CITED AS: | MBD Energy Limited v Harmony BD Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 236 | |
JUDGMENT
STATUTORY DEMAND ― Application to set aside.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr O Bigos | Freehills Lawyers |
| For the Defendant | Mr J Ribbands | TF Grundy (as agent for Schweizer Korbas Lawyers) |
HER HONOUR:
On or about 9 November 2011 the defendant, Harmony BD Pty Ltd (“Harmony”) served a statutory demand upon the plaintiff, MBD Energy Ltd (“MBD”), claiming a debt in the sum of $330,000, described in the statutory demand as the “Balance of Harmony Capital Reduction Payment Owing to the Creditor pursuant to the Deed of Variation dated 1 August 2007 between the Debtor and the Creditor.”
On 1 December 2011, MBD, a developer of alternative energy projects, applied to set aside the statutory demand on the basis that there is no due and payable debt of that description owing by MBD to Harmony.
At the hearing of the application, MBD sought to rely upon the following affidavits:
(a)an affidavit sworn by Michael Joseph Arban sworn 1 December 2011; and
(b)an affidavit sworn by Andrew John Lawson on 2 March 2012.
In summary, Mr Arban, the Chief Operating Officer of MBD, deposed to the following matters:
(a)the entry in November 2006 by MBD, Harmony and various other parties into a Heads of Agreement (“2006 Heads of Agreement”) which, in effect, would sever the commercial relationship between Harmony and its shareholders and MBD and its other shareholders, and provide for payments to be made to Harmony upon the achievement of certain fundraising milestones by MBD;
(b)the entry by the parties into a Deed of Variation in August 2007 (“2007 Deed”) which, among other things, amended the terms upon which the payment was to be made by MBD to Harmony;
(c)an exchange of emails between MBD and Harmony on 25 and 26 November 2010 (“November 2009 exchange”), which Mr Arban asserted constituted what he described as a “Superseding Agreement”, which provided for revised payment terms, with payment to Harmony to be made in three tranches upon the achievement of certain milestones;
(d)the first two payments have been made pursuant to the “Superseding Agreement”, and payment of the balance would not be required until “on the next capital raising (4th quarter 2010) in line with the expansion of at least 1 of the projects at the power stations. This is expected to be $25-$30 million dollars”;
(e)the term “expansion of at least 1 of the projects at the power stations” refers to the full second stage development of one of the identified power stations (Tarong, Loy Yang A, or Eraring); and
(f)“Full Stage 2” is yet to occur, and, as such, the third payment to Harmony pursuant to the “Superseding Agreement” is not yet due and payable.
Mr Arban’s affidavit also exhibited the key contractual documentation and relevant correspondence between the parties.
Mr Andrew Lawson, the Managing Director of MBD, in his affidavit sworn 2 March 2012, deposed as to the meaning of certain industry jargon used in correspondence between him and Mr Stammbach, (the director of Harmony) exhibited to Mr Arban’s affidavit regarding MBD’s project development proposals and fundraising activities, in order to give some context and meaning to the expression “full second stage development” used in the course of the November 2009 exchange. In particular, he deposed as follows:
(a)“a full stage 2” is to the development of a commercial scale Algal Synthesiser Plant, as opposed to “stage 1” which refers to the development of a small scale test plant;
(b)a reference to “expansion of at least 1 of the projects at the power stations” was to the development of a commercial scale Algal Synthesiser Plant at either of Tarong, Loy Yang A, or Eraring power stations;
(c)the reference to the “next capital raising (4th quarter 2010) … expected to be $25-$30 million dollars” was to MBD’s intention to undertake a capital raising some time in the future for the purpose of raising sufficient funds for the development of a commercial scale Algal Synthesiser Plant;
(d)in November 2009, Mr Lawson anticipated that the capital raising would take place in the fourth quarter of 2010. However, as at the time of swearing his affidavit, the proposed capital raising referred to in the November 2009 exchange had not taken place, and no firm steps had been taken in relation to commence it;
(e)Mr Lawson’s intention was for the final payment of $330,000 to Harmony be made after MBD had received the $25 to $30 million dollars in funding required for the construction of a commercial scale plant;
(f)MBD has received some funding for a trial stage development, but not a commercial scale development;
(g)in 2011, MBD undertook a private equity raising for the development of trial stage projects, ongoing research and development activity, and corporate overhead expenses (“2011 capital raising”);
(h)in an email to Mr Stammbach dated 28 July 2011,[1] Mr Lawson stated “We will also look to make the final payment on completion of the capital raising”, by which he meant that MBD may consider making the final payment ahead of time, as he thought the 2011 capital raising might be oversubscribed;
(i)however, as the oversubscription fell short of MBD’s expectations, he decided it was not in MBD’s best interests to make the final payment to Harmony; and
(j)none of the funds raised in the 2011 capital raising have been allocated to the development of a commercial scale plant.
[1]Exhibit “MRS-3” to Mr Stammbach’s affidavit sworn 31 January 2012.
Harmony relied upon two affidavits: the affidavit of its sole director, Mr Marc Rene Stammbach, sworn 31 January 2012, and an affidavit of Harmony’s solicitor, Mr Ricky Jose Lee, sworn 8 March 2012.
In summary, Mr Stammbach deposed as follows:
(a)on 25 November 2009 he received an email from Mr Lawson “seeking to vary the terms of the payment of the debt owed by [MBD] to [Harmony]”;
(b)Harmony accepted the terms of this variation on 26 November 2009;
(c)it was always the understanding of the parties that the relevant condition for the payment is the next capital raising;
(d)the reference to “(4th quarter 2010)””, “in the line with the expansion of at least 1 of the projects at the power stations” and “expected to be $25-$30 million dollars” in the email of 25 November 2009 does not amount to a condition for payment of the last tranche by MBD, but merely provides a descriptive statement as to the expected timing and quantum of the next capital raising;
(e)on 28 July 2011, Mr Lawson sent him an email which discussed the current fundraising activities of MBD and stated, among other things:
“We will also look to make the final payment on completion of the capital raising”;
(f)on 7 August 2011, he sent an invoice for the final tranche to Mr Lawson, as an attachment to an email which referred to an announcement on MBD’s website that the private equity raising had closed. Later that day, he received an email from Mr Lawson stating that MBD was waiting for the remaining funds from the 2011 capital raising to be received;
(g)on 31 August 2011, Mr Lawson sent an email to a Mr Flanagan (on behalf of Harmony) stating that MBD was still waiting on funds to be released from its capital raising, and including the following statement:
“on the day these funds come in we will trigger the funds deposit from Sentient and Anglo. When this occurs I will confirm the deposits to you”; and
(h)until the service of this application to set aside the statutory demand on or about 1 December 2011, MBD made no assertion that it had a genuine dispute with Harmony regarding the timing of the payment of the third tranche of $330,000.
In his affidavit sworn on 8 March 2012, Mr Ricky Lee, the solicitor for Harmony, deposed that he was informed by Mr Stammbach that in or around December 2011 Mr Stammbach, in his capacity as a shareholder of MBD, received a shareholder update “which, amongst other things, informed shareholders that in 2011 MBD had raised $25 million in new equity coupled with $5 million in government grants.” The “shareholder update” was exhibited to Mr Lee’s affidavit.
Counsel for Harmony objected to MBD relying upon the affidavit of Mr Lawson, on the basis that the affidavit sought to adduce additional evidence to remedy the deficiencies in the evidence filed in support of the application, outside the 21 day period within which an application to set aside a statutory demand can be made.
In that regard, counsel for Harmony relied upon the established authority of Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund,[2] where it was held that an application made under s 459G of the Act, in order to enliven the jurisdiction of the court to make an order under s 459H of the Act to set aside a statutory demand, must include an affidavit “supporting the application”, and that the failure of an affidavit to satisfy the minimum requirements for an affidavit is a jurisdictional impediment to the application. Counsel submitted that as the affidavit of Mr Lawson was filed outside the 21 day time limit contained within s 459G of the Act, I should disregard it.
[2](1996) 70 FCR 452.
However, in my view, the Court in Graywinter is more concerned with the minimum standards applicable to the material contained within the affidavit accompanying the application. It does not operate as a bar to the reception of any additional affidavits at the hearing of the application. Indeed, his Honour stated as follows (omitting citations):
In order to be a “supporting affidavit”, an affidavit must say something that promotes the company’s case. An affidavit which merely says “I am a director of the company but am too busy at present to make a full affidavit, and I will do so later” would not support the application. It would in no way advance, further or assist the company’s cause, which is to have the notice set aside. A the other extreme, the affidavit need not detail, in admissible form, all the evidence that supports the contention of a genuine dispute. That evidence must be available at the hearing of the application to set aside, because that application is for final and not interlocutory relief.[3]
[3]At 459.
Further:
In several cases it has been held that an applicant is not restricted on the hearing to the affidavit that is served with the application. An applicant whose initial affidavit has satisfied the threshold test must be able to supplement the material, because while the “supporting” affidavit does not have to deploy the evidence, on the hearing only admissible evidence can be relied on. In Louisbridge, Ryan J said that “provided that an affidavit is filed and served within the 21-day period which supports the application by providing grounds for concluding that there is a genuine dispute … or that the company has an offsetting claim”, supporting affidavits may be filed after the period has expired.[4]
[4]At 460.
In the current case, the affidavit sworn by Mr Lawson explains and elaborates upon the matters referred to by Mr Arban in his affidavit and the documents exhibited to that affidavit (which was filed and served within the 21 day time limit). Accordingly, I have taken the evidence of Mr Lawson into account in the determination of this application.
MBD relies upon the November 2009 exchange as constituting an agreement to vary the payment terms provided for by the 2007 Deed. MBD contends that the condition precedent for the final payment, that is, the raising of capital to finance a commercial scale power plant, has not been satisfied, and as such, the debt is not due and payable.
Harmony contends that the November 2009 exchange did not constitute an agreement between the parties to further vary the terms of payment, but rather reflected an indulgence on the part of Harmony by allowing MBD further time for payment of the debt due and payable under the terms of the 2007 Deed. In particular, there is no evidence that any consideration passed from MBD to Harmony which would elevate the November 2009 exchange from an indulgence to an agreement. Further, counsel submitted that the absence of any protest from Mr Lawson or any other officer of MBD when Harmony rendered the invoice for the amount claimed in the statutory demand constitutes powerful evidence that there is no genuine dispute regarding the existence of the debts.
In response, counsel on behalf of MBD submitted that the question of whether the November 2009 exchange constituted an agreement and, if so, whether the conditions precedent contained in that agreement were met is a live issue between the parties, and as such, constitutes a genuine dispute of sufficient weight to justify setting aside the statutory demand.
The legal principles to be applied in determining whether a genuine dispute exists are well settled. In order to set aside a statutory demand, the applicant (in this case, MBD) must satisfy me that there is “a plausible contention requiring investigation”.[5] The threshold for establishing the existence of a genuine dispute is reasonably low, and it is not the task of the Court to assess, much less resolve, the merits of any dispute. However, in order to satisfy the Court of the existence of a genuine dispute, an applicant must go further than merely assert the existence of a genuine dispute.[6] In my view, the relatively low threshold does not preclude the Court from casting a critical eye over the evidence in order to ensure that the contentions of the applicant are not inherently improbable or inconsistent with the established facts. Also, the mere fact that an application is supported by extensive affidavit material regarding apparently complicated factual matters requiring some degree of analysis should not preclude a finding that there is no genuine dispute about the existence of the debt.
[5]Eyota Pty Ltd v Harare Pty Ltd (1994) 12 ACSR 785.
[6]Graywinter, at 259.
In the current case, it is necessary to evaluate the intent and meaning of the contemporaneous documents passing between the parties at relevant times in order to determine whether MBD has a plausible contention requiring investigation.
Ultimately, much of the evidence about whether the “conditions precedent” said to be contained in the agreement asserted to be constituted by the November 2009 exchange is not germane to the current dispute. If the November 2009 exchange did constitute an agreement which varied the terms of the 2007 Deed, or there is at least a serious question to be tried as to whether the November 2009 exchange recorded such an agreement, then there is certainly sufficient evidence before the Court to satisfy me that there may well be a genuine dispute about whether the alleged conditions precedent regarding fundraising, and the linkage of the fundraising to the development of a commercial scale power plant, have been satisfied. However, the real issue is whether there is a genuine dispute as to whether the November 2009 exchange did in fact constitute an agreement to vary the 2007 Deed of Variation, or whether the correspondence merely recorded Harmony’s decision to accede to MBD’s request that it accept payment of the outstanding debt which was then due and payable by way of instalments, and after the time the payment fell due.
Clause 8.2 of the 2007 Deed provides as follows:
8.2Time of payment
(a)On execution of this agreement, MBD is to pay to Harmony an amount of $70,000 in part satisfaction of the Project Management Agreement Termination Payment.
(b)Subject to clause 8.2(c), Harmony agrees to defer receipt of the balance of the Project Management Agreement Termination Payment and of the full amount of the Harmony Capital Reduction Payment on condition that:
(1)all of the additional funds raised by MBD under the capital raising between $2 million and $2.12 million will be paid towards the Project Management Agreement Termination Payment; and
(2)30% of additional funds raised by MBC between $2.12 million and $5 million (being the maximum amount that can be raised under the capital raising) up to a maximum amount of $810,000, will be paid towards the Harmony Capital Reduction Payment.
(c)MBD will immediately pay the outstanding balance of the Project Management Agreement Termination Payment and the Harmony Capital Reduction Payment to Harmony if and when:
(1)MBD obtains a listing on the Australian Stock Exchange; or
(2)MBD commits or has sufficient funding to commit, to commencing either construction, acquisition, lease or operation of a biodiesel plant.
(d)If MBD does not raise sufficient funds under the capital raising to satisfy the Project Management Agreement Termination Payment and the Harmony Capital Reduction Payment and it does not subsequently:
(1)obtain a listing on the Australian Stock Exchange; or
(2)commit or have sufficient funds to commit, to commencing either construction, acquisition, lease or operation of a biodiesel plant,
then MBD will not be obliged to repay any outstanding balance of the Project Management Agreement Termination Payment of the Harmony Capital Reduction Payment.
In the event of MBD failing to raise sufficient funds under clause 8.2(d) then the outstanding payment will be converted into MBD shares at a value of 10c per share and attributed back to Harmony.
There is no dispute between the parties that, as at the time of the November 2009 exchange, the conditions precedent in clause 8.2(b) had been satisfied, and that the sum of $810,000 was a debt owing by MBD to Harmony pursuant to the 2007 Deed. Accordingly, the issue is whether the November 2009 exchange constituted a variation to that agreement to provide that payment of the outstanding balance of $810,000 was to be further deferred (and be subject to further conditions precedent).
The text of the November 2009 exchange is set out in full below. On 25 November 2009, Mr Stammbach wrote:
Hi, Andrew,
Under the Deed of Variation of Heads of Agreement between MBD and Harmony, Harmony has in the meantime received $190.000 from MBD to cover the Termination of Project Management Agreement. Thanks.
We still have outstanding the money ($810,000) for the Harmony Capital Reduction Payment. Can you please confirm that this is correct?
I understand from Kean, you and others that MBD has now raised somewhere around M$7.7 (amongst other payments recently M$5 from Anglo Coal) since August 2007. Can you please confirm the correct amount up to today?
It would be helpful if you could send me a copy of the MBD Financial Report FY08-09.
I understand from Kean that you two had talks this week, where you proposed:
1.MBD Payment of $240,000 this week on presentation of a Harmony invoice.
2.MBD Payment of $240,000 once another $5M have been raised (expected in around 3 weeks) and on presentation of a Harmony invoice.
3.MBD Payment of $330,000 on capital raising of M$30 sometime next year and on presentation of a Harmony Invoice.
Can you please confirm that this is your proposal to Harmony?
Thanks.
Cheers,Marc
Mr Lawson replied as follows:
Marc I confirm the following as per your email and my discussion with Kean regarding the payments to Harmony. Kean has asked that I confirm the details in a letter which I will do. I assume the banking details for Harmony are consistant [sic] with the previous transfer.
1.MBD Payment of $240,000 this week on presentation of a Harmony invoice.
2.MBD Payment of $240,000 once another $5M have been raised (expected in around 3 weeks) and on presentation of a Harmony invoice.
3.MBD Payment of $330,000 on the next capital raising (4th quater [sic] 2010) in line with the expansion of at least 1 of the projects at the power stations. This is expected to be $25 - $30M. Irrespective if a portion of these funds are raised via government grant the balance funds will be paid to harmony. [sic]
The money being paid to Harmony is being paid from monies raised by existing shareholders as part of the current capital raising.
The monies raised from Anglo is restricted to being spent on our projects. This is consistant [sic] in our discussion with the other cornerstone investors. The balance payment in 2010 will be made to conclude our agreement. The $2M Convertible note raised earlier in the year is a loan/liability of the company. I am happy to provide a copy of the accounts when signed off (this will accur [sic] prior to 3/12/09).
Kind Regards
Andrew
Further correspondence took place in July and August of 2011. On 28 July 2011 Mr Lawson wrote as follows:
Marc,
It is pleasing to see some well need [sic] equity raised from Sentient and we remain optimistic that we will close the fund raising in August. We have received $7m from Sentient which is fantastic. We have now been able to press the button on all aspects of the Tarong project which has a capex budget of $6m. As ever funds remain extremely tight. As ever the priority for funds in the company is on the critical path projects and their development.
Whilst longer than the 3 weeks anticipated in my November 25 email we are able to make the next payment to Harmoney of $240,000. Can you issue an invoice for $240,000 and we will make the payment. As with our previous payment we will pay Harmony out of the funds from existing shareholders. We will also look to make the final payment on completion of the capital raising.
With regard to the technical advisory group we are currently reviewing its role. The group has not met or provided input into the technical development of the company for the last year. The technical platform has been managed by Larry Sirmans and Rocky DeNys. With anticipated funds we will look at how best to go forward and look to have a powerful technical review element to future development. [sic]
My apologies for the extended timeframes but raising cash has proven amazingly hard over the last 4 years. Unfortunately this remains the case with America, Greece and Europe providing very uncertain times.
Kind regards,
Andrew Lawson
Managing Director
On 7 August 20011, Marc Stammbach wrote as follows:
Hi, Andrew,
I am happy to read that:
“MBD Energy Limited has closed our current $15m Private equity raising. The private equity raising was well supported and has been capped at a maximum oversubscription of $10m.”
As agreed, the final payment to Harmony is now due.
Please find attached invoice for payment inside 3 working days, e.g. by Wednesday, 10 August 2011.
Best regards,
Marc
There is no evidence that upon receipt of this email or the final invoice that Mr Lawson or anyone else from MBD raised any protest with Mr Stammbach regarding Harmony’s request for payment. Rather, the evidence is that on 5 August 2011, Mr Lawson wrote to Mr Stammbach of Harmony in the following terms:
Marc
This is stated on the website – we still only have the funds from sentient in the bank. We will advise you when the remaining funds are in our account.
Andrew
Sent from my iPhone
Further, on 31 August 2011, Mr Lawson wrote to Mr Flanagan of Harmony in the following terms:
Kean,
I confirm that MBD is still waiting on funds under the current capital raising.
With Australia corporate law companies are unable to exceed 19.99% holding in a public unlisted entity as such we are tranching the investments by Sentient and Anglo. We have $3m of funds still under due diligence and with 3 companies pursuing the investment we expect to conclude this over the following 4 weeks. On the day that these funds come in we will then trigger the funds deposit from Sentient and Anglo.
When this occurs I will confirm the deposits to you.
Kind Regards
Andrew Lawson
Managing Director
In my view, there is no genuine dispute regarding the existence of the debt owing by MBD to Harmony. While, curiously, it appears that both Harmony and MBD consider themselves bound by the terms of the November 2009 exchange (their evidence differs as to whether they consider that the events referred to in that correspondence have taken place), strictly speaking, their subjective belief as to the legal effect of the November 2009 exchange is, at best, unqualified opinion. As such, the statement by Mr Stammbach in his affidavit that
“the defendant accepted the terms of this variation on 26 November 2009”;
does not, of itself, confer upon the November 2009 exchange the status of an agreement to vary the terms of the 2007 Deed in the absence of the acts necessary to give legal effect to such a variation. There is no evidence of any consideration passing from MBD to Harmony in exchange for Harmony’s acquiescence to the proposed repayment plan. Furthermore, the 2007 Deed, upon which both parties rely, expressly provides that the amendments to the Principal Agreement (the 2006 Heads of Agreement) do not affect the validity or enforceability of the Principal Agreement.[7] Further, the 2007 Deed expressly confirms that each party to the 2007 Deed is bound by the Principal Agreement as amended by the 2007 Deed,[8] and contains an acknowledgement that the 2007 Deed was issued in accordance with the 2006 Heads of Agreement.
[7]See clause 2.2 of the 2007 Deed.
[8]See clause 2.3 of the 2007 Deed.
The provisions of the 2006 Heads of Agreement expressly provide for variation of that agreement by the parties. Clause 12.4 of the 2006 Heads of Agreement provides as follows:
Variation
No part of this Agreement may be amended or modified unless reduced to writing making specific reference to this Agreement and signed by the parties or their authorised representatives.
Further, clause 12.5 of the 2006 Heads of Agreement provides as follows:
Waivers
(a)Waiver of any right, power, authority, discretion or remedy arising upon default under this agreement must be in writing and signed by the party granting the waiver.
(b)A failure or delay in exercise, or partial exercise, of a right, power, authority, discretion or remedy created or arising upon default under this agreement, does not result in a waiver of that right, power, authority, discretion or remedy.
(c)A party is not entitled to rely on a delay in the exercise or non‑exercise of a right, power, authority, discretion or remedy arising from a breach of this agreement or on a default under this agreement as constituting a wavier of that right, power, authority, discretion or remedy.
(d)A party may not rely on any conduct of another party as a defence to exercise of a right, power, authority, discretion or remedy by that other party.
(e)This clause may not itself be waived except by writing.
Regardless of the subjective intentions of the parties at the time of the November 2009 exchange, or their (unqualified) opinions as to the legal rights and obligations arising out of the November 2009 exchange, the form and the terms of that correspondence simply do not comply with the requirements of the 2006 Heads of Agreement, and any “agreement” reached as a result of the November 2009 exchange is not enforceable by MBD.
Accordingly, the proper construction of the legal effect of the November 2009 exchange is that contended for by counsel for Harmony: that is, Harmony gratuitously refrained from taking further action to enforce the debt due and payable to it by MBD, with the milestones referred to by Mr Lawson in the November 2009 exchange representing a mere explanation of the expected timing of the repayment plan, rather than constituting events triggering any liability for payment on the part of MBD.
Accordingly, I will dismiss the application, and hear from counsel for the parties on the form of order and the question of costs.
---
0
2
0