MSA Renex Corp Pty Ltd v Create Environment Pty Ltd
[2021] VSCA 178
•24 June 2021
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S EAPCI 2021 0042
| MSA RENEX CORP PTY LTD (ACN 133 138 593) | Applicant |
| v | |
| CREATE ENVIRONMENT PTY LTD (ACN 604 342 154) | Respondent |
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| JUDGES: | FERGUSON CJ, KYROU and WALKER JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 25 May 2021 |
| DATE OF JUDGMENT: | 24 June 2021 |
| MEDIUM NEUTRAL CITATION: | [2021] VSCA 178 |
| JUDGMENT APPEALED FROM: | MSA Renex Corp Pty Ltd v Create Environment Pty Ltd (Unreported, Supreme Court of Victoria, Efthim AsJ, 13 April 2021) |
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CORPORATIONS – Setting aside statutory demand – Money paid under 2015 share sale agreement – Total failure of consideration – Mechanism for repayment of share price provided for in 2019 agreement subject to satisfaction of condition precedent – 2019 agreement containing acknowledgment of debt and entire agreement clause – Condition precedent not fulfilled – Statutory demand served for ‘receivable advanced pursuant to‘ 2015 agreement – Debt not expunged – No genuine dispute as to debt – Corporations Act 2001 (Cth), s 459G, Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330 applied.
CORPORATIONS – Setting aside statutory demand - Alleged conversations said to give rise to estoppel – Allegation implausible – No genuine dispute or matter requiring investigation – Corporations Act 2001 (Cth) s 459G.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr S Freire | Clayton Utz |
| For the Respondent | Mr C Northrop with Ms A Singh | Russell Kennedy |
FERGUSON CJ
WALKER JA:
The Renex Group of companies was established for the purpose of conducting a hazardous and industrial waste business. On 19 June 2015, Create Environment Pty Ltd (‘Create’) and MSA Renex Corp Pty Ltd (‘MSA’) entered into a share sale and option agreement. Under this agreement, Create paid $1.498 million to MSA for the purchase of shares in one of the companies in the Renex Group – Renex Holdings (Dandenong) 1 Pty Ltd (‘Renex Holdings’).[1] No shares were transferred.
[1]At the direction of MSA Renex Corp Pty Ltd, the money was paid to Premier Developments Pty Ltd, a company associated with the director of MSA Renex.
On 9 October 2015, Renex Holdings was placed into voluntary administration. Renex Founder Hold Co Pty Ltd (‘Renex Founder’) (a company owned by Create and MSA) purchased the assets of Renex Holdings from the administrators.
On 16 September 2019, Create and MSA entered into a second share sale agreement. Under this agreement, Create agreed to sell its 50 per cent shareholding in Renex Founder to MSA for a purchase price of $18.5 million. The purchase price was payable in instalments, the second of which was $7 million to be paid by 31 July 2020. By that date, MSA was also to pay Create the ‘Renex 1 Receivable.’ The ‘Renex 1 Receivable’ was defined in the agreement to mean:
the amount of $1,500,000 paid by [Create] to [MSA] … on or about 19 June 2015 and which [MSA] acknowledges is repayable to [Create].
The obligations to buy and sell the Renex Founder share and the mechanism for payment of the purchase price for it were subject to satisfaction of a condition precedent. By the time 31 July 2020 arrived, the condition precedent had not been fulfilled. The agreement was terminated.
On 4 January 2021, Create served a statutory demand on MSA for the sum of $1.5 million. MSA applied to set aside the statutory demand under s 459G of the Corporations Act 2001 (Cth) on the basis that there was a genuine dispute as to the existence or amount of the debt. That application failed before an Associate Judge. The Associate Judge held that MSA had acknowledged the debt and there was no genuine dispute. His Honour varied the amount of the debt in the statutory demand to an amount of $1.498 million (being the amount paid by Create in 2015) and otherwise dismissed the application.
MSA now seeks leave to appeal from the Associate Judge’s decision.
For the reasons which follow, we would grant leave to appeal on ground 1, but dismiss the appeal. We would refuse leave to appeal in relation to ground 2.
The agreements and events
As mentioned above, MSA and Create entered into a share sale and option agreement on 19 June 2015 (‘the 2015 Agreement’). MSA owned notes in Renex Holdings which were to be converted into shares as part of a restructure. The 2015 Agreement provided for Create to pay a purchase price of $1.498 million for the shares and an option fee of $1,000 to acquire the legal interest in the shares. Create paid the purchase price on the date the 2015 Agreement was entered into. It is common ground that the option fee was not paid. Completion was to take place three business days after the date of conversion of the notes to shares. Completion required MSA to deliver to Create completed transfers of the beneficial interest in the shares. If conversion did not take place or if conversion did occur but the beneficial interest in the shares was not transferred, then cl 3.4(a) of the 2015 Agreement provided a mechanism for termination and return of the purchase price as follows:
3.4 End Date or breach
(a)If Share Sale Completion does not occur by the End Date because Conversion has not occurred, or if Conversion has occurred and [MSA] breaches its obligation to transfer the Beneficial Interest in all of the Sale Shares to [Create] on the date referred to in clause 3.1, [Create] may terminate this agreement immediately by notice in writing to [MSA], in which case:
(i)[MSA] must, within 3 Business Days of the notice of termination, return the Purchase Price and the Option Fee to [Create] (without interest):
A.by electronic funds transfer to an account specified by [Create] to [MSA]; or
B.in any other manner reasonably requested by [Create] in writing; and
(ii)the provisions of this agreement will cease to have effect, except for the provisions of clause 1 and clauses 7 to 13 which shall survive termination; and
(iii)each party retains the rights it has against the other in respect of any breach of this agreement occurring before termination.
There is no evidence that the 2015 Agreement was terminated under this clause. It is common ground that completion of the 2015 Agreement did not occur; the shares were not transferred to Create and the purchase price was not returned by MSA to Create.
The application to set aside the statutory demand was supported by an affidavit of Marinos Angelodemou, MSA’s sole director. Mr Angelodemou deposed that sometime in October 2015, after Renex Holdings had entered into voluntary administration, he was touring a waste management facility with two of the directors of Create – Joe and Domenic Pulitano. He deposed that:
43During the course of the tour of the waste management facility, I had a conversation with Domenic and Joe Pulitano during which we discussed the funds advanced by Create pursuant to the [2015 Agreement] and the administration of [Renex Holdings]. During that conversation:
(a)Joe Pulitano on behalf of Create said words to the effect that the funds advanced by Create pursuant to the Share Sale and Option Agreement had gone to [Renex Holdings] and had been lost because that entity was in administration; and
(b)Joe and Domenic Pulitano represented on behalf of Create that Create would not pursue MSA … for the $1.498 million.
Mr Angelodemou stated that he was not aware of Create seeking repayment for those funds. His affidavit continued:
45Due to the representations referred to in paragraph 43 above that Create regarded the advance as lost and would not be pursued, [MSA] (of which I am the sole director) decided to purchase the assets of [Renex Holdings] from its voluntary administrators in tandem with Create. This was done by Renex Founder purchasing the assets. As noted above, Renex Founder is jointly owned by Create and [MSA]. Had it not been for the representation, [MSA] would have bought the assets itself and not involved Create. This is because:
(a)if Create were to pursue repayment of the advance, [MSA] would have considered it a short term lender to [MSA] and not an equity investor alongside [MSA]; and
(b)[MSA] would have been unwilling to involve Create in the purchase of the assets of [Renex Holdings] if its relationship with [MSA] was that of lender/borrower and not investment partner.
46.If the representation had not been made, [MSA] would have proceeded with buying the assets of [Renex Holdings] alone and would be the sole owner. If Create now departs from this representation, [MSA] will suffer detriment because it will be liable to repay the debt … as well as being a joint (instead of sole) investor in the assets of [Renex Holdings].
On 16 September 2019, Create and MSA entered into a share sale agreement (‘the 2019 Agreement’). Under that agreement, Create agreed to sell the share it owned in Renex Founder to MSA. That share represented a 50 per cent interest in MSA. Recital C of the 2019 Agreement reads:
C.[MSA] and [Renex Founder] have also agreed to the repayment of certain loan accounts and receivables due to [Create] on the terms and conditions of this agreement.
The 2019 Agreement was subject to a condition precedent. Once that condition was satisfied, completion was to take place on the next business day.
Clause 3 provided that on completion, Create must sell and MSA must buy the Renex Founder share for the purchase price free from all encumbrances.
In this regard, cl 4.2 of the 2019 Agreement provided that at completion, Create must deliver to MSA a share transfer, share certificate and documentation evidencing in effect that the Renex Founder share was not subject to encumbrances.
The purchase price for the share was $18.5 million which was to be paid by instalments. Under cl 4.3(a)(i), the first instalment of $5 million was to be paid at completion. In relation to the second instalment cl 4.3(b) provided:
On or before 31 July 2020 or such other date as agreed between the parties in writing, [MSA] must pay:
(i) $7,000,000 of the Purchase Price; and
(ii) the Renex 1 Receivable,
to [Create] by bank cheque or electronic transfer to a bank account specified in writing by [Create] to [MSA] at least 5 Business Days prior to 31 July 2020.
Clause 4.4(a) provided:
At Completion:
(a)[Renex Founder] must repay or procure the repayment of the Investor Loan Amount to [Create] by bank cheque or electronic transfer to a bank account specified in writing by [Create] to [Renex Founder] at least 1 Business Day before Completion.
‘Investor Loan Amount’ was defined to mean:
The $5,000,000 loan provided by [Create] to [Renex Founder] pursuant to the investor loan agreement between [MSA], [Renex Founder] and [Create] dated 18 December 2015.
Clause 4.5 of the 2019 Agreement provided that:
The obligations of the parties under clause 4.2 and clause 4.3(a) are interdependent and must be performed, as nearly as possible, simultaneously. If any obligation specified in clause 4.2 or clause 4.3(a) is not performed on Completion then, without prejudice to any other rights of the parties, Completion is taken not to have occurred and any document delivered, or payment made, under this clause 4 must be returned to the party that delivered it or paid it.
The 2019 Agreement also included an entire agreement clause which read:
To the extent permitted by law, this agreement constitutes the entire agreement between the parties in relation to its subject matter including the sale and purchase of the Share and supersedes all previous agreements and understandings between the parties in relation to its subject matter.
As noted above, the 2019 Agreement was subject to a condition precedent. Clause 2.1 of the 2019 Agreement provided that cll 3 and 4 did not become binding on the parties and were to have no force or effect until the condition was satisfied. As events transpired, the condition precedent was not fulfilled. It is common ground that the 2019 Agreement was terminated because of this.
On 7 December 2020, Create’s solicitors sent a letter of demand to MSA’s solicitors seeking payment of $1.5 million within 14 days. Payment was not made.
On 4 January 2021, Create served the statutory demand. The debt was described as ‘Receivable advanced by [Create] to [MSA] on or about 22 June 2015 pursuant to the Share Sale and Option Agreement dated 19 June 2015.’ Within the 21 day period following service of the demand, MSA applied to set the statutory demand aside.
Associate Judge’s decision and reasons
As noted above, the Associate Judge held that there was no genuine dispute about the debt. Under s 459H(4) of the Corporations Act, he varied the statutory demand to $1.498 million and otherwise dismissed the application.[2] His Honour held that the 2019 Agreement acknowledged that the debt remained due and set up a mechanism by which it would be paid.[3]
[2]MSA Renex Corp Pty Ltd v Create Environment Pty Ltd (Unreported, Supreme Court of Victoria, Efthim AsJ, 13 April 2021).
[3]Ibid [24]–[25].
The Associate Judge found that the alleged conversation between Mr Angelodemou and Messrs Joe and Domenic Pulitano referred to in [10] above, was implausible.[4] He asked rhetorically why the debt was acknowledged in the 2019 Agreement if that conversation took place.[5] The Associate Judge noted that Create had paid to MSA $1.498 million for the purchase of shares under the 2015 Agreement but that the shares were not transferred; MSA received the funds and Create had not received anything in return.[6]
[4]Ibid [29].
[5]Ibid.
[6]Ibid [30].
Proposed grounds of appeal
There are two proposed grounds of appeal:
(1) that the Associate Judge erred in finding that there was no genuine dispute as to whether the debt was due and payable; and
(2) that the Associate Judge erred in finding that there was no genuine dispute because there was no plausible contention requiring investigation as to whether there was a conversation between Mr Angelodemou and Messrs Pulitano in October 2015 which produced an estoppel precluding Create from asserting its strict legal right for payment of the purchase price under the 2015 Agreement.
Statutory provisions and case law
A company may apply to the Court to set aside a statutory demand under s 459G of the Corporations Act. One of the grounds for setting aside a demand is that there is a genuine dispute between the company and the person serving the demand about the existence or amount of a debt to which the demand relates.[7] The Court has power to vary the demand under s 459H of the Corporations Act.
[7]Corporations Act s 459H.
The principles are well settled concerning what constitutes a genuine dispute and how that is to be assessed. In Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (In liquidation)[8] this Court summarised the approach and authorities as follows:
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.[9] Therefore, the task faced by an applicant is by no means at all a difficult or demanding one.[10]
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.[11] This is because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction[12] 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.[13] 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.[14] Further, the determination of the ‘ultimate question’ of the existence of the debt at a substantive hearing should not be compromised.[15]
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.[16] 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.[17] A rigorous curial approach is essential to the effective operation of the statutory scheme.[18]
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.[19] The court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence,[20] 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.[21] 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.[22]
Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd[23] 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.[24] 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.[25]
[8][2015] VSCA 330, [47]–[51] (Kyrou, Ferguson and Kaye JJA).
[9]TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67, 79 [71] (‘TR’).
[10]Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411, [23] (‘Solarite’), quoted in TR (2008) 66 ACSR 67, 80 [72].
[11]TR (2008) 66 ACSR 67, 77 [57]. See also Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787 (‘Eyota’).
[12]TR (2008) 66 ACSR 67, 77 [57].
[13]Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601, 608 [31], 609 [36], 613 [54], [55], 615 [70] (‘Britten-Norman’).
[14]Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601, 605, quoted in TR (2008) 66 ACSR 67, 78 [65].
[15]TR (2008) 66 ACSR 67, 77 [57], 78 [64].
[16]Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452, 464.
[17]TR (2008) 66 ACSR 67, 79 [71].
[18]TR (2008) 66 ACSR 67, 80 [72].
[19]Eyota (1994) 12 ACSR 785, 787, quoted in TR (2008) 66 ACSR 67, 78 [64]. See also Britten-Norman (2013) 85 NSWLR 601, 611 [46], 613 [53]. Although this statement of principle was made in the context of determining the existence of a ‘genuine’ dispute under s 459H(1)(a), it has since been applied in the context of an application to set aside a statutory demand on the basis of an offsetting claim under s 459H(1)(b): see, eg, Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd [No 3] (2014) 46 WAR 483, 501 [69], 503–4 [74].
[20]South Australia v Wall (1980) 24 SASR 189, 194; Eyota (1994) 12 ACSR 785, 787; TR (2008) 66 ACSR 67, 78 [64], 79 [66], [71].
[21]TR (2008) 66 ACSR 67, 79 [71].
[22]Eyota (1994) 12 ACSR 785, 787; TR (2008) 66 ACSR 67, 78 [64]; Britten-Norman (2013) 85 NSWLR 601, 611 [46].
[23][2002] NSWSC 411.
[24]Solarite [2002] NSWSC 411, [24].
[25]Solarite [2002] NSWSC 411, [23].
Proposed ground 1 — did the trial judge err in finding no genuine dispute as to the debt?
MSA submits that cl 3.4(a) of the 2015 Agreement set out the only mechanism by which that agreement could be terminated once conversion did not occur. That mechanism required the giving of a written notice of termination. There was no evidence of such notice.
MSA submits that the mechanism for payment under the 2019 Agreement did not require the Renex 1 Receivable to be paid and that agreement was terminated before the payment mechanism was engaged because the condition precedent was not satisfied. MSA says that the consequence was that MSA’s obligation to pay under cl 4 of the 2019 Agreement never came into operation. MSA develops its argument by reference to the overall structure of the 2019 Agreement. So, it says, it was only obliged to pay if the condition precedent was fulfilled, the date of 31 July 2020 arrived and the parties performed their interdependent obligations under cl 4.2. It follows, so MSA contends, that the debt was not due and payable at the date of entry into the 2019 Agreement but only in the circumstances stipulated in that agreement. Those circumstances did not eventuate.
As to the definition of ‘Renex 1 Receivable’, MSA contends that while the words ‘and which [MSA] acknowledges is repayable to [Create]’ could be seen as an acknowledgment of debt, it is only an acknowledgment of debt payable in accordance with the terms of the 2019 Agreement. To buttress this argument, MSA points to Recital C and says that the amount is only due on the terms and at the time provided for by the 2019 Agreement.
MSA also relies on the entire agreement clause and says that the consequence of that clause is that the 2019 Agreement subsumes any previous rights or obligations, whether pursuant to contract or otherwise, as existed between the parties. The consequence of accepting MSA’s arguments would be that the $1.498 million paid by Create under the 2015 Agreement would never be recoverable, even though Create received no shares for that money.
On the other hand, Create submits that the 2019 Agreement contained a clear acknowledgment of the debt and a mechanism for payment of it. In other words, the 2019 Agreement recognised but did not create the obligation to pay. Create contends that notwithstanding the termination of the 2019 Agreement, the amount paid under the 2015 Agreement remained due and payable and there was nothing in the 2019 Agreement that said otherwise. Create submits that the words ‘on the terms and conditions of this agreement’ in Recital C are directed to the method of payment rather than the creation of an obligation to pay. In this regard, counsel for Create points to the inclusion of the loan accounts in Recital C as well as the reference to receivables. He submitted that if MSA’s arguments were to be accepted, the Investor Loan Amount ($5 million) would also never be repayable.
Further, counsel for Create relied on cl 4.5 of the 2019 Agreement. He submitted that the words ‘without prejudice to any other rights of the parties’ meant that Create was entitled to rely on its rights to recover payment of the amount paid under the 2015 Agreement and its rights to recover the Investor Loan Amount.
There was a total failure of consideration in respect of the 2015 Agreement. Once that occurred, the money paid by Create under the 2015 Agreement became repayable. In our view, the Associate Judge was correct in his conclusion that there was no genuine dispute about the debt.
Once the 2019 Agreement came to an end, the question is what can be made of that document — not as a contract, but as a written record of the state of affairs at the time it was executed. To our minds, it contains a clear acknowledgment that, as at that date, the amount paid under the 2015 Agreement was a debt that was then repayable.
The Renex 1 Receivable was not part of the purchase price under the 2019 Agreement. It was a separate amount, just as the Investor Loan Amount was separate from the purchase price. As set out in [12] above, Recital C read:
[MSA] and [Renex Founder] have also agreed to the repayment of certain loan accounts and receivables due to [Create] on the terms and conditions of this agreement.
Taken alone, it is arguable that Recital C is not a clear acknowledgment that the debt was repayable as at the date of the 2019 Agreement. However, any doubt is removed when that recital is read with the definition of ‘Renex 1 Receivable’ and in the context of the debt being an amount payable separate from the purchase price. For ease of reference, we set out the definition again:
Renex 1 Receivable means the amount of $1,500,000 paid by [Create] to [MSA] under the [2015 Agreement] on or about 19 June 2015 and which [MSA] acknowledges is repayable to [Create].
In particular, the words ‘and which [MSA] acknowledges is repayable to [Create]’ have to be given some meaning. They serve no purpose other than to tell the reader that at the date of the agreement the debt was already payable. In our view, any alternative construction is not arguable.
The 2019 Agreement provided a mechanism for payment, but only if the condition precedent was satisfied. Once that condition was not satisfied, the mechanism fell away; but that did not extinguish the debt. Rather, what remained was the acknowledgment of the debt as being repayable. In those circumstances there is no need to question that state of affairs by looking at whether the procedure for termination in the 2015 Agreement had been pursued. Put another way, there is no reason to go behind the acknowledgment.
In addition, once the condition precedent was not fulfilled, the mechanism under the 2019 Agreement for payment of the Investor Loan Amount of $5 million fell away. But that was the only consequence. It is quite implausible that once the condition precedent was not satisfied, that debt would be expunged or become unrecoverable. Yet that would be the logical consequence of MSA’s argument.[26]
[26]MSA’s only response to this in oral argument was to say that the terms of the agreement for the Investor Loan Amount were not in evidence. But that is no answer, because the very point of MSA’s argument is that the 2019 Agreement, by reason of the ‘entire agreement clause’, replaced or superseded the terms of any earlier agreements about matters the subject of the 2019 Agreement.
The entire agreement clause is consistent with and supports our interpretation. That clause does not have the effect of extinguishing liability for repayment of the debt for the amount paid under the 2015 Agreement. Its effect was that the 2019 Agreement superseded the 2015 Agreement such that the terms and conditions of the earlier agreement were no longer relevant. Once the condition precedent in the 2019 Agreement was not fulfilled, cll 3 and 4 were of no force or effect and completion was not to take place. As we have noted above, cl 3 obliged MSA to buy and Create to sell for $18.5 million the Renex Founder share on completion. Clause 4 concerned the mechanics for that to occur and the mechanics for payment of the Renex 1 Receivable and the Investor Loan Amount. The existence of the debt for the amount paid under the 2015 Agreement was unaffected by the non-fulfilment of the condition precedent. The debt remained, as did the acknowledgment that it was repayable. There was no provision that the acknowledgment was of no force or effect if the condition precedent was not fulfilled.
The debt claimed in the statutory demand is not described as a debt due under the 2015 Agreement. Rather, it is described as ‘Receivable advanced by [Create] to [MSA] on or about 22 June 2015 pursuant to the Share and Sale and Option Agreement dated 19 June 2015.’ That describes the debt which was acknowledged in the 2019 Agreement.
There is no genuine dispute about the debt; nor is there any point of construction that requires investigation.
We would grant leave to appeal on ground 1. We would dismiss the appeal on that ground.
Proposed ground 2 — Is there a plausible contention requiring investigation that the alleged conversation between Messrs Angelodemou and Pulitano gave rise to an estoppel thereby establishing a genuine dispute as to the debt?
MSA’s proposed second ground of appeal proceeds on the basis that it has not succeeded under proposed ground 1. For the purposes of proposed ground 2, MSA assumes that the debt was due and payable. MSA contends that even if that were the circumstance, the statutory demand ought be set aside. According to MSA, this is because Mr Angelodemou’s evidence about an alleged conversation in October 2015 and the subsequent conduct of the parties produced an estoppel. The estoppel is said to preclude Create from asserting its strict legal right to press for repayment of the purchase price paid under the 2015 Agreement.
MSA notes that the evidence of Mr Angelodemou was uncontradicted and submits that it was not inherently implausible. MSA contends that the fact that there is no contemporaneous written record of the conversation to support Mr Angelodemou’s evidence is unsurprising given the circumstances. MSA relies on the fact that two months after the alleged representations, Mr Angelodemou caused MSA to purchase the assets of Renex Holding in conjunction with Create — each holding a 50 per cent interest. MSA also relies on the fact that no demand for payment of the amount now claimed was made until five years after it was paid.
Finally, MSA submits that Mr Angelodemou’s evidence is not rendered implausible by the acknowledgment of the debt under the 2015 Agreement given in the ‘Renex 1 Receivable’ definition in the 2019 Agreement because:
(a) there were four years from 2015 to 2019 when the debt was not pursued;
(b) a new set of rights and obligations was brought about by the 2019 Agreement which included the entire agreement clause;
(c) the Renex 1 Receivable was only payable as part of the purchase of Create’s share in Renex Founder;
(d) the fact the Renex 1 Receivable was to be provided as consideration for Create’s share in Renex Founder is consistent with it not being characterised as a debt immediately due and payable; and
(e) the 2019 Agreement did not contain any independent payment obligation on MSA to pay the Renex 1 Receivable to Create.
On the other hand, Create contends that Mr Angelodemou’s evidence was implausible and there is nothing in respect of it which requires further investigation. In particular, Create submits that:
(f) there is no objective record or documents supporting the evidence;
(g) the alleged representations and evidence about them is vague and conclusory; and
(h) the alleged representations are inconsistent — first that the funds were lost and second that Create would not pursue MSA.
On an application to set aside a statutory demand, it is unnecessary for a creditor to respond to evidence which either on its own or in the context of other evidence is implausible. That is the case here. If in 2015 it was agreed that the funds paid by Create had been ‘lost’ such that the obligation to repay would not be enforced, why would repayment of the debt be provided for in the 2019 Agreement? There is simply no plausible explanation for this. The evidence of Mr Angelodemou is cryptic and vague. While MSA did not need to provide comprehensive evidence, more than the unconvincing assertions by Mr Angelodemou was required. For example, Mr Angelodemou deposed that Messrs Pulitano ‘represented on behalf of Create that Create would not pursue [MSA] for the $1.498 million’. He does not give evidence as to what they said or did which he alleges constitutes the representation. Moreover, the alleged representations would, if made, be inconsistent with the entire agreement clause; and were thus superseded by the 2019 Agreement.
Proposed ground 2 would not succeed and we would refuse leave in respect of it.
Conclusion
We would refuse leave in respect of ground 2. We would grant leave to appeal in relation to ground 1, but dismiss the appeal.
KYROU JA:
I have had the advantage of reading the reasons in draft of Ferguson CJ and Walker JA. I gratefully adopt their Honours’ summaries of the facts, legal principles and parties’ submissions. I also adopt the defined terms used in the joint reasons.
I agree with their Honours’ conclusion that leave to appeal should not be granted in relation to ground 2, as it has no real prospect of success.
I have reached a different conclusion to their Honours in relation to ground 1. In my opinion: leave to appeal should be granted in relation to that ground; the appeal should be allowed; the judge’s order should be set aside; and, in lieu of that order, an order should be made setting aside the statutory demand. As I am in the minority on ground 1, I can state my reasons briefly.
The outcome of the present case depends upon the principles of contract and, in particular, the proper construction of the 2019 Agreement.
The principles for determining whether a company has raised a genuine dispute about the existence and amount of a debt to which a statutory demand relates are the same irrespective of whether the dispute between the parties involves contested evidence of transactions or events, or the construction of a contract.[27] Adopting a phrase that has been used by some of the authorities, the question for the court in the latter case is whether the company has raised a ‘plausible contention’ about the correctness of its preferred construction of the contract which ‘requir[es] investigation’.[28] As Barrett AJA, with whom Gleeson and White JJA agreed, stated in Creata (Aust) Pty Ltd v Faull:
[Section] 459G proceedings are not ordinarily the occasion for the court to construe a contract where there are competing views about its meaning. This was such a case; and there was nothing to displace the principle ordinarily applicable. Competing but plausible submissions on the question of construction should have led to a finding that there was dispute on that question and therefore dispute as to the existence of the debt the subject of the statutory demand.[29]
[27]See Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd (2012) 297 ALR 372, 379 [45]–[46]; [2012] NSWCA 365; Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd [No 3] (2014) 46 WAR 483, 506 [88]–[89]; [2014] WASCA 132; Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212, 218 [26], 220–1 [36]–[37]; [2017] NSWCA 300 (‘Creata’); QNI Resources Pty Ltd v North Queensland Pipeline No 1 Pty Ltd [2017] QCA 297, [20], [57]; Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397, 417 [90]; [2019] NSWCA 60; Midland Metals Overseas Pte Ltd v Powercor Network Services Pty Ltd [2019] VSCA 76, [31]–[42]; CA & Associates Pty Ltd v Fini Group Pty Ltd [2020] WASCA 31, [38]–[41].
[28]Britten-Norman (2013) 85 NSWLR 601, 608 [31], 609 [36], 613 [55], 615 [70]; [2013] NSWCA 344; Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330, [48].
[29](2017) 125 ACSR 212, 221 [37]; [2017] NSWCA 300.
The approach in the last sentence of the above statement should have been adopted by the Associate Judge in the present case. Put simply, MSA has raised plausible submissions on the question of the construction of the 2019 Agreement, which should have resulted in a finding that there was a genuine dispute as to the existence of the debt the subject of the statutory demand. Once again, adopting phrases that have been used by some of the authorities, MSA’s submissions regarding the construction of the 2019 Agreement were not ‘patently feeble’ and the answer to the question of construction was not ‘as plain as a pikestaff’.[30]
[30]Creata (2017) 125 ACSR 212, 221 [37]; [2017] NSWCA 300, quoting Eyota (1994) 12 ACSR 785, 787 and Spacorp Australia Pty Ltd v Myer Stores Ltd (2001) 19 ACLC 1,270, 1,271 [4]; [2001] VSCA 89.
I have reached the above conclusion for the following reasons.
It can be accepted that the definition of ‘Renex 1 Receivable’ in cl 1.1 of the 2019 Agreement constitutes an acknowledgement that the amount of $1.5 million, which Create paid to MSA under the 2015 Agreement, ‘is repayable’ to Create.[31] It can also be accepted that a standalone, unconditional acknowledgement of debt could have been included as a discrete clause in the 2019 Agreement which could have operated independently of the other provisions of that agreement.
[31]The actual amount paid was $1.498 million.
However, that course was not adopted in relation to the acknowledgement of debt constituted by the Renex 1 Receivable. That acknowledgement is embedded within the terms of the 2019 Agreement and must be considered in the context of the 2019 Agreement as a whole. The fact that it is included in a definition clause supports the view that it is integrated into the terms of the agreement rather than having any independent legal effect.
The most relevant provisions of the 2019 Agreement which provide context for how the acknowledgement should be construed are Recital C and cll 2.1, 4.3 and 12.9.
Although the recitals are not operative provisions of the 2019 Agreement, they can be taken into account in construing the operative provisions.[32] By reference to Recital C, it is plausibly arguable that the words ‘which [MSA] acknowledges is repayable to [Create]’ in the definition of ‘Renex 1 Receivable’ are to be read as ‘which [MSA] acknowledges is repayable to [Create] on the terms and conditions of this agreement’. On this basis, there is no freestanding acknowledgement of debt operating independently of the terms and conditions of the 2019 Agreement, but an acknowledgement which is confined by those terms and conditions.
[32]Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603, 695–700 [379]–[398]; [2009] NSWCA 407.
The only other references to the Renex 1 Receivable in the 2019 Agreement are in cll 4.3(a)(ii) and 4.3(b)(ii). Clause 4.3(b)(ii) provides that the Renex 1 Receivable is payable on or before 31 July 2020, or such other date as agreed between the parties in writing, by bank cheque or electronic transfer. Clause 4.3(a)(ii) relevantly provides that, at the completion of the sale of Create’s share in Renex Founder to MSA in accordance with cl 4 (‘Completion’),[33] MSA must provide security for its obligation to pay the Renex 1 Receivable. Senior counsel for Create conceded that cl 4.3(b)(ii) affected the recoverability of the Renex 1 Receivable when, during argument, he agreed with the proposition that, if the 2019 Agreement had become unconditional, Create could not have sought payment of the receivable prior to 31 July 2020.
[33]See the definition of ‘Completion’ in cl 1.1 of the 2019 Agreement.
Clause 2.1 of the 2019 Agreement provides that cll 3 and 4 do not become binding on the parties and have no force or effect until the condition precedent set out in cl 2.1 has been satisfied or waived. Clause 3 provides that, on Completion, ‘[Create] must sell and [MSA] must buy [Create’s share in Renex Founder] for the Purchase Price free from all Encumbrances’. It is common ground that the condition precedent set out in cl 2.1 has neither been satisfied nor waived and therefore cll 3 and 4 never took effect. In these circumstances, it is plausibly arguable that the Renex 1 Receivable never became repayable in accordance with the terms and conditions of the 2019 Agreement and that the acknowledgement of debt in cl 1.1 ceased to have any operative effect.
It is plausibly arguable that Create’s submission — that the 2019 Agreement does not create any obligation for the payment of the Renex 1 Receivable but only specifies the timing and manner of its payment — is incorrect. That is so for the following reasons:
(a)Clause 4.7 relevantly states that, if MSA fails to pay any of the amounts payable to Create under the 2019 Agreement by the due date for payment, then all amounts payable by MSA to Create under the agreement ‘will become immediately due and payable on demand’. Clause 10.1 provides for the payment of interest if MSA fails to pay an amount due under the 2019 Agreement on the due date. Clause 10.2 provides that cl 10.1 does not affect any other rights or remedies Create may have relating to any failure to pay an amount due under the 2019 Agreement. Clause 10.3 provides that a failure by MSA to comply with any provision of the 2019 Agreement constitutes an event of default.[34] It is plausibly arguable that cll 4.7, 10.1, 10.2 and 10.3 extend to MSA’s obligation to pay the Renex 1 Receivable by 31 July 2020 under cl 4.3(b)(ii).
(b)It is plausibly arguable that the ‘obligation of [MSA] to pay … the Renex 1 Receivable’, which must be secured under cl 4.3(a)(ii), is the obligation to pay the receivable in cl 4.3(b)(ii).
[34]Clauses 10.5 and 10.6 provide for termination of the 2019 Agreement where an event of default occurs under cl 10.3.
Although senior counsel for Create submitted that the 2019 Agreement contains ‘a clear and unequivocal statement that [the Renex 1 Receivable] is repayable’,[35] he was not able to identify the source of the obligation to repay or the legal basis upon which it is due and payable.
[35]Transcript of Proceedings (25 May 2021) 42.8–42.9.
As set out at [66] above, senior counsel for Create disavowed the proposition that the obligation to repay the Renex 1 Receivable arose under the terms of the 2019 Agreement. He also appears to have disavowed the proposition that the obligation arose under any particular term of the 2015 Agreement. In response to a question from Walker JA as to whether Create eschewed any reliance on restitution for the obligation to repay and relied entirely on the terms of the 2015 Agreement as the foundation for the obligation which was then acknowledged in the 2019 Agreement, senior counsel stated:
I don’t know that I can point to any particular term in the 2015 agreement. Certainly we can’t rely upon the express term. But we do rely on the 2019 agreement as an acknowledgement of however one analyses it … the amount that was paid under the 2015 agreement is repayable.[36]
[36]Transcript of Proceedings (25 May 2021) 42.16–42.21. Senior counsel’s reference to ‘the express term’ appears to be to cl 3.4(a) of the 2015 Agreement which is discussed at [73] below.
It is difficult to see how a statutory demand — non-compliance with which will result in the deemed insolvency of the putative debtor company — can be supported by an acknowledgement of debt where the putative creditor cannot identify the legal basis upon which the debt is due and payable. The court cannot act on a vague notion that a debt is somehow payable ‘however one analyses it’. The court must be satisfied that there is an identifiable legal basis for a conclusion that there is an immediate obligation to pay the debt.
If, as senior counsel for Create submitted, MSA’s obligation to pay the debt set out in the statutory demand was not created by the 2019 Agreement and that the 2019 Agreement merely acknowledged an existing debt, the debt could only have been created by the 2015 Agreement. However, under the terms of the 2015 Agreement — which has never been terminated — repayment of the amount of $1.498 million was conditional upon a notice of termination being given under cl 3.4(a). Such a notice has never been given and therefore MSA was never obliged under the 2015 Agreement to repay the amount to Create.
In my opinion, Create cannot rely upon restitutionary principles, such as money had and received on the basis of a total failure of consideration. That is because the statutory demand does not rely upon such principles and Create did not conduct its case before the Associate Judge on the basis that the debt arose due to the application of such principles. Further, the same monetary amount cannot be recovered both in contract and by way of restitution.[37]
[37]Chan v Eastern Blue Pty Ltd [2021] VSCA 121, [58], [70(c)].
My analysis of the effect of the acknowledgement contained in the definition of ‘Renex 1 Receivable’ in the 2019 Agreement is supported by the entire agreement provision in cl 12.9. The Renex 1 Receivable formed part of the subject matter of the 2015 Agreement as well as the 2019 Agreement. Accordingly, it is plausibly arguable that, in accordance with cl 12.9, MSA’s obligations relating to the Renex 1 Receivable under the 2015 Agreement are superseded and subsumed entirely within the 2019 Agreement. As MSA’s obligation under cl 4.3(b)(ii) of the 2019 Agreement to pay the Renex 1 Receivable to Create does not have any force or effect due to the non-satisfaction of the condition precedent in cl 2.1, it is plausibly arguable that MSA is not obliged to pay the Renex 1 Receivable to Create.
I do not regard the conclusion in the preceding paragraph as commercially absurd. There are some unusual features about the parties’ business dealings. In particular, Create did not take any steps to terminate the 2015 Agreement and seek repayment of the purchase price for the shares to be acquired in Renex Holdings even though it was entitled to do so under cl 3.4(a) of the 2015 Agreement upon the non-transfer of the shares. Create did not take any steps to recover the purchase price for over four years, between 31 August 2015 (the ‘End Date’ for the sale of shares in Renex Holdings) and 16 September 2019 (the date of the 2019 Agreement). During that period, the parties continued to conduct business together.
One available inference is that Create did not wish to pursue repayment of the Renex 1 Receivable independently of the entry into the 2019 Agreement and was content to seek repayment only in accordance with the terms and conditions of that agreement. In the context of the unusual business dealings between the parties, that inference cannot be dismissed as fanciful.
In my opinion, cl 4.5 of the 2019 Agreement does not detract from the above analysis. That clause states that non-performance of any obligation in cll 4.2 or 4.3(a) is ‘without prejudice to any other rights of the parties’. Clause 4.5 does not refer to cl 4.3(b)(ii). In any event, it is plausibly arguable that the ‘other rights’ do not include the parties’ rights under the 2015 Agreement because, in accordance with cl 12.9 of the 2019 Agreement, those rights are subsumed within the 2019 Agreement insofar as they relate to a subject matter that is dealt with by both agreements. Rather, it is plausibly arguable that the ‘other rights’ to which cl 4.5 of the 2019 Agreement refers are rights which can exist independently of the non-completion of the share sale under that agreement due to the non-fulfilment of the condition precedent in cl 2.1. Examples include the indemnities which, under cl 12.7(a), survive ‘termination, completion or expiration’ of the 2019 Agreement.
Further, as already discussed, Create does not assert that any particular term of the 2015 Agreement gives rise to an obligation upon MSA to repay the Renex 1 Receivable. Accordingly, Create has not identified any ‘other right’ under the 2015 Agreement to which the without prejudice provisions in cl 4.5 of the 2019 Agreement can apply.
On the other hand, I have been troubled by the reference to ‘the repayment of certain loan accounts … to [Create]’ in Recital C of the 2019 Agreement. Clause 4.4(a) provides that, ‘[a]t Completion’, Renex Founder must repay a loan for $5 million made by Create to Renex Founder pursuant to an investor loan agreement between MSA, Create and Renex Founder dated 18 December 2015. Clause 4.4(a) is subject to the condition precedent in cl 2.1. It may be said that it would not make commercial sense for Create to convert a loan owed unconditionally under a loan agreement to a conditional loan owed under the 2019 Agreement. However, the investor loan agreement between MSA, Create and Renex Founder was not in evidence and therefore this Court has no information about the terms upon which the loan was repayable — conditionally or otherwise — under that loan agreement. As Create is a 50 per cent shareholder in Renex Founder, the loan agreement is not between parties that are entirely at arms’ length. Accordingly, cl 4.4(a) is insufficient to dissuade me from the conclusion set out at [58] above.
In my opinion, it is important to bear in mind that an application by a company to set aside a statutory demand under s 459G of the Corporations Act does not involve a final determination of the matters upon which the company relies to dispute the debt. Such an application is decided on the basis of whether those matters are plausibly arguable. For the reasons set out above, the matters upon which MSA has relied in support of ground 1 are plausibly arguable.
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