NA Investments Holdings Pty Ltd v Perpetual Nominees Ltd

[2010] NSWCA 210

Reported Decision: 79 ACSR 544

New South Wales

Court of Appeal

CITATION:	NA Investments Holdings Pty Limited v Perpetual Nominees Limited [2010] NSWCA 210
HEARING DATE(S):	11 August 2010
JUDGMENT DATE:	30 August 2010
JUDGMENT OF:	Beazley JA at 1; Handley AJA at 2; Lindgren AJA at 3
DECISION:	Application for leave to appeal is dismissed with costs.
CATCHWORDS:	CORPORATIONS - application to set aside statutory demand - company a guarantor of money owing by its subsidiary - limitation on guarantor's liability by reference to certain assets - statutory demand for whole of money owing - whether limitation provision meant that guarantor did not owe a debt due and payable for whole of money owing - whether creditor or company bore onus of proving that limitation provision was enlivened - whether affidavit annexing contract but not drawing attention to limitation provision in it satisfied s 459(3) of the Corporations Act 2001 (Cth).
LEGISLATION CITED:	Corporations Act 2001 (Cth) Federal Court (Corporations) Rules 2000 Federal Court Rules 1979 Supreme Court Act 1970 (NSW)
CASES CITED:	Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3; (2005) 157 ACTR 22 Energy Equity Corporation Ltd v Sinedie Pty Ltd (2001) 166 FLR 179; [2001] WASCA 419 Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3; (2005) 157 ACTR 22 Callite Pty Ltd v Adams [2001] NSWSC 52; Canon Australia Pty Ltd v Young Bros Pty Ltd [2009] NSWSC 842 David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 Elm Financial Services Pty Ltd v Macdougall [2004] NSWSC 560 Energy Equity Corporation Ltd v Sinedie Pty Ltd (2001) 166 FLR 179; [2001] WASCA 419 Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 Hansmar Investments Pty Limited v Perpetual Trustee Co Ltd [2007] NSWSC 103 Jian Xing Knitting Factory v Scasa Pty Ltd [2004] SASC 152 Meadowfield Pty Limited v Gold Coast Holdings Pty Limited [2001] WASCA 360 NA Investments Holdings Pty Ltd v Perpetual Nominees Limited [2010] NSWSC 248 NA Investments Holdings Pty Ltd v Perpetual Nominees Limited [2010] NSWSC 373 POS Media Online Ltd v B Family Pty Ltd [2003] NSWSC 147 Process Machinery Australia Pty Ltd v ACN 057 260 590 Pty Ltd [2002] NSWSC Remuneration Data Base Pty Limited v Pauline Goodyear Real Estate Pty Ltd [2007] NSWSC 59 Saferack Pty Limited v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143 Takchi Bros Constructions Pty Limited v Woods [2010] NSWSC 115 Tatlers.com.au Pty Ltd v Davis (2007) 213 FLR 109; [2007] NSWSC 835 Tennant Limited v Flomin Inc [2009] NSWSC 1246 Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) (2004) 185 FLR 130; [2004] NSWSC 527
PARTIES:	NA Investments Holdings Pty Limited (Appellant) Perpetual Nominees Limited (Respondent)
FILE NUMBER(S):	CA 298561-004 of 2009
COUNSEL:	D L Williams SC with him S Duggan (Appellant) R D Marshall with him E A Walker (Respondent)
SOLICITORS:	Argyle Lawyers (Appellant) Middletons Lawyers (Respondent)
LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	298561 of 2009
LOWER COURT JUDICIAL OFFICER:	Macready As J
LOWER COURT DATE OF DECISION:	8 April 2010
LOWER COURT MEDIUM NEUTRAL CITATION:	NA Investments Holdings Pty Limited v Perpetual Nominees Limited [2010] NSWSC 248

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09/298561
BEAZLEY JA
HANDLEY AJA
LINDGREN AJA


MONDAY 30 August 2010

N A INVESTMENTS HOLDINGS PTY LIMITED V PERPETUAL NOMINEES LIMITED

Judgment

1 BEAZLEY, JA: I agree with Lindgren AJA.

2 HANDLEY, AJA: I agree with Lindgren AJA

3 LINDGREN AJA:

INTRODUCTION

4 The applicant, NA Investments Holdings Pty Limited (the Company) seeks leave to appeal from a decision of Macready AsJ declining to set aside a statutory demand served on the Company by the respondent, Perpetual Nominees Limited (Perpetual): see NA Investments Holdings Pty Ltd v Perpetual Nominees Limited [2010] NSWSC 248.

5 The application was made under s 459G of the Corporations Act 2001 (Cth) (the Act). The power to set aside is given by s459J of the Act. Section 459H contains special provisions that apply where there is a genuine dispute about the existence or amount of a debt to which a statutory demand relates or where the company has an offsetting claim.

6 His Honour noted that the application was made under ss 459G, 459H and 459J. He decided against the Company on the construction of a document and he was not satisfied that the Company had the offsetting claim it asserted. On 8 April 2010 his Honour dismissed the proceeding with costs. Only the issue of construction remains alive in the application for leave to appeal.

7 By reason of s 101(2)(p) of the Supreme Court Act 1970 (NSW), an appeal does not lie to the Court of Appeal from a judgment or order of the Court on an application under s 459G except by leave of the Court of Appeal.

8 The Court heard the application for leave to appeal and, subject to leave being granted, the appeal, together.

9 The statutory demand was dated 28 September 2009 and was served on the Company on 30 September 2009. It allowed 21 days after service for compliance.

10 The statutory demand was for $7,655,603.93. It described that amount as being the total of the debts owing as at 23 September 2009 in respect of a “commercial advance facility” provided to Future Fuels Australia Pty Limited (in liq) (FFA) on the terms and conditions of a Facility Agreement dated 3 July 2006 as varied on 11 January 2007 and on 28 June 2007 and “amended and restated on 15 October 2008”.

11 The present application for leave to appeal turns on the construction of clause 11.18 of the document dated 15 October 2008, to which I will refer as the “Restated Facility Agreement”.

12 The period for compliance with the statutory demand has been extended. On 8 April 2010, when Macready As J made the order dismissing the Company’s application, his Honour extended the period to 30 April 2010. On 28 April 2010 Barrett J further extended the period to Friday 18 June 2010 (see NA Investments Holdings Pty Ltd v Perpetual Nominees Limited [2010] NSWSC 373) and on 7 June 2010 a Registrar further extended the time to the end of 22 June 2010. On 21 June 2010 Giles JA further extended the period to the end of 12 August 2010 – the day following the date fixed for the hearing before this Court.

13 There is in place an undertaking by the Company not to deal with or encumber any of the “FFA Trust Property” (as defined by the Restated Facility Agreement) without first giving Perpetual seven days’ notice in writing of the proposed dealing or encumbrance.

14 The Court reserved its decision on the application for leave to appeal. Upon the undertaking being renewed, the Court further extended the period for compliance with the statutory demand to 5.00 pm on 2 September 2010.

FACTS

15 At all material times the Company held all of the shares in Future Fuels Australia Pty Ltd (FFA), FFA Properties Pty Ltd (FFA Properties) and FFA Equipment Pty Ltd (FFA Equipment) (collectively, the FFA Group or simply the Group).

16 In June 2006 Perpetual agreed to provide a facility of $23,000,000 to FFA to fund the development of a bio-diesel plant at Moama, New South Wales. To this end a Facility Agreement dated 3 July 2006 was executed. The parties to it were Perpetual “as custodian for the MFS Premium Income Fund … c/- MFS Group, 5 Hicks Street Southport 4215” (designated “Lender”), FFA (designated “Borrower”) and three “Original Guarantors” described in Part A of Schedule 1. They were the Company “in its capacity as trustee of the NA Investments Trust”, Nabil Azir Magar and Adil Azir Magar. The Messrs Magar were the directors of the Company and of each company in the FFA Group.

17 The reference to MFS Group was a reference to MFS Investment Management Ltd (MFS) which was the responsible entity in respect of the MFS Premium Income Fund. Although MFS was not designated as a party to the Facility Agreement and did not execute it, curiously cl 20.6 provided that it entered into the Facility Agreement with a limited liability as set out in that clause.

18 Part B of Schedule 1 identified “Additional Guarantors”. They were FFA Properties and FFA Equipment. They also were not parties to the Facility Agreement and did not execute it.

19 The evidence before his Honour showed that FFA Properties owned a site being Lot 1, Hillside Lane, Moama, New South Wales, 2731 (the Property) on which the refinery business was conducted; that FFA Equipment owned the equipment that was used in the conduct of the business there; and that FFA operated the business and held the licences that were required for the carrying on of the business.

20 The expression “Guarantor” was defined to mean each of the three Original Guarantors and each of the two Additional Guarantors. The guarantee of payment was contained in cl 13 which did not distinguish between the two classes of Guarantor and provided for an unconditional and irrevocable guarantee by “the Guarantors” jointly and severally.

21 The Facility Agreement was amended on 11 January 2007 and 28 June 2007.

22 The Company and FFA investigated selling the business. Apparently, a purchaser, Jonvana Enterprises Pty Limited (Jonvana), was found, and a purchase price agreed. The arrangements negotiated involved a reduction in that price on the basis that Jonvana would take over liability for a part of FFA’s debt to Perpetual equal to the amount of the reduction. Apparently the amount of the reduction and of the amount of FFA’s indebtedness for which liability was assumed by Jonvana was in the order of $20 million. In any event, the balance the subject of the Restated Facility Agreement was $6,810,053.71.

23 To give effect to the arrangement the Facility Agreement as already amended was further amended by a Deed of Amendment dated 15 October 2008. The parties to the Deed of Amendment were Perpetual “as custodian for the Premium Income Fund c/- Wellington Investment Management Limited” (Lender), FFA (Borrower), FFA Properties and FFA Equipment (each a Released Party), and each of four Guarantors. The Guarantors were the two Messrs Magar, FFA Oils Pty Ltd (FFA Oils) and the Company, again “in its capacity as trustee of the N A Investments Trust”. It follows that FFA Properties and FFA Equipment were no longer Guarantors while FFA Oils was introduced as a new Guarantor. Wellington Investment Management Limited (Wellington) had become the responsible entity of the Premium Income Fund (previously called the “MFS Premium Income Fund” – apparently the letters “MFS” were omitted from the name of the Fund at the time of the change in responsible entity).

24 By cl 2.1 of the Deed of Amendment the Lender, the Borrower, each Released Party, and each Guarantor agreed to amend and restate the Facility Agreement as set out in Schedule 2 to the Deed of Amendment. Schedule 2 was in fact the Restated Facility Agreement.

25 By cl 2.2 of the Deed of Amendment, the Lender, the Borrower and each Guarantor confirmed and ratified the Facility Agreement as amended and restated by cl 2.1, and confirmed that the Facility Agreement as amended and restated by the Deed of Amendment continued in force and effect.

26 Clause 2.3 of the Deed of Amendment was as follows:

Release
(a) On and from the Effective Date:
(i) the Lender releases and discharges all of the Secured Property from the Security and releases and discharges each Security Provider from all of their respective obligations and liabilities to the Lender under a Security;
(ii) …
(b) On the Effective Date, the Lender shall deliver to the Security Providers or their solicitor the Security Discharge Documents.

Apparently the Effective Date was 15 October 2008 or a date soon after that date. The expression “Security Providers” was defined to mean the Company, FFA, FFA Properties and FFA Equipment; the expression “Security” was defined to mean any of four specified securities given variously by the Company, FFA, FFA Properties and FFA Equipment; the expression “Secured Property” was defined to mean any property the subject of a Security; and the expression “Security Discharge Documents” was defined to mean four specified documents which were of a kind apt to discharge the four specified Securities respectively.

27 The parties to the Restated Facility Agreement were Perpetual, FFA and the same four Guarantors, in the same capacities and roles as in the Deed of Amendment.

28 It was recited that FFA had asked Perpetual “to continue to provide it with a term loan facility for a further period of 3 years” and that Perpetual had agreed to continue to provide financial accommodation to FFA on the terms set out in the “Finance Documents”. The expression “Finance Documents” was defined to mean the Facility Agreement and any other document agreed by Perpetual and FFA to be a Finance Document for the purposes of the Restated Facility Agreement. It was not suggested that any other such document had been agreed to.

29 By cl 1.1 Perpetual agreed to make a term loan facility available to FFA up to a maximum of $6,810,053.71.

30 By cl 2.1 FFA acknowledged and agreed that as at 15 October 2008, the amount of principal outstanding was $6,810,053.71 being the amount of the Facility Limit.

31 The expression “Trustee” was defined in cl 18.1 to mean the Company. Accordingly, the Company in its capacity as trustee of the NA Investments Trust was both a “Guarantor” and also the “Trustee”. Other definitions associated with that of “Trustee” were those of “Trust”, “Trust Deed” and “Trust Documents”. The expression “Trust” was defined to mean “the trust entitled ‘NA Investments Trust’ created under the Trust Deed” and the expression “Trust Deed” was defined to mean a deed of settlement between Kamahl Moussa and the Trustee (in its own right) dated 1 May 2002.

32 Clause 11 contained an unconditional and irrevocable joint and several guarantee (cl 11.1) and an unconditional and irrevocable joint and several indemnity (cl 11.7) in favour of Perpetual, in each case by the Guarantors. For convenience I will refer to the “guarantee” as encompassing the indemnity. The guarantee was of payment of the “Money Owing” from time to time. The expression “Money Owing” was defined in cl 18.1 to mean the aggregate of the face value of all utilisations of the term loan facility provided by Perpetual to FFA and outstanding at any time, plus interest or fees capitalised, and all other debts and monetary liabilities of “the Obligors” in any capacity in connection with the Restated Facility Agreement. The expression “Obligor” was defined to mean FFA and each Guarantor.

33 It was not disputed that, subject only to the effect of cl 11.18 set out in the next paragraph, under cl 11 the Company owed to Perpetual a presently due and payable debt for the amount of the statutory demand at the time when the statutory demand was served on the Company.

34 Clause 11.18 provided:

11.18 Limitation of liability
(a) The Trustee’s liability to pay any amount in accordance with the Finance Documents, may be discharged from and the recourse of the Trustee is limited to, the FFA Trust Property. The Lender may not seek to recover any shortfall in the amounts owing to it under or in connection with this agreement by bringing proceedings against the Trustee or applying to have the Trustee wound up. This clause applies despite anything in this agreement but subject to clause 11.18(b) and clause 11.18(c).
(b) The Mortgagee may:
(1) do anything necessary to enforce its rights in connection with the FFA Trust Property; and
(2) take proceedings to obtain:
(A) an injunction or other order to restrain any breach of this agreement by the Trustee; or
(B) declaratory relief or other similar judgment or order as to the obligations of the Trustee under this agreement.
(c) Clause 11.18(a) does not apply in respect of the Trustee to the extent of fraud, negligence or wilful breach by the Trustee.

35 It will be noted that cl 11.18 did not limit the Company’s liability by reference to the property the subject of the Trust, that is to say, the FA Investments Trust, but by reference to “the FFA Trust Property”. This expression was defined in cl 18.1 of the Restated Facility Agreement as follows:

FFA Trust Property means any shares in any member of the Group, any Authorisation, property, asset, right or undertaking in connection with the Plant, the Property, any member of the Group or the operations or business of any member of the Group.

36 The expression “Group” was defined to mean FFA, FFA Properties, FFA Equipment and FFA Oils and each subsidiary of any of those companies. Accordingly, the Company stood outside the Group.

37 The expression “Authorisation” was defined in the Facility Agreement in a manner that was broad but not presently significant.

38 The expression “Mortgagee” was not defined in the Restated Facility Agreement. The parties proceeded on the basis that it referred to Perpetual. It is understandable that they did so. Clause 2.3 of the Deed of Amendment, which was set out at [26] above, provided for Perpetual to discharge, inter alia, the only mortgage that was in question in the case. The definition of “Security” in the Deed of Amendment included a reference to a registered mortgage by FFA over the Property as a Security that Perpetual undertook to discharge, and the expression “Security Discharge Documents” was defined in the Deed of Amendment to refer to, inter alia, a duly executed discharge of that registered mortgage. I proceed, as the parties did, on the basis that the “Mortgagee” referred to in para (b) of cl 11.8 is Perpetual.

39 It remains to note that cl 18.6 provided that Wellington entered into the Restated Facility Agreement as the responsible entity of the Premium Income Fund and that its liability was limited as set out in that clause. This was curious since Wellington was not designated as a party to the Restated Facility Agreement and did not execute it.

40 In his affidavit made on 20 October 2009, Mr Adil Magar stated that notwithstanding the partial implementation in October 2008 of arrangements relating to the sale to Jonvana, the sale was “yet to be completed”.

41 In July 2009 (perhaps on 14 July 2009), FFA went into voluntary administration. On 14 August 2009 it was ordered to be wound up and a liquidator was appointed.

42 By a notice of motion filed on 30 June 2010 the Company sought an order under s 75A(8) of the Supreme Court Act 1970 (NSW) that further evidence be received on the appeal in the form of a letter dated 4 August 2008 from Wellington to Messrs Magar in their capacity as directors of FFA. The motion was not pressed.

THE PROCEEDING BEFORE THE PRIMARY JUDGE

43 The Originating Process was filed on 20 October 2009 accompanied by a supporting affidavit of Adil Azir Magar made on that date. The Originating Process and affidavit were therefore filed just within 21 days after service of the statutory demand on 30 September 2009 in conformity with s459G of the Act (see below). There were exhibits to Mr Magar’s affidavit. They included the Facility Agreement and the Restated Facility Agreement. The text of the affidavit suggested that all that was raised was an offsetting claim arising out of alleged misleading or deceptive conduct or unconscionable conduct by Perpetual. An Amended Originating Process was filed on 21 October 2009 which merely corrected a spelling error in Perpetual’s name.

44 Perpetual’s submissions dated 9 March 2010 addressed the question of the offsetting claim. Mr Magar made a supplementary affidavit on 11 March 2010 which elaborated on his first affidavit and did not refer to any argument based on cl 11.18 of the Restated Facility Agreement.

45 The Company’s submissions were dated 12 March 2010. They were devoted in large part to an argument founded on cl 11.18. At the commencement of the hearing before Macready AsJ, the Company sought leave to file a Further Amended Originating Process which added s 459H to ss 459G and 469J as the sections of the Act that were relied upon, and added to the reference to the offsetting claim a statement that “there is a genuine dispute and there is some other reason to set aside the demand”. Perpetual objected to the filing of the Further Amended Originating Process. On 16 March 2010, his Honour granted leave for it to be filed. In summary his reason was that while reliance on cl 11.18 was not “flagged” in Mr Magar’s first affidavit (it was not flagged in his affidavit of 11 March 2010 either), the Restated Facility Agreement was an exhibit to that affidavit and was served with it, with the consequence, so his Honour held, that s 459G(3) of the Act had been satisfied. Section 459G provides:

(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2) An application may only be made within 21 days after the demand is so served.
(3) An application is made in accordance with this section only if, within those 21 days:
(a) an affidavit supporting the application is filed with the Court; and
(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.

46 The gravamen of the primary Judge’s construction of cl 11.18 is found in paras 21 – 24 of his Honour’s reasons which were as follows:

21 N A Investments’ construction ignores the initial qualification in the second sentence of the clause. The bringing of proceedings or applying to have the trustee wound up is conditioned by the first part of the sentence to a situation where the lender is seeking “to recover any shortfall in the amounts owing to it under or in connection with this agreement…”. Plainly the shortfall is the extent to which the trust property is insufficient to allow recovery of the full amount due.

22 The effect of this condition may be illustrated by a situation where a plaintiff simply refuses to pay any amount that is due under the facility. If the lender then sued it would be open to the borrower to plead as a matter of defence that the whole or some part of the amount sought to be recovered is beyond the amount of the trust property and therefore not recoverable. It could hardly be imagined that a proper construction of the clause would allow the borrower to defend the proceedings simply on the basis that they are “proceedings” for recovery and thus prohibited by the clause.

23 On an ordinary grammatical construction the condition in the first part of the sentence would have to apply to both the alternatives in the second part of the sentence.

24 In the case there is no evidence before me in these proceedings that the amount sought in the demand represents in whole or in part a “shortfall in the amounts owing”.

47 His Honour summarised and rejected the Company’s submissions that:

1. The “shortfall” in cl 11.18(a) refers to the shortfall between the Money Owing and the aggregate of all payments that had been made;

2. Service of a statutory demand is a “proceeding” which falls foul of cl 11.18(a);

3. Service of the statutory demand was an abuse of process.

It is not necessary to discuss his Honour’s reasons for rejecting these submissions beyond what I have said in the preceding paragraph.

THE APPLICATION FOR LEAVE TO APPEAL

48 On 22 April 2010 the Company filed a notice of intention to appeal.

49 On 7 May 2010 it filed its summons seeking leave to appeal complaining of his Honour’s failure to set aside the statutory demand under s459J(1)(b) of the Act.

50 By its proposed notice of appeal, the Company complains that Macready AsJ erred:

• in his construction of cl 11.18;

• in finding that the debt the subject of the statutory demand was recoverable by action;

• in finding that the statutory demand was not an abuse of process; and

• in finding that the service of statutory demand was not prohibited by cl 11.18.

51 Perpetual has filed a notice of contention complaining that his Honour erred by allowing the Company to file the Further Amended Originating Process and to rely in argument on cl 11.18 as a basis for setting aside the statutory demand.

Construction of cl 11.18

52 Clause 11.18 was set out at [34] above.

53 The first sentence in para (a) of cl 11.18 provides that the Company may discharge its liability from the FFA Trust Property as defined and is limited to having recourse to the FFA Trust Property. The sentence proceeds on the basis that earlier provisions in cl 11 have made the Company liable to pay the full amount of the Money Owing.

54 It may be that under general law principles the Company enjoyed a right of indemnity in respect of that liability out of the FFA Trust Property. Whether it did would depend on whether the FFA Trust Property was property the subject of the Trust (the N A Investments Trust created by the deed of settlement between Mr Moussa and the Company dated 1 May 2002) and on the terms of the Trust.

55 The FFA Trust Property as defined in cl 18.1 can conveniently be considered as comprising:

• any shares in any member of the Group; and

• any authorisation, property, asset, right or undertaking in connection with:

• the Property;
• the manufacturing plant and equipment on the Property;
• any member of the Group; and
• the operations or business of any member of the Group

56 In his supplementary affidavit Mr Magar said that the Company owned the shares in FFA, FFA Property and FFA Equipment as trustee for the Trust, (and that he and his brother, Nabil (“Bill”) Magar, held units in the Trust). As noted earlier, the evidence was that FFA Properties owned the Property and that FFA Equipment owned the equipment on it. It may be, therefore, that the only property within “the FFA Trust Property” out of which the Company in its role as the Trustee enjoyed the right of indemnity was the shares in the subsidiaries. Since they were wholly owned subsidiaries, however, the Company in its role as the Trustee enjoyed, in effect if not in form, a right to be indemnified out of the assets of the subsidiaries as well.

57 The first sentence in para (a) of cl 11.18 purports to give the Company an option which it need not exercise to discharge its liability to Perpetual by resorting to the FFA Trust Property. The reference to the fact that the Company’s recourse is limited to the FFA Trust Property which follows sounds a warning and introduces the second sentence. According to a natural reading of the two sentences together, the reference to “shortfall” in the second sentence is a reference to the shortfall between the total Money Owing and the realisable value of the FFA Trust property referred to in the first sentence, that is available to the Company.

58 The concept of a “shortfall” requires a comparison to be made. I do not accept the Company’s submission that that comparison is between the Money Owing and the aggregate of the amounts paid off it. The Concept of the Money Owing (see [32] above) already takes into account all payments made. Moreover, the construction suggested would have the consequence, which cannot have been intended, that the Company would never bear any liability for any part of the Money Owing, even if the whole of the FFA Trust Property remained available to satisfy the full amount of the Money Owing.

59 The comparison called for is between the Money Owing and the realisable value of the FFA Trust Property.

60 As a whole, para (a) requires the Company, if it wishes to avail itself of the limitation of liability provided for in the second sentence, either to have recourse to the FFA Trust Property or at least to establish the amount that would be realised if it did so. The onus is on the Company to do one or other of these things if it is to take advantage of the “shortfall” provision.

61 Clause 11.18 contemplates that the Company may choose not to resort to the FFA Trust Property and instead to resort to other property owned by it (in his affidavit of 11 March 2010 Mr Magar said that the Company was an investment company that owned shares in approximately 15 companies in addition to the members of the Group). The Company may choose to have recourse to the FFA Trust Property but its value may be zero or at least less than the amount of the Money Owing. Again, it may be that its value exceeds the amount of the Money Owing.

62 The range of possibilities coupled with the fact that the realisable value of the FFA Trust Property is something peculiarly within the knowledge of the Company lends further support to the view that the onus was intended to be on the Company to raise and establish the amount with which the amount of the Money Owing was to be compared at peril of being indebted to Perpetual for the latter amount.

63 In my respectful opinion, the reference to applying to have the Company wound up is a distraction. Nor does it matter whether the serving of the statutory demand was a “proceeding” within para (a). The question raised by the Company was as to the existence or amount of the alleged debt of $6,810.053.71 the subject of the statutory demand in the light of the presence of cl 11.18 of the Restated Facility Agreement. According to s 459E of the Act, a statutory demand may be served only in respect of a “debt” of the company that is due and payable and the amount of which is at least the statutory minimum, or two or more such debts the amounts of which total at least the statutory minimum. As his Honour observed, the debt must be recoverable by action: see Remuneration Data Base Pty Limited v Pauline Goodyear Real Estate Pty Ltd [2007] NSWSC 59 at [38] – [43]; Takchi Bros Constructions Pty Limited v Woods [2010] NSWSC 115 at [5].

64 The notion of seeking to recover by bringing proceedings against the Company in the second sentence of para (a) is a concept wide enough to embrace the bringing of an action for debt. In a hypothetical action by Perpetual against the Company for debt, the Company would bear the onus of pleading and establishing that the claim was in respect of a “shortfall”, that is to say, that the limitation of liability provision was enlivened. For all that is known, unless and until the Company pleaded and proved otherwise, the realisable value of the FFA Trust property might be sufficient to pay the Money Owing, that is to say, there might be no shortfall.

65 The third and final sentence of para (a) which provides that cl 11.18 applies despite anything elsewhere in the Restated Facility Agreement, subject to cl 11.18(b) and cl 11.18(c), adds nothing. While it has the effect that the limitation in favour of the Company prevails over the earlier provisions of cl 11 for the Company’s liability for the Money Owing, this begs the question whether cl 11.18 has been enlivened at all and the onus of establishing that it has been rests on the Company.

66 On the hearing the Company relied on para (b) of cl 11.18 as indicating that the remedies to be available to Perpetual were limited to those referred to in that paragraph and excluded an action for debt. Sub-paragraph (1) of para (b) seems to be no more than recognition that Perpetual was to remain at liberty to exercise its rights as a security holder in respect of any part of parts of the FFA Trust Property over which it held security.

67 An injunction (see cl 11.18(b)(2)(A)) might be directed to ensure that the realisable value of the FFA Trust Property was maintained in order to keep any shortfall to a minimum.

68 The purpose and scope of cl 11.18(b)(2)(B) is not clear. However, one purpose might be to attempt to address the situation in which the Company proved the amount of the realisable value of the FFA Trust Property but refused to realise the FFA Trust Property in fact.

69 I am not persuaded that the construction of cl 11.18(a) as outlined above is altered by reference to cl 11.18(b).

70 In summary, the indebtedness of the Company to Perpetual provided for by cl 11.1 and cl 11.7 in respect of the amount stated in the statutory demand was not shown by the evidence before his Honour to have been reduced by the operation of cl 11.18. His Honour was therefore right not to set aside the statutory demand on the ground that it was.

71 The Court raised with the parties the possibility of a dismissal of the application for leave to appeal with a reservation for the Company, on the hearing of a winding up application, to support its reliance on cl 11.18 by adducing evidence establishing the extent of the shortfall: see s 459S of the Act. This course was not agreed to and the matter was not pursued.

Section 459G of the Act

72 I set out s 459G of the Act at [45] above.

73 In support of its notice of contention, Perpetual relied on Tennant Limited v Flomin Inc [2009] NSWSC 1246 (Tennant). In Tennant, Forster J addressed s 459G(3) and what has come to be called the “Graywinter principle”: see Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 (Graywinter), a decision of Sundberg J.

74 In Tennant, the company submitted that the contracts between it and the creditor were governed by standard terms and conditions of purchase which included a provision requiring that the parties attempt to resolve any dispute between them by negotiation, and if negotiation was not successful, by mediation. On the hearing the company wished to submit, inter alia, that non-compliance by the creditor with the provision was a bar to proceedings. His Honour held against the company on the construction of the provision. However, he also dealt with a submission by the creditor that the company had not complied with s 459G(3).

75 Forster J said that it did not suffice that the affidavit required by s 459G(3) annexed the standard terms and conditions, and explained in a passage on which Perpetual relies (at [20]):

There must something further provided to identify the point to be taken. Otherwise, the mere annexation of possibly relevant contractual documentation would be sufficient to permit an applicant for relief to raise any contractual argument, no matter how obscure, on the hearing of the application.

76 In the present case, as noted earlier, Mr Magar’s first affidavit did not identify the point to be taken: cl 11.18 lay within the exhibits to his affidavit but there was nothing that directed attention to it.

77 The Company submitted, however, that the weight of authority is contrary to the passage from Tennant set out above.

78 Many cases have discussed s 459G(3) and the Graywinter principle. These include: Callite Pty Ltd v Adams [2001] NSWSC 52; Meadowfield Pty Limited v Gold Coast Holdings Pty Limited [2001] WASCA 360; Energy Equity Corporation Ltd v Sinedie Pty Ltd (2001) 166 FLR 179 at [185]; [2001] WASCA 419; Process Machinery Australia Pty Ltd v ACN 057 260 590 Pty Ltd [2002] NSWSC 45 at [21] – [22]; POS Media Online Ltd v B Family Pty Ltd (2003) 21 ACLC 533; [2003] NSWSC 147 at [26] – [43]; Jian Xing Knitting Factory v Scasa Pty Ltd [2004] SASC 152 at [18] – [21]; Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) (2004) 185 FLR 130 at [50] – [58]; [2004] NSWSC 527; Elm Financial Services Pty Ltd v Macdougall [2004] NSWSC 560 at [7] - [12]; Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation (2005) 157 ACTR 22; [2005] ACTCA 3; Hansmar Investments Pty Limited v Perpetual Trustee Co Ltd (2007) 61 ACSR 321; [2007] NSWSC 103 at [26] – [33]; Tatlers.com.au Pty Ltd v Davis (2007) 213 FLR 109; [2007] NSWSC 835 at [19], [26] – [32]; Saferack Pty Limited v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143 at [21] – [25]; Canon Australia Pty Ltd v Young Bros Pty Ltd [2009] NSWSC 842.

79 I note in passing that Graywinter was decided before the harmonised Corporations Rules were adopted in the form of the Federal Court (Corporations) Rules 2000. At that time O71 r36B of the Federal Court Rules 1979 required the affidavit that accompanied an application to set aside a statutory demand to identify the grounds as well as the material facts on which the company relied. As Sundberg J accepted in Graywinter (at p 457), an affidavit that did not comply with the more demanding former r36B might nonetheless comply with s 459G and the rule could not illuminate the proper construction of the section.

80 It was common ground that satisfaction of paras (a) and (b) of s 459G(3) within the 21-day period is a condition of the making of an application to set aside and of the Court’s authority to set aside, whether under s 459H or s 459J: see David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265; Energy Equity Corporation v Sinedie Pty Ltd (2001) 166 FLR 179 at 185 (the High Court refused special leave to appeal).

81 It is not necessary for the purpose of addressing the notice of contention to deal comprehensively with the “supporting affidavit” requirement of s 459G(3). Statements made in the cases concerning that requirement must be understood in the context of the factual circumstances with reference to which those statements were made. In the case of an offsetting claim or a case in which the company does not yet have its evidence in admissible form, for example, “support” may in practice if not in law involve some articulation of the ground for setting aside.

82 Statements that the affidavit must “reveal” the ground for setting aside that is relied on are ambiguous. It can be asserted that the affidavit in the present case did or did not “reveal” the limitation of liability contained in cl 11.18. It revealed the evidence to be relied on but not the particular construction to be advanced.

83 The salient facts of the present case are that:

• the statutory demand and accompanying affidavit made it clear that the Company’s alleged indebtedness to Perpetual was as guarantor under the Restated Facility Agreement of FFA’s debt;

• the existence and amount of the Company’s indebtedness to Perpetual turned on the proper construction of the limitation contained in the guarantee clause (cl 11) of that document;

• an affidavit to which was exhibited, inter alia, the Restated Facility Agreement was filed and served within the 21-day period (no point was taken that the exhibits did not form part of the affidavit or that they were not filed and served within the 21-day period: cf Tatler.com.au Pty Ltd v Davis (2007) 213 FLR 109 at [8] – [23]; [2007] NSWSC 835);

• the limitation of liability on which the Company relied (cl 11.18) was the only provision for the limitation of its liability and was within the guarantee clause;

• neither the text of the affidavit nor any exhibit drew attention to the limitation provision or the construction of it for which the Company contended.

84 Perpetual submits that the affidavit did not support the application to set aside because it did not “reveal” the construction of cl 11.18 relied on by the Company. Perpetual pointed out that cl 11.18 occupied only half a page of the Restated Facility Agreement, the substantive provisions of which occupied 59 pages. On the other hand, cl 11, on which the statutory demand on the Company as guarantor was based, comprised eight and a half of the 59 pages and included the half-page cl 11.18.

85 I accept that there was nothing in the affidavit or exhibits to alert Perpetual to the particular construction to be advanced by the Company. Indeed, the affidavit was directed to an offsetting claim and was therefore apt to put Perpetual “off the scent”. Nonetheless, as noted above, the very clause on which the statutory demand depended contained the limitation of liability sub-clause.

86 In my respectful opinion, Perpetual’s submission confuses the concept of “support” with natural justice considerations which will attend the court’s hearing and determination of the application to set aside. Whatever may be the outer limits of the concept of “supporting” in s 459G(3), in my view the requirement is met where, as here, the only issue sought to be raised by the company is one of construction within the four corners of the provision on which the statutory demand depends, and the document in question, albeit with other documents, is put into evidence by the affidavit filed and served within the 21-day period.

87 The court’s powers of case management and the possibility of an adjournment and costs sanctions are available to ensure that the creditor is accorded procedural fairness in terms of an opportunity to respond to the construction advanced by the company. (It was not suggested that the Company was forensically disadvantaged by the failure of the affidavit to identity the construction ultimately advanced.)

88 It may be suggested that s 459G(3) serves no useful purpose if it is not to require the company to inform the creditor of the construction that is to be relied on. This is not so. Another purpose served is that of accelerating the filing and service of evidence in the interests of an early hearing of the application to set aside.

89 It will be clear from the last three paragraphs that my views generally accord with those expressed by White J in Tatler.com.au at [19].

90 Exceptionally, it is accepted that an “affidavit” may satisfy the requirements of s 459G(3) although it does not contain evidence in admissible form: see, for example, Graywinter at p 459; POS Media at [30] – [31]; Hansmar at [27]. But this is no reason why an affidavit that does contain evidence in admissible form should be held not to satisfy the requirements for failing to contain submissions or arguments normally alien to the nature and function of an affidavit. It is to be noted that Perpetual’s present contention would not be satisfied by an affidavit annexing the relevant document accompanied by a letter to the creditor from the company or its legal representatives identifying the particular provision and the construction of it to be relied on: these matters would have to be contained in the affidavit.

91 In this case as in others (such as Tennant itself) it has transpired that the company cannot succeed on the basis of nothing more than a question of construction: evidence of facts lying outside the four corners of the document has been found necessary to enliven the provision in question. The Company did not, however, file and serve within the 21-day period (or at all) any affidavit directed to showing that Perpetual’s claim was for a “shortfall” within the meaning of cl 11.18. It was nonetheless rightly allowed by his Honour to advance the construction of cl 11.18 on which it relied.

92 Finally, I note that my conclusion that the affidavit satisfied the description in s 459G(3) receives some support in particular from Callite, POS Media, Saferack and Canon referred to at [78] above.

93 For the above reasons his Honour was correct to allow the Company to file the Further Amended Originating Process and to rely (unsuccessfully in the event) on the construction of cl 11.18 as a ground for setting aside the statutory demand. The contention made in Perpetual’s notice of contention should not be upheld.

CONCLUSION

94 For the above reasons, the Court is not satisfied, and his Honour was correct in not being satisfied, that there is a genuine dispute between the Company and Perpetual as to the existence or amount of the debt to which the statutory demand related: cf s 459H(1) of the Act. Accordingly, s 459H does not apply. Nor is there any other reason why the statutory demand should be set aside: cf s 459J(1)(b) of the Act.

95 The application for leave to appeal should be dismissed with costs.

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