PCH Group Ltd v Hallbridge Pty Ltd
[2002] WASC 88
PCH GROUP LTD -v- HALLBRIDGE PTY LTD [2002] WASC 88
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2002] WASC 88 | |
| Case No: | COR:13/2002 | 14 MARCH 2002 | |
| Coram: | MASTER SANDERSON | 19/04/02 | |
| 9 | Judgment Part: | 1 of 1 | |
| Result: | Application to set aside refused | ||
| B | |||
| PDF Version |
| Parties: | PCH GROUP LTD (ACN 009 120 021) HALLBRIDGE PTY LTD (ACN 003 259 550) |
Catchwords: | Corporations Act Application to set aside statutory demand Lack of mutuality between debt and cross-demand |
Legislation: | Corporations Act, s 9, s 168, s 169, s 459G, s 459H, s 1072E(10) |
Case References: | Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 21 ACSR 581 John Shearer Ltd v GEHL Company (1996) 14 ACLC 147 McLaughlin v The Bank of Victoria Ltd (1894) 20 VLR 433 Stec v Orfanos [1999] FCA 457 Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) ACSR 194 Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 21 ACSR 581 Howell v Fine Real Estate Network Pty Ltd, FCA N 8121 In Re Richardson [1933] WN 90-91 James v Abrahams (1981) 51 FLR 16 John Shearer Ltd v Gahl Company (1995) 60 FCR 136 Mandarin International Developments Pty Ltd v Growthcorp Pty Ltd (1998) 143 FLR 408 Pedersons Products Pty Ltd v Supee Technologies Pty Ltd [1999] NSWSC 575 Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 15 ACLC 1001 XU v Wincopy Pty Ltd [1999] FCA 1335 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
BETWEEN : PCH GROUP LTD (ACN 009 120 021)
- Plaintiff
AND
HALLBRIDGE PTY LTD (ACN 003 259 550)
Defendant
Catchwords:
Corporations Act - Application to set aside statutory demand - Lack of mutuality between debt and cross-demand
Legislation:
Corporations Act, s 9, s 168, s 169, s 459G, s 459H, s 1072E(10)
Result:
Application to set aside refused
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Category: B
Representation:
Counsel:
Plaintiff : Mr M L Bennett & Mr N H Brown
Defendant : Mr A N Siopis & Mr P J M Kelly
Solicitors:
Plaintiff : Fearis Salter Power Shervington
Defendant : Godfrey Virtue & Co
Case(s) referred to in judgment(s):
Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 21 ACSR 581
John Shearer Ltd v GEHL Company (1996) 14 ACLC 147
McLaughlin v The Bank of Victoria Ltd (1894) 20 VLR 433
Re Anderson; Ex parte Alexander (1927) 27 SR (NSW) 296
Stec v Orfanos [1999] FCA 457
Case(s) also cited:
Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) ACSR 194
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785
Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 21 ACSR 581
Howell v Fine Real Estate Network Pty Ltd, FCA N 8121
In Re Richardson [1933] WN 90-91
James v Abrahams (1981) 51 FLR 16
John Shearer Ltd v Gahl Company (1995) 60 FCR 136
Mandarin International Developments Pty Ltd v Growthcorp Pty Ltd (1998) 143 FLR 408
Pedersons Products Pty Ltd v Supee Technologies Pty Ltd [1999] NSWSC 575
Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 15 ACLC 1001
XU v Wincopy Pty Ltd [1999] FCA 1335
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1 MASTER SANDERSON: This is the plaintiff's application to set aside a statutory demand. The application is brought under s 459G of the Corporations Act and falls to be determined under s 459H of the Act. The plaintiff says that it has a claim against the defendant such that the offsetting total is greater than the admitted total as those phrases are used in s 459H(2) of the Act. Accordingly, the demand must be set aside under s 459H(3).
2 There is no dispute about the admitted total. It is $240,621, the amount referred to in the statutory demand: see annexure "JDBC1" to the affidavit of James Donald de Barran Cullen, sworn 11 January 2002 and filed in support of the application. The schedule to the statutory demand describes the debt in this way:
"Debt due under Convertible Note Certificate No 000002 issued by the Company dated 23 July 1999 as amended by agreement in accordance with the terms set out in the letter from the company dated 8 June 2001."
3 It is common ground between the parties that the defendant makes its demand in its capacity as the trustee for the Roach Family Superannuation Fund. At the time the Convertible Note was issued a company known as Gamend Pty Ltd was the trustee. Gamend Pty Ltd resigned as a trustee of the trust and the defendant was appointed. The name of the superannuation fund was also altered. The way in which these changes came about is as follows.
4 On 16 July 1992 Hanina Pty Ltd changed its name to Quadrant Building Services Pty Ltd. On 18 August 1999 Quadrant Building Services changed its name to Gamend Pty Ltd. By trust deed dated 15 May 1988 a trust was constituted in the name of Quadrant Building Services Employees Superannuation Fund. Hanina Pty Ltd was appointed as trustee. By resolution of a meeting of trustees of the trust on 1 July 1995 the name of the trust was changed to the Evergreen Employee Superannuation Trust. Effective on 1 July 2000, by resolution of meetings of trustees, the directors of the respective companies, Gamend Pty Ltd retired from its role as trustee, the defendant was appointed as trustee of the trust and the name of the trust was changed from the Evergreen Employee Superannuation Fund to the Roach Family Superannuation Fund.
5 As part of his written submissions, counsel for the plaintiff pointed out that the statutory demand was not in the name of the party named as
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- the holder of the Convertible Note. Furthermore, it was submitted that there was no admissible evidence to show that the defendant was properly the holder of the Convertible Note. It is not entirely clear to what end these submissions were directed. It may be counsel was suggesting that there was a genuine dispute as to the debt. If so, such an argument must fail. The affidavit of Graham John Roach ("Roach"), sworn 15 February 2002 and filed in opposition to the application, sets out with some clarity the relationship between the defendant and the Roach Family Superannuation Fund and indicates when the company changed its name and details the various manifestations of the present trust. In my view the evidence to be found in Roach's affidavit is both admissible and persuasive and I am satisfied that the defendant is the party entitled to demand payment of the amount due under the Convertible Note.
6 The offsetting claim is said to arise in this way. With effect from 1 July 1998 the plaintiff, through a subsidiary, acquired the business of Finn International Pty Ltd ("Finn"). Finn is a specialist concrete repair business. In or about June 1999 the plaintiff resolved that through Finn it would acquire Quadrant Building Services, also a specialist concrete repair business and a competitor of Finn. This acquisition was achieved through a deed of purchase dated 28 July 1999 between Gamend Pty Ltd, Finn and the plaintiff. It was an express term of the deed of purchase that the services of Roach be provided to Finn for a period of three years. Roach's services were provided to Finn by way of a consultancy agreement with the defendant. At all material times Roach was a director of the defendant.
7 In August 2000 Roach secured a contract on Finn's behalf with Richard Crookes Constructions Pty Ltd for the refurbishment of the Newcastle City Council building ("the Newcastle project"). The details of this contract are not presently of concern. However, it was anticipated that Finn would make a profit from the Newcastle project in the region of $300,000.
8 On 21 September 2001 the plaintiff signed an agreement for the sale of Finn to a company styled Savcor Art Australia Pty Ltd. Pursuant to the sale agreement the purchase price paid by Savcor for Finn was to be determined by reference to the net tangible assets position of Finn as at 30 June 2001. The sale agreement recorded a purchase price of $4,120,000, which was based on the audited net tangible asset position of Finn as at 30 June 2001. The purchase price remained subject to an adjustment mechanism to the extent that there was a difference between
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- the unaudited net tangible asset position and the yet to be determined audited position as at 30 June 2001.
9 In late June 2001 it became apparent that problems had developed with the Newcastle project. The Newcastle project was completed in late October 2001 and the assessment at that stage was that not only would Finn lose between $110,000 and $130,000 on the Newcastle project, but that there was a possible liquidated damages claim against Finn in the region of $476,000. Upon examination of the Newcastle project the plaintiff determined that the defendant, through Roach, had been negligent in its management and was in breach of its consultancy agreement. It would now appear that the claim against Finn would be in the region of $1,300,000: see annexure "NB1" to the affidavit of Nicholas Henry Brown, sworn 13 March 2002. This, it is said, is the offsetting claim which, when matched against the admitted total, shows that the defendant is in fact indebted to the plaintiff and that the statutory demand ought therefore be set aside.
10 In response, the defendant made three submissions. First it was said that the affidavit in support of the application was defective and there was no application properly on foot. Reference was made to Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 21 ACSR 581. It was said that defects in the affidavit in support of the application could not be remedied by a subsequent affidavit and the application must therefore fail.
11 With respect, it seems to me that the first affidavit of James Donald de Barran Cullen ("Cullen"), sworn 11 January 2002, filed in support of the application sets out clearly and concisely the nature of the plaintiff's alleged offsetting claim. It may be that the first affidavit, and indeed his second affidavit, does not contain figures which would allow any precise formulation of the offsetting total. While that is a defect which might, if not rectified, ultimately lead to the application failing, it is not a defect which could lead to the conclusion there was no application properly on foot. Rather, that is a detail which can be filled in by a subsequent affidavit and that is what has been done.
12 Secondly, it was said that even accepting that the purchase price ultimately paid for Finn would be reduced by the amount claimed in relation to the Newcastle project, that was not a loss sustained directly by the plaintiff. Of course, it is yet to be resolved whether Finn is liable at all with respect to the Newcastle project. Even if it is liable, there is still the question of whether that liability resulted from negligence or breach of the
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- consultancy agreement on behalf of the plaintiff. Any claim by the plaintiff against the defendant has about it an element of difficulty. If it is said that as a result of the breach by the defendant of its consultancy agreement with Finn, the plaintiff has suffered loss, there is the problem of the plaintiff not being a party to the contract. If the claim is based in tort, the plaintiff will be suing for damages for purely economic loss and it may have difficulty establishing a duty of care. But taking these matters into account I am satisfied that the plaintiff has a serious question to be tried in relation to the offsetting claim.
13 The third and final submission made by the defendant is that there is a lack of mutuality between the claim made by the defendant against the plaintiff and the offsetting claim. In written submissions, counsel for the defendant put the position in this way:
"Any offsetting claim relied on by the plaintiff … must be mutual and in the same right as that brought by the creditor against (the plaintiff). The plaintiff does not satisfy this requirement because the claim made in the statutory demand is made in (the defendant's) capacity as the trustee for a trust, whereas the alleged offsetting claim is against (the defendant) in its own capacity."
14 The facts assumed in this submission are correct. As I have detailed above, in relation to the Convertible Note the defendant is the trustee of the Roach Family Superannuation Fund. The consultancy agreement between Finn and the defendant appears as annexure "JDB6" to the affidavit of Cullen, sworn 11 January 2002. The agreement shows the defendant contracting in its own right. Counsel for the plaintiff did not challenge these facts during the course of his submissions.
15 Counsel for the defendant referred to a number of authorities, including the decision of the Full Court of the Federal Court in Stec v Orfanos [1999] FCA 457. This case concerned a bankruptcy notice but the principle is the same. The Court said (at par 24):
"… Where a debtor seeks to set aside a bankruptcy notice on the ground that the debtor has a cross demand which equals or exceeds the amount of the judgment or order on which the bankruptcy notice is founded, the judgment on the one hand and the cross demand on the other must be mutual and due in the same right: Re Anderson; Ex parte Alexander (1927) 27 SR (NSW) 296; James v Abrahams (1981) 51 FLR 16 at 27. The
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- requirement that the two claims be 'in the same right' is directed to the capacities in which the claimants claim. Thus a claim by a judgment creditor personally cannot be answered by a claim against the creditor as a member of a partnership or as an executor or trustee. See Re Wedd; Ex parte Wedd (1961) 19 ABC 36; Re Molesworth (1907) 51 Sol J 653; Vogwell v Vogwell (1939) 11 ABC 83 at 89. But the requirement relevant to the present case is that the claims be mutual; that is that they be of the same kind or nature. Thus joint debts cannot be set off against several debts: Middleton v Pollock (1875) LR 20 Eq 515 at 518. ..."
16 There appears to be no good reason why this requirement of mutuality should not apply in relation to applications brought under s 459G as it undoubtedly applies in applications made under the Bankruptcy Act. Counsel for the plaintiff suggested nothing to the contrary. However, there appears to be no direct authority on the point. The decision of the Full Court of the Federal Court in John Shearer Ltd v GEHL Company (1996) 14 ACLC 147, which was cited by counsel for the defendant, dealt with a different question. The issue in that case was whether when a statutory demand was based on a dishonoured bill of exchange, a claim brought under the Trade Practices Act could amount to an "offsetting claim". The Full Court held that it could, giving a wide interpretation to the term "cross-demand" found in the definition of "offsetting claim" to be found in s 459H(5). But the question of mutuality did not arise.
17 It is worthy of note that the definition of "offsetting claim" in s 459H(5) is defined to include a counterclaim, set-off or cross-demand "even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates". This expansion of the definition of off-setting claim sets it apart from s 40(1)(g) of the Bankruptcy Act, although given the wide definition given to the term "cross-demand" in the John Shearer decision, it may still be that the two Acts postulate the same test. Be that as it may, the extension found in the Corporations Act does not deal with the issue of mutuality. In my view it leaves the principle intact.
18 The position then is that there is no mutuality between the amount claimed in the statutory demand and any claim the plaintiff may have against the defendant for breach of the consultancy agreement. Accordingly there is no basis upon which the statutory demand can be set aside.
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19 Counsel for the plaintiff did raise one further matter which requires consideration. It was submitted, in effect, that the requirement of mutuality was swept away by s 1072E(10) of the Corporations Act. That section is in the following terms:
"Except as provided for in this section and s 169:
(a) No notice of a trust, whether express, implied or constructed, is to be entered on a register kept in this jurisdiction or be receivable by the ASIC; and
(b) No liabilities are affected by anything done under a preceding subsection of this section, or under s 169; and
(c) Nothing so done affects the body corporate concerned with notice of a trust."
20 Counsel for the plaintiff, in supplementary written submissions, said:
"2 … the legal effect of the section insulates the company from an argument that some other person other than the security holder is beneficially entitled to the rights held by the person entered on the company's register as the security holder.
3 The Plaintiff's argument is that it is the necessary corollary of this statutory deeming provision that the person entered on the company's register cannot purport to give notice to the company that some other party has beneficial interest in the security and thereby affect the company by notice of such a trust."
21 In my view the fact that a register does not disclose that a party is holding the interest on trust does not justify the company dealing with that interest as though no trust existed. A similar argument was advanced in McLaughlin v The Bank of Victoria Ltd (1894) 20 VLR 433. The case dealt with s 31 of the Companies Act, a forerunner of the present s 1072E(10). In the course of his judgment, Madden CJ said (at 445):
"The object of the Legislature in s 31 of the Companies Act was merely to simplify proceedings. Until the Legislature expresses in the clearest terms that a company is to be allowed to confiscate the property of one person for the debt of another, no Court will allow it to do so, so long as there is any other
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- reasonable meaning to be given to the words used. We therefore think that, reading the section and the article, and giving them their fullest interpretation, they were never meant to allow any proceeding such as is contended for by the defendant."
22 That summarises the position in this case. I am not satisfied that s 1072E(10) has the effect contended for by the plaintiff.
23 Counsel did refer to the decision of Long Innes J in Re Anderson; Ex parte Alexander (1927) 27 SR (NSW) 296, a case referred to in Stec v Orfanos. In my view a proper reading of that decision supports the existence of the mutuality doctrine. I do not accept as counsel suggested in his submissions that it is at odds with the McLaughlin decision. In McLaughlin the Court was dealing directly with the effect of a provision of the Companies Act similar to s 1072E(10). That was not so in Re Anderson. There the Court was considering only the mutuality doctrine and its effect in that case. So far as mutuality is concerned, I think the decision in Stec v Orfanos is decisive. The doctrine is effective. Insofar as the effect of s 1072E is concerned, I think the decision in McLaughlin is to be followed.
24 I would decline to set aside the statutory demand. Subject to hearing from counsel the plaintiff ought pay the defendant's costs of this application.
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