Prentice Builders Ltd v Kraletee P/L

[1994] FCA 278

27%' J 9d

JUDGMENT No. ........ ......,. ,.., ,.

IN THE FEDERAL COURT OF AUSTRALIA

)
b

I

VICTORIA DISTRICT REGISTRY

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Nos VG 3022 and

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VG 3053 of 1994

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GENERAL DIVISION

0 r‘

" 7 BETWEEN:

ACN PRENTICE

004 238

BUILDERS 135 LIMITED

16MAY 1994 (Applicant)

-EDEFlAL COURT OF

AUSTRALIA	AND :	KRALETEE PTY LTD
PRINUPAL
ACN 007 034 997

C, REQISTRY

9

W (Respondent)

Coram:  Ryan J

Place: Melbourne

Date:  07 April 1994

REASONS FOR JUDGMENT

Rvan J: By an agreement in writing dated 23 November 1992, ("the share agreement"), Kraletee Pty Ltd, the vendor, agreed to sell 20,080 shares in Concept Hiring Services Pty Ltd, ("the company"), to the applicant, Prentice Builders Limited, ("Prentice"), for $620,000. There were terms of the share agreement that:

2.4. If any of the events referred to in clause 2.3 occur, dny I

"2.1. The purchase price payable by the purchaser for the sale of
shares is $620,000, ("purchase prlce").

2.2. Subject to clauses 2.3 and 5 the purchase price shall be paid to the vendor on 23 November 1995 or such earlier date as the purchaser may, in its absolute discretion, determine ("payment date").

2.3. Any unpaid balance of the purchase price shall be paid earliar than contemplated in clauses 2.2 in the event that:

(a) AT0 Development Project Pty Llmited ("ATODP"), sells the property located at 6 Gladstone Street, Moonee Ponds, known as

the Moonee Ponds Tax Office;	1 ,
1

(b) the purchaser sells the sale shares, or sells the business

of the company; or I

(C) Adroyal Ltd sells its shares in the purchaser, or t)he

purchaser sells its busmess.

i

outstanding balance of the purchase price together with all interest

payable by the purchaser pursuant to t h ~ s agreement shall be paid 30

days after the date of settlement of that transaction provided that this clause, 2.4, may not be used by the purchaser to extend the final payment date for the sale share beyond 23 November 1995."

Clause 4 provided:

"4.1. From the completion date until the payment date the purchaser shall pay the vendor interest on the monthly balance of the purchase price which remains outstanding from time to time at the rate of 9 per cent per annum.

4.2. Interest shall be calculated monthly and shall be paid monthly in

arrears with the first interest payment to be made on 23 December

1992. "

Clause 13 was in these terms:

"13.1. If the purchaser fails to pay any amount that it is liable to pay under this agreement on the due date for payment, the purchaser will pay the vendor default interest at the rate of 15 per cent per annum on the overdue amount from the date payment is due until the date payment is made.

13.2. If the purchaser fails to make any interest payment to the vendor as required under clause 4 within 21 days after the due date for that Interest payment, or payment as required by clause 5 on the due date for payment, the vendor may immediately institute legal proceedings to recover that interest payment or reductron in the purchase price as the case may be, plus any default interests payable thereon pursuant to clause 13.1.

13.3. If the purchaser falls to pay the balance of the purchase price then outstanding on the payment date the vendor may immediately institute legal proceedings to recover the unpaid balance plus default interest payable thereon pursuant to clause 13.1 from the payment date to the date on which payment is made.

Under no circumstances shall the purchaser's delay in making any	under this agreement are llmrted to those contained in this clause 13. 13.4. The vendor's rights in respect of any default by the purchaser
interest or other payment entitle the vendor to Insist that the purchase price, or any part thereof, be paid prior to the payment date except as provided in clause 2.4 and 5 . "

On 13 January, 1994, Prentice was served with a demand pursuant to s.459E of The Corporations Lawclaiming $629,070.61 as owing by Prentice under the share agreement. That claim included an amount of $5860.20 by way of penalty interest which was apparently paid by Prentice on 31 January 1994. Prentice contends that none of the events specified in clause 2.3 of the

share agreement as triggering an entitlement in the vendor to earlier payment of the balance of the price has occurred. The vendor, however, points to a sale by ATODP to Perpetual Trustee Company Ltd by contract identifying the day of sale as 11 October 1993 under which the purchase price was paid on 6 December 1993. The subject property was described in that contract of sale as:

"The whole of the land ln certrflcate of tltle volume 101046 folio 481, the land, together with any ~mprovernents known as 6 - 22 Gladstone street, Moonee Ponds."

Prentice, on the other hand, contends that clause 2.3(a) of the share agreement only came into operation on an unconditional sale of both the office building occupied by the Australian Tax Office and a car-park within, or adjacent to, the site of the Moonee Ponds Tax Office at 6 to 20 Gladstone Street, Moonee Ponds. The car-park was also owned by ATODP and has now, it appears, been conditionally sold to X.C. Parksafe (Vic) Pty Ltd. The planning permit for the use of the land at 6-20 Gladstone Street, Moonee Ponds, as an office including clause 2 which included these terms :

"Prior to the commencement of the use hereby permitted a mrnimum of 613

(representing a ratio of 2.64 spaces per 100 square metres of floor

space) car-parking spaces shall be provided for thls development within the site or on immediately adjacent land to the satisfaction of the responsible authority.

4. The use hereby permitted shall continue to be subject to there belng available on the subject land or on land immediately adjacent thereto, 613 car-parking spaces located to the satisfactron of the
responsible authority including a minimum of 493 spaces available to

the public, such spaces to be in addition to the 246 car-park~ng spaces currently provided rmmedlately adjacent to the site and available for use by the publlc and also in additlon to all car-parking spaces associated with exlstlng uses, situate proximate to the site of the development hereby permitted, or such car-parking spaces as may be required ln association with any further development of land proximate to the site of the development hereby permitted.

5. The hours of operation of the car-parks, time limitations and parking fee structure, if any, shall be to the satisfaction of the responsible authority and shall ensure that there is no reduction in availablllty of parking space required for retail trading."

On 11 October 1993, at the same time, it appears, as they exchanged sale notes for the of £ice building, ATODP and Perpetual Trustee Company Limited executed an option deed, the effect of which has been summarised as follows by M r Hay, the Executive Chairman of Prentic. In paragraph 11 of his affidavit sworn 2 February 1994:

"The origlnal of this option deed was executed by the parties simultaneously with execution of the contract of sale dated 11 October

1993, referred to in the prevlous paragraph of this affidavit.

Pursuant to thrs option agreement it was acknowledged that the partres were taking steps to enter into an agreement with the City of Essendon whereby an obligation would be passed on the proprietor of the adjacent car-park to contlnue operating that car-park In a manner which ensured that sufficient car-parking spaces were provided for the Moonee Ponds Tax Office to comply with the planning permit and plannlng permit 2. Pursuant to the option deed AT0 Development Project Pty Limited granted an option to Permanent Trustee Company Llmlted to purchase the adjacent car-park for one dollar should the proprietor of the car-park act in such a way as to cause a breach of the plann~ng permit. This option remains operable for 21 years or until an agreement is entered into with the City of Easendon whereby conditions are placed on the proprietor of the adjacent car-park independently so as to require the proprietor to continue operating the adjacent car-park in a manner which will ensure compliance wlth the planning permit."

Mr Herbert, of Counsel, for the vendor, has contended that, on

its proper construction, clause 2.3(a) of the share agreement is so plainly confined to a sale of the office building occupied by

excluding the car-park, that no genuine dispute can exist as to

the Australian Tax Office at 6 Gladstone Street, Moonee Ponds,

the alternative construction. I am unable to uphold that argument. This court, in exercising its powers under s.459H of the Corporations Law, does not sit as a court of construction. In my view, the requirement of sub-s . ( l) of S. 459H that the court be satisfied that there is a genuine dispute about the existence of a debt is met if the company demonstrates an issue of fact or law which a court of competent jurisdiction could reasonably

regard as triable and which the company bond fide desires to
raise.

This latter subjective element, of course, will not suffice by itself, but there is no evidence in the present case to suggest that Prentice has merely seized on the construction point as a pretext to delay payment of an amount which is indisputably due and payable. Counsel for the vendor suggested that there was no affirmative evidence that Prentice is solvent. However, evidence of that kind is not essential for the court to attain the degree of satisfaction required by s.459H(l). Here there is evidence of a recent payment of a substantial amount of interest and there is no evidence of any communication between the vendor and Prentice before the making of the statutory demand from which a lack of bond fides could be imputed to Prentice.

M r Herbert argued that the point of construction to which I have

referred would be resolved adversely to Prentice on a contra proferentuminterpretation since the share agreement was prepared

by Prentice's solicitors. However, that argument does no more	than demonstrate that an exercise in construction is involved.
It may also be that there is some inherent ambiguity in the description:

"The property located at 6 Gladstone Street, Moonee Ponds, known a8 the
Moonee Ponds Tax Office."

which requires to be elucidated by extrinsic evidence, and perhaps an inspection of the office strictly so-called and the car-park. There may also be relevant matters deposed to by MS

Claridge in an affidavit filed by leave on this, the second day of hearing of the application. It is not to the point that my initial reaction, uninstructed by any evidence of the kind to which I have just referred, or by full argument, has been to favour the construction for which the respondent contends. I am unable to conclude on the present application that the alternative construction is not respectably arguable.

In this context I adopt what was said by Hayne J, in Mibor Investments Pty Limited v Commonwealth Bank, 11 ACSR 362, where his Honour, at 366, quoted from McPherson, the Law of Company Liquidation, 3rd edition, page 63 to this effect:

"The princ~pal reason [for the rules] is that a wlndlng-up appllcation is not to be used for the improper purpose of compelling a solvent company to pay a disputed debt which would certainly be discharged as soon as the company's liabrlity was clearly shown to exist".

Hayne J then continued:

"In my vlew this consideration applies equally to 8.4596 as it did in relation to the former winding-up provisions, and what is meant ln s.459G by "a genuine drspute between the company and a respondent about the existence or amount of the debt" may be better understood in the light of this as well as some other considerations to which I now refer.

First, any appllcation to set a s ~ d e a statutory demand must be made

very quickly: it must be made wrthin 21 days. Second, the statute contemplates a summary procedure, the only outcome of which will be an order affect~ng the statutory demand, not any order or judgment declaring a debt to be owing or not to be owing or ordering payment of any money sum. Third, the only significance that the statutory demand has rs that if there is failure to comply wlth it, then the company rs deemed to be insolvent, thus the demand is no more than a precursor to an applicatron for winding up in insolvency. Fourth, and application to wind up in insolvency must be determined withrn 6 months (unless the court is satisfled that special circumstances justifying an extension of that time): s.459R. Fifth, on the hearlng of the application to wind up the company may not oppose the applrcatlon on grounds that rt might have taken in any application to set aside the demand unless those grounds are material to proving that the company is solvent.

These matters taken rn combination suggest that at least ln most cases, it is not expected that the court will embark upon any extended inquiry rn order to determine whether there is a genulne dlspute between the parties, and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the court conclude that there is a dlspute and that it is a genuine dispute."

For these reasons the statutory demand must be set aside. I should say that in reachlng this conclusion I have not been influenced by an argument advanced by Mr Elliott of Counsel on behalf of Prentice that sub-cls. 13.3 and 13.4 of the share agreement preclude the vendor from making a statutory demand for the balance of the purchase price.

By application of the maxim e x p r e s s u m f a c l t cessare t a c l t u m it was said that the vendor is confined to the institution of legal proceedings to recover the unpaid balance. I reject that argument. In my view the effect of c1.13 read as a whole in its context is to make clear that no default by Prentice in payment of interest shall operate to accelerate a liability to pay the principal amount of the purchase price before 23 November 1995 or earlier as specifically contemplated by sub-cls. 2.3 and 2.4. Clause 13 does not make judgment for the balance of the purchase price indisputably due a condition precedent to the recovery of that balance in a winding up or by any extra-curial process which may be available to the vendor.

aside the statutory demand had not been made within 21 days of	It was at first suggested that the application by Prentice to set
service of the demand as required by s.459G(3) of the Corporations Law. However, that contention was abandoned in the course of the hearing. Accordingly, as I have said, the statutory demand must be set aside and the respondent must pay the applicant's costs, such costs to be taxed. Similar orders will be made in proceedings VG3053 of 1994 in which the

application is against Roven Pty Limited, a vendor to Prentice in substantially the same case as the vendor in proceedings numbered VG3022 of 1994.

I certify that this and the preceding seven (7) pages are a true copy of the reasons for judgment of his Honour Mr Justice Ryan

Associate: &.J4 &da

Date:  \.z (9$ C\

Counsel for the applicant:	Mr J D Elliott
Solicitor for the applicant:	Minter  Ellison Morris
Fletcher
Counsel for the respondent:	Mr G Herbert
Solicitors for the respondent:	Lucas Baron