Questus Funds Management Ltd v Valuestream Investment MANAGMENT Ltd - [2012] WASC 375

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: QUESTUS FUNDS MANAGEMENT LTD -v- VALUESTREAM INVESTMENT MANAGMENT LTD [2012] WASC 375

CORAM: MASTER SANDERSON

HEARD: 18 SEPTEMBER 2012

DELIVERED : 10 OCTOBER 2012

FILE NO/S: COR 6 of 2012

BETWEEN: QUESTUS FUNDS MANAGEMENT LTD
Plaintiff
AND
VALUESTREAM INVESTMENT MANAGMENT LTD
Defendant

Catchwords:

Corporations law - Application to set aside statutory demand - Turns on own facts

Legislation:

Nil

Result:

Demand set aside

Category: B

Representation:

Counsel:

Plaintiff: Mr G M Abbott
Defendant: Mr A P Young

Solicitors:

Plaintiff: Norton Smith & Co Pty Ltd
Defendant: Middletons

Case(s) referred to in judgment(s):

Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5
Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ACSR 602
Deancrest Nominees Pty Ltd v Nixon [2007] WASC 304
Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360

MASTER SANDERSON: This is an application by the plaintiff to set aside a statutory demand. The plaintiff alleges there is a genuine dispute as to the debt, the subject of the demand, or alternatively there is 'some other reason' why the demand should be set aside under s 459J(1)(b) of the Corporations Act 2001 (Cth).
A copy of the demand appears as annexure RWO‑01 to the affidavit of Robert William Olde sworn 5 April 2012. There appears under 'Description of Debt' the following:
Amount due and payable pursuant to a loan facility granted to the company by the creditor the terms of which are set out in a letter of offer from the creditor to the debtor dated 16 December 2009, accepted by the debtor on 18 December 2009 as amended from time to time (Agreement) which facility expired on 14 December 2011.
Interest calculated in accordance with the terms of the Agreement.
The amount claimed is $11,120,936. As is required by the Act, an affidavit accompanied the statutory demand. It was sworn by Robert Marie on 29 December 2011. I will quote this affidavit in full:
1.I am a director of the Creditor and am authorised by the Creditor to make this affidavit on its behalf.
2.The Creditor has debts totalling $11,120,936 owing to it being an amount due and payable pursuant to a loan facility granted to the Debtor by the Creditor the terms of which are set out in a letter of offer from the creditor to the debtor dated 16 December 2009, accepted by the Debtor on 18 December 2009 (Agreement) which expired on 14 December 2011, including interest in the amount of $1,490,936, calculated in accordance with the terms of the Agreement.
3.I am one of the persons who, on behalf of the Creditor, had dealings with the Debtor company that gave rise to the debt.
4.The debt, mentioned in paragraph 2 of this affidavit, is due and payable by the Debtor company.
5.I believe that there is no genuine dispute about the existence or the amount of the debt.
The plaintiff is and has been since 20 October 2005, the responsible entity of a managed investment scheme known as Questus Land Development Fund ARSN 116602076. The defendant is, and has been since 31 July 2001, the responsible entity of the Addwealth Achiever Fund ARSN 097580955.
On 16 December 2009 Valuestream Investment Management wrote to the directors of Questus Funds Management Ltd as responsible entity for the Questus Land Development Fund. The document is headed 'Offer of Terms for Convertible Debt Funding'. The form of the letter appears to be as an agreement. The borrower is said to be 'Questus Land Development Fund' and the lender 'Addwealth Achiever Fund'. 'Total facility limit' is said to be $7 million. The 'Purpose' of the loan is expressed as follows:
The Facility is to provide monies for the Fund and its wholly owned projects to meet debt obligations, ongoing Fund and Project costs, including interest and agreed capital re‑payments on current senior bank facilities and to provide working capital to meet the expenses of the Fund and allow the Manager to continue seek to refinance senior debt facilities.
Under the heading 'Drawings' it was anticipated the loan would be advanced in three tranches. The first would be on 14 December 2009, the second on 24 December 2009 and the third on 13 January 2010 (the document has the date 13 January 2009 but this is clearly a typographical error). The agreement deals with other matters including the interest rate, the term of the Facility and the right of the lender to convert the debt to equity. Under a section entitled 'Borrowers Acceptance' the document is signed for and on behalf of Questus Funds Management Limited.
Two further deeds were entered into by the parties, each of which is referred to as 'Deed of Amendment'. The first is dated 18 September 2010 and appears as annexure RWO‑05 to Mr Olde's affidavit. The second is dated 8 October 2010 and appears as annexure RWO‑06 to Mr Olde's affidavit. The effect of these two documents is to increase the amount of the facility to $10 million. In fact, the amount advanced by the defendant to the plaintiff was $9,630,000: see affidavit of Nicholas Henry Brown sworn 1 August 2012.
In his written submissions, counsel for the plaintiff submitted that there were three grounds on which there was a genuine dispute. Quoting from the submissions these were:
(1)Whether the Letter created any agreement between the Applicant and the Respondent at all and if it did whether it created a debt payable by the Applicant to the Respondent;
(2)Whether the Respondent is properly the creditor and the Applicant is properly the debtor; and
(3)Whether any 'loan facility' created by the letter is enforceable only against the assets of 'Questus Land Development Fund ARSN116602076' (The Fund) and not against the Applicant.
In support of the application to set aside the demand, the plaintiff filed an affidavit of Robert William Olde sworn 19 January 2012. This is what might be called the founding affidavit - that is to say, it was the affidavit which was filed within the 21 day period within which an application to set aside a demand can be made. This affidavit requires detailed examination.
Mr Olde identifies himself as a director of Questus. By par 2 of the affidavit Mr Olde says the plaintiff was not the borrower but rather, Questus Land Development Fund. He says the defendant was not the lender, rather the lender was Addwealth Achiever Fund. On that basis he says the plaintiff is not liable to the defendant. That would appear to pick up par 1 of the plaintiff's submissions I have quoted above.
By par 5 Mr Olde denies the alleged loan facility expired on 14 December 2011. He gives no details of the basis upon which he makes that assertion. In the letter of offer, the 'Facility Term' is said to be 24 months from 14 December 2009. Each of the Deeds of Amendment refers to the 'Facility Term' as being '24 months from the date of the initial drawing'. The phrase 'initial drawing' is not defined, but in the original offer the term 'initial date of advance' is defined as 14 December 2009. It is difficult to see what point is raised by this statement.
Paragraphs 6 ‑ 14 of Mr Olde's affidavit then deal with the extent of any liability the plaintiff would have to the defendant based upon the loan agreement. It is common ground between the parties as the responsible entity of a managed investment scheme that the plaintiff is a trustee of the fund. The importance Mr Olde attaches to this fact is illustrated by par 7 of his affidavit. It is in these terms:
To the extent that any loan facility was entered into by the Questus Land Development Fund or, alternatively, by Questus, both of which is not admitted, Questus entered into such loan facility solely in its capacity as the Responsible Entity of the Questus Land Development Fund and not in its personal or other capacity.
Paragraph 7 of Mr Olde's affidavit and subsequent paragraphs pick up submission (3) of the plaintiff's counsel, that any loan was only enforceable against the assets of the Questus Land Development Fund.
Mr Olde says prior to entering into the loan and as part of the due diligence conducted by the defendant, the defendant was advised that the plaintiff undertook any actions on behalf of the Questus Land Development Fund. In particular, reference was made to cl 21.1 of the Constitution of the fund. I will come back to that clause in due course.
Mr Olde says Mr Paul Foster, a member of the Questus Investment Review Board, would have reasonably been expected to know the contents of cl 21.1 and cl 21.2 of the Constitution of the Questus Land Development Fund. He then goes on to say in his affidavit:
13.By reason of each of Valuestream and Addwealth having knowledge of the existence of clauses 21.1 and 21.2 of the Constitution establishing the Questus Land Development Fund, Valuestream and Addwealth were respectively estopped from now denying the legal effect of those clauses and, in particular clause 21.1(b) and are thereby estopped from denying the Borrowers Acceptance of the Letter of Offer of 16 December 2009 as amended by letters dated 28 September 2010 and 8 October 2010 were executed subject to the legal effect of those clauses as to the liability of the Borrower to the Lender and of Questus to Valuestream with respect to any debt that may have become due and payable under and pursuant to the Letter of Offer as amended, which is not admitted.
14.To the extent that any debt is due and payable by Questus, which is denied, the entitlement of Valuestream to recover the same is limited to such as are the assets of the Questus Land Development Fund and there is no personal liability to Questus in respect of any amount which may be due and payable by the Borrower to the Lender, which is denied, as defined in the Letter of Offer dated 16 December 2009 as amended by letters dated 28 September 2010 and 8 October 2010.
Leaving to one side the inadmissible submissions contained in those paragraphs, Mr Olde appears to be saying any recovery by the defendant of funds advanced would be limited to the amount the plaintiff could recover from the Questus Land Development Fund. In other words, he is saying that there was either an express term in the agreement between the plaintiff and the defendant to that effect, or such a term was to be inferred.
The rest of the affidavit can be put to one side. Paragraphs 14 ‑ 15 simply refer to the Deeds of Amendment. Paragraphs 16 ‑ 21 refer to a 'Memorandum of Understanding' entered into between Questus Limited and Addwealth Pty Ltd on 10 August 2010. That document appears as annexure RWO‑04 to Mr Olde's affidavit of 5 April 2012. Counsel spent sometime dealing with the effect of the Memorandum of Understanding but in my view it is irrelevant. In any event, further consideration of the document is not required for the determination of this application.
A copy of the Constitution of Questus Funds Management Ltd appears as annexure RWO‑08 to Mr Olde's affidavit of 5 April 2012. Clause 21 of the Constitution relevantly reads as follows:
21.1Liability of the Responsible Entity
Subject and to the extent the act imposes liability
(a)the Responsible Entity is not liable for any loss suffered by Unitholders in respect of the Trust, whether in contract, tort or otherwise, and
(b)the Responsible Entity is not liable to any person who is not a Unitholder (including in relation to any contracts or other arrangements entered into in respect of the trust) to any extent beyond the Assets.
21.2Indemnity from the trust
(a)the Responsible Entity has a right of indemnity out of the Assets in respect of:
(i)any liability incurred by the Responsible Entity in performance of its duties in respect of the Trust, and
(ii)all fees payable to and costs recoverable by the Responsible Entity under this Constitution
(b)however, this indemnity does not apply where there has been any negligence, deceit, breach of duty, fraud or breach of trust on the part of the responsible entity.
It is to be observed that cl 21 and the rest of the provisions of the Constitution govern the relationship between the responsible entity and members of the fund. Prima facie, they have no binding effect on third parties such as the defendant. The plaintiff accepted that was so. At this point it is proper to look at the nature of the contractual relationship between the plaintiff and the defendant in relation to the advance of the funds. In par 8 of his written submissions, counsel for the defendant put the position as follows:
The loan facility agreement is comprised by letter of offer dated 16 December 2009 addressed to the plaintiff, signed by a director of the defendant and on the final page titled 'Borrowers Acceptance' signed by two directors 'on and behalf of Questus Fund Management Limited as Responsible Entity for the Questus Land Development Fund' and two further letters styled 'Deed of Amendment' dated 28 September 2010 and 8 October 2010 respectively.
In his oral submissions, counsel for the defendant resiled from that position somewhat. He submitted an agreement was reached between the plaintiff and the defendant, the terms of which were evidenced by the letter of 16 December 2009 and the further two Deeds of Amendment. Counsel specifically indicated he was not contending that the entire agreement between the parties was to be found within the four corners of the 16 December 2009 letter and the subsequent Deeds of Amendment.
With respect, he is clearly right. As I have indicated above, the letter of offer anticipated an advance of funds in three tranches on three specified dates. In fact, the affidavit of Mr Brown discloses the $7 million was advanced in six tranches, none of those being advanced on the dates specified in the letter. Indeed, the initial advance was not made on the date anticipated in the letter. It could not have been. The letter is dated 16 December 2009 and the 'initial date of advance' was 14 December 2009. In fact, the first tranche was paid on 21 December 2009.
Clearly what happened in this case was a series of discussions leading to some form of agreement. The agreement was almost certainly oral or perhaps partly oral and partly in writing. Clearly, there were some express terms. In the circumstances of this case, there may also have been inferred terms. Resolution of the present application depends upon the resolution of this question: Is it arguable there was a term in the loan agreement between the plaintiff and the defendant to the effect that the plaintiff was not liable to the defendant to any extent beyond the assets of the Questus Land Development Fund.
Before answering that question, reference needs to be made to two points of principle. First, dealing with the position of a trustee, it is ordinarily the case that at trustee is person liable for all debts contracted in his or her capacity as a trustee: see Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360, 367. But, it is possible for a trustee to limit its liability to the extent of its right to resort to and apply trust funds to discharge those liabilities. In Deancrest Nominees Pty Ltd v Nixon [2007] WASC 304, Newnes J put the position as follows:
A trustee's liability will not be limited to his or her right to indemnity from the trust funds simply because the other contracting party knew the person was a trustee. Nor will a statement that a person contracts 'as trustee' be sufficient to exclude full personal liability ... . There must be evident a clear intention of the parties that the liability of the trustee is to be limited [37].
Second, for there to be a 'genuine dispute' which would require statutory demand to be set aside, there has to be a plausible contention requiring investigation: Createc Pty Ltd v Design SignsPty Ltd (2009) 71 ACSR 602, 610. There was no dispute between the parties as to the applicable principles.
In my view it is arguable in this case it was the intention of the parties that liability of the plaintiff as trustee was to be limited. It may be that there was no express agreement to that effect. But, such a term in the agreement might in my view be inferred. This is not a case where there is a formal contract complete upon its face. It may be pre‑contractual negotiations led to the conclusion that the parties intended the plaintiff's liability to be limited. It is not for me to make any determination on these questions. In my view, the plaintiff's position is arguable.
During the course of his submissions, counsel for the defendant referred to the decision of the Court of Appeal in Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5. This was an appeal from a decision where I had declined to set aside a statutory demand. I was satisfied there could be no doubt about the contractual position between the parties. Without going to the facts of the case, Murphy JA at [34] ‑ [42] under the heading 'Loans and contracts for loan' cautions against too ready a determination of the contractual position between the parties. It seems to me his Honour's reasoning applies in this case. There is too much uncertainty about the contractual position to be able to say the plaintiff is liable to the defendant as alleged.
In my view, the statutory demand ought be set aside. The costs of the application including the reserved costs should be paid by the defendant.