Re Australian Builders Group Pty Ltd
[2022] VSC 254
•20 May 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2021 02936
IN THE MATTER of AUSTRALIAN BUILDERS GROUP PTY LTD (ACN 164 911 371)
| AUSTRALIAN BUILDERS GROUP PTY LTD (ACN 164 911 371) | Plaintiff |
| v | |
| MIND AUSTRALIA LTD (ACN 005 063 589) | Defendant |
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JUDGE: | Hetyey AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 10 December 2021 |
DATE OF JUDGMENT: | 20 May 2022 |
CASE MAY BE CITED AS: | Re Australian Builders Group Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2022] VSC 254 |
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CORPORATIONS – Corporations Act 2001 (Cth) – Part 5.4 – Insolvency – Statutory demand – – s 459G – Application to set aside – Whether genuine dispute about existence and/or amount of debt – Whether genuine dispute debt due and payable because condition precedent in deed not met – Questions of construction and effect of notice provision in deed – Validity of notice - Whether genuine dispute deed is unenforceable because obtained by duress – Principles of economic duress - Demand set aside.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Clement | Macpherson Kelley |
| For the Defendant | Mr S Rubenstein | Maddocks |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Background......................................................................................................................................... 1
Procedural history.............................................................................................................................. 2
Statutory provisions and legal principles..................................................................................... 4
Terms of repayment deed and relevant evidence........................................................................ 6
Whether genuine dispute that arrears due and payable in accordance with terms of repayment deed................................................................................................................................................. 9
Consideration of ground.................................................................................................. 10
Whether genuine dispute that repayment deed is unenforceable because obtained by economic duress............................................................................................................................................ 15
Legal principles.................................................................................................................. 15
Relevant evidence.............................................................................................................. 17
Consideration of ground.................................................................................................. 21
Varying the statutory demand under s 459H(4) of the Act...................................................... 24
Conclusion......................................................................................................................................... 24
HIS HONOUR:
Introduction
By an originating process dated 16 August 2021, Australian Builders Group Pty Ltd (‘the plaintiff’ or ‘ABG’) seeks to set aside a statutory demand dated 23 July 2021 (‘the statutory demand’ or ‘the demand’) served on it by Mind Australia Ltd (‘the defendant’ or ‘Mind’). The statutory demand claims $73,281.29 in respect of rental arrears owing by ABG under a repayment deed dated 30 April 2021 (‘the repayment deed’).
Background
Mind is a not-for-profit organisation which provides community-managed specialist mental health services. On or around 1 June 2017, Mind entered into an agreement with Australian Win Win Investment Pty Ltd (‘the landlord’) to lease a property located at 691 High Street, Thornbury, Victoria (‘the property’ and ‘the lease’ respectively) for an amount of $130,000 per annum (approximately $10,833.33 per calendar month). In early May 2018, Mind and ABG entered into a sublease agreement for the property (‘the sublease’). The parties to the sublease agreed that ABG would pay a reduced amount of rent of $121,000 per annum (approximately $10,083.33 per calendar month).
From February 2019, ABG began to fall into arrears on the rental payments. By 15 April 2021, it owed Mind approximately eight months’ rent, totalling $82,279.92 (‘the arrears’). Pursuant to the repayment deed, ABG agreed to make regular payment of the arrears in the weekly sum of $2,500 plus GST, together with interest. Clause 3.1 of the repayment deed effectively provided that in the event ABG did not remedy a breach of the repayment deed within seven days of receiving a written notice of breach, the total amount owing pursuant to the repayment deed would become immediately due and payable to Mind as a debt. This clause, together with other critical terms of the repayment deed, will be further discussed during the course of these reasons.
Whilst the negotiations surrounding the repayment deed are contentious, the parties agree that it was essentially entered into in order to facilitate ABG taking over the lease of the property from Mind. On 30 April 2021, a deed of surrender of lease and sublease was also executed between the landlord, Mind and ABG (‘the deed of surrender’). Clause 9 of the deed of surrender essentially states that upon ABG complying with its obligations under the sublease and the deed of surrender and paying all amounts due to Mind pursuant to the sublease and the deed of surrender, ABG would be released by Mind from all liabilities, claims and demands associated with the sublease and the premises.
In the event, ABG failed to make a number of required payments under the repayment deed and, on 10 June 2021, default notices were issued by Mind in respect of payments due on 24 May 2021 and 31 May 2021 (‘the default notices’). As a result of ABG’s non‑compliance with the default notices, Mind then issued the statutory demand. In the schedule to the demand, the debt claimed is described as relating to amounts owing to Mind by ABG under the repayment deed. The arrears are calculated in the amount of $82,279.92, interest is added to this sum for the period between 3 May 2021 and 30 June 2021, and credit is given for a number of instalment payments made by ABG under the repayment deed, resulting in a total debt claimed of $73,281.29. The affidavit accompanying the demand, which was affirmed by Mr Gregory Wasmund on 23 July 2021, confirms that the debt arises from the sublease and the subsequent repayment deed in respect of which ABG is said to be in default.
Pursuant to its originating process, the plaintiff now applies to set the demand aside under ss 459G, 459H and 459J of the Corporations Act 2001 (Cth) (‘the Act’).
Procedural history
On 13 September 2021, the Court made orders by consent listing the proceeding for a final hearing on 10 December 2021. The orders made provision for the filing of affidavits and submissions prior to the final hearing. The matter was heard as scheduled on 10 December 2021 via videoconference technology.
In support of its application, the plaintiff relies upon: the affidavits of Michael Dahdouh, the sole director and secretary of the plaintiff, affirmed on 16 August 2021 and 12 November 2021, together with their exhibits (‘the first Dahdouh affidavit’ and ‘the second Dahdouh affidavit’, respectively), along with written submissions dated 17 November 2021 and 7 December 2021.
The defendant places reliance upon the affidavit of Robert Shergold, a senior manager of Mind, sworn 25 October 2021 (‘the Shergold affidavit’), together with written submissions dated 2 December 2021. A further affidavit of Samuel Kingston sworn 2 December 2021 was initially filed by the defendant in response to a number of aspects arising from the plaintiff’s material but was not ultimately relied upon as a result of the refinement of the issues at the hearing.[1]
[1]Certain grounds advanced by the plaintiff were not pressed following objection by the defendant that the plaintiff was prevented from raising those matters because they were not identified expressly, or by reasonable inference, in the s 459G affidavit filed in support of the application within the statutory period. The grounds no longer pursued include that Mind did not provide ABG with an arrears notice as required by the repayment deed or tax invoices for each payment to entitle it to recover GST from ABG. Further, ABG no longer maintained the argument that the relevant default notices issued by Mind were in fact satisfied or otherwise incorrect because particular payments made by ABG were not properly accounted for.
Having regard to the parties’ materials and the way in which the application was ultimately argued at the hearing, the following principal questions arise for determination:
(a) is there a genuine dispute that the arrears were due and payable because a condition precedent in the repayment deed was unmet?; and
(b) is there a genuine dispute that the repayment deed is unenforceable because it was obtained by economic duress?
There is also a subsidiary issue of whether the amount of the statutory demand can be varied pursuant to s 459H(4) of the Act to account for payments made by ABG to Mind following service of the demand.
Statutory provisions and legal principles
Section 459E of the Act relevantly provides:
(1) A person may serve on a company a demand relating to:
(a)a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum;
…
For the purpose of s 459E of the Act, a debt is due and payable when it is ascertainable, immediately payable and presently recoverable or enforceable by action.[2]
[2]Re Elgar Heights Pty Ltd (No 1) [1985] VR 657, 669, 671 (Ormiston J); Remuneration Data Base Pty Ltd v Pauline Goodyer Real Estate Pty Ltd [2007] NSWSC 59 [39]–[42] (White J); NA Investments Holdings Pty Ltd v Perpetual Nominees Ltd (2010) 79 ACSR 544, 552–3 [63] (Lindgren AJA); Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd (2002) 20 ACLC 726, 731–2 [17] (Barrett J); Re Simmoll Pty Ltd [2021] VSC 693 [44] (Hetyey AsJ).
Section 459G of the Act relevantly states:
(1)A company may apply to the Court for an order setting aside a statutory demand served on the company.
…
Section 459H(1) of the Act is in these terms:
This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a)that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b)that the company has an offsetting claim.
Where a company applies to set aside a statutory demand under s 459H of the Act, the Court must calculate the ‘substantiated amount’ of the demand in accordance with the formula prescribed in s 459H(2). Section 459H(3) provides that where the substantiated amount is less than the statutory minimum, the Court must set the demand aside.
The following well-established statements of principle define what constitutes a genuine dispute for the purpose of s 459H(1) of the Act:
(a) for a dispute to be ‘genuine’ it must be ‘bona fide and truly exist in fact’;[3]
[3]Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452, 464 (Northrop, Merkel and Goldberg JJ) (‘Spencer Constructions’), cited with approval by the Victorian Supreme Court of Appeal in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in Liq) [2015] VSCA 330 [49] (Kyrou, Ferguson and Kaye JJA) (‘Malec’).
(b) ‘the grounds for alleging the existence of a dispute … [must be] real and not spurious, hypothetical, illusory or misconceived’;[4]
[4]Spencer Constructions 464, cited with approval by the Victorian Supreme Court of Appeal in Malec [49] (Kyrou, Ferguson and Kaye JJA).
(c) the dispute must have a ‘sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile … Something “between mere assertion and the proof that would be necessary in a court of law” may suffice’;[5]
[5]TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67, 79 [71] (Dodds-Streeton JA) (‘TR Administration’); Malec [49] (Kyrou, Ferguson and Kaye JJA).
(d) a genuine dispute may involve a ‘plausible contention requiring investigation’ and raise the same sort of considerations as the ‘serious question to be tried’ test that applies in the case of interlocutory injunctions;[6]
[6]Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601, 608 [31] (Beazley P, Meagher and Gleeson JJA) (‘Britten-Norman’); Malec [48] (Kyrou, Ferguson and Kaye JJA).
(e) the Court should not uncritically accept statements about an alleged genuine dispute which are ‘equivocal, lacking in precision, inconsistent with undisputed contemporary documents … or inherently improbable … ’;[7]
(f) if the dispute appears to be something ‘merely created or constructed in response to the pressure represented by the service of the statutory demand’, then it is not advanced in good faith and will not be regarded as genuine;[8] and
(g) whilst the underlying nature of the dispute about the existence of a debt ‘must be exposed’, the Court will not deal with the merits and nothing of substance will be decided.[9]
[7]Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787 (McLelland CJ in Eq), cited with approval by the Victorian Supreme Court of Appeal in TR Administration 78 [64] (Dodds-Streeton JJA) and Malec [50] (Kyrou, Ferguson and Kaye JJA).
[8]Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212, 224 [47] (Barrett AJA, with Gleeson and White JJA agreeing). See also JJMMR Pty Ltd v LG International Corp [2003] QCA 519 [18] (McPherson JA) where the same point was made in respect of an offsetting claim.
[9]Quadrant Constructions Pty Ltd v HSBC Bank Australia Ltd [2004] FCA 111 [4] (Finkelstein J). See also Malec [48] (Kyrou, Ferguson and Kaye JJA).
Although the hurdle for establishing a genuine dispute is a relatively low one, an applicant must nevertheless satisfy the Court that a genuine dispute exists on the balance of probabilities.[10]
[10]See Farid Assaf, Assaf’s Winding Up in Insolvency (3rd ed, Lexis Nexis, 2021) (‘Assaf’s Winding Up in Insolvency’) [6.25] citing Re Speedy Loans Pty Ltd [2014] VSC 273 [17] (Gardiner AsJ); Moyall Investments Services Pty Ltd v White (1993) 12 ACSR 320, 324 (Ryan J); Southern Canola Producers Pty Ltd v Painter Griffith & Associates Pty Ltd (1997) 15 ACLC 956 (Santow J) and Sterling Estates (SA) Pty Ltd v Bradley (2000) 34 ACSR 177 [16] (Hamilton J).
A proceeding brought under s 459G of the Act is not ordinarily an occasion for the Court to construe a contract where its meaning is in dispute.[11] In Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd,[12] White JA explained the principle this way:
It is usually inappropriate on an application to set aside a statutory demand that the court attempt to decide competing contentions as to contractual interpretation, partly because to do so might embarrass a judge before whom that issue arises and fundamentally because if the disputed question of contractual interpretation is arguable there will be a genuine dispute as to the existence of the debt, albeit one that does not depend upon a disputed matter of fact. But where the legal argument propounded in support of a particular construction is “patently feeble” (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 (McLelland CJ in Eq), or where it is “as plain as a pikestaff” that it has no basis (Spacorp Australia Pty Ltd v Myer Stores Ltd (2001) 19 ACLC 1270; [2001] VSCA 89 at [4]) then there will be no genuine dispute (Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212; [2017] NSWCA 300; 125 ACSR 212 at [26]-[29]).[13]
[11]Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd (2012) 92 ACSR 27, 34 [46] (Young AJA); Broadspectrum (Australia) Pty Ltd v Centauri Business Services Pty Ltd [2016] NSWSC 1045 [22] (Barrett AJA); Re Litigation Insurance Pty Ltd [2017] NSWSC 334 [31] (Gleeson JA); Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212, 219 [29] (Barrett AJA; Gleeson and White JJA agreeing).
[12](2019) 99 NSWLR 397.
[13]Ibid 417 [90]. See also Re Aurora Funds Management Ltd [2021] VSC 690 [44] (Gardiner AsJ).
Terms of repayment deed and relevant evidence
Clause 2.1 of the repayment deed provides that ABG agrees to repay Mind the arrears in accordance with cl 2. The arrears are defined to mean ‘the outstanding amount of unpaid rent and other monies payable by [ABG] to [Mind] under the [s]ublease as at 30 April 2021, as notified to [ABG] in accordance with clause 2.2.’ Clause 2.2 states that, on or before 1 May 2021, Mind was required to provide to ABG details of the arrears payable by way of an arrears notice. Except in the case of manifest error or fraud, the arrears notice was to be binding on ABG in respect of the amount of the arrears payable by it to Mind under the repayment deed. In accordance with cl 2.3, from 1 May 2021 (‘the commencement date’) and on the first day of each calendar week, ABG was required to pay to Mind the sum of $2,500 plus GST into a specified account. Interest is specified under cl 2.4 as being payable at an interest rate of 4% per annum of the amount of the arrears which remains unpaid from time to time and is calculated daily from the commencement date and continues until the arrears are paid in full. ABG’s payment obligations under the repayment deed are specified under cl 2.5 as continuing until such time as Mind is satisfied that the arrears and any interest and costs have been paid in full. Further, cl 2.7 provides that ABG’s obligations to pay the arrears in accordance with the repayment deed continue to apply notwithstanding the surrender or termination of the sublease and that ‘in the event of any inconsistency between [the repayment deed] and the terms of any deed of surrender of the [s]ublease, the terms of [the repayment deed] prevail.’
Clause 3.1 of the repayment deed is in these terms:
If:
3.1.1[ABG] breaches this Deed, and does not remedy that breach within 7 days after the date on which [Mind] gives to [ABG] written notice of such breach (Breach Notice),
then:
3.1.2the total amount owing to [Mind] pursuant to this Deed as at the date of the Breach Notice shall become immediately due and payable to [Mind] as a debt; and
3.1.3[Mind] may, without further notice to [ABG], take all steps [Mind] considers necessary to recover the debt from [ABG].
[emphasis added].
Clause 4 is a critical provision of the repayment deed for the purposes of this application. It states as follows:
4.1 Delivery of notice
4.1.1a notice or other communication required or permitted to be given to a party under this Deed must be in writing and may be delivered:
(a) personally to the party;
(b) by leaving it at the party’s address;
(c)by posting it by regular prepaid post addressed to the party at the party’s address; or
(d) by electronic mail to the party’s email address,
in each case, as specified in the notice details of that party.
4.1.2if the person to be served is a company, the notice or other communication may be served on it at the company’s registered office.
4.2 Particulars for delivery
4.2.1 The notice details of each party are set out on page 1 of this Deed under the heading ‘Parties’ (or as notified by a party to the other parties in accordance with this clause).
4.2.2Any party may change its notice details by giving notice to the other parties.
[emphasis added].
Page 1 of the repayment deed identifies the physical address of each party, including Mr Dahdouh in his capacity as guarantor. While provision is made for an email address for each party, none have been included in the document. Nor is there any evidence of any change of notice details provided by either party in accordance with cl 4.2.2 of the instrument.
There is evidence that Mind gave ABG an arrears notice in accordance with cl 2.2 of the repayment deed on 2 May 2021.[14] On 4 June 2021, ABG emailed to Mr Dahdouh letters of demand for the payments due on 24 and 31 May 2021, respectively. However, those demands were withdrawn on account of apparent typographical errors and, on 10 June 2021, Mind issued the default notices for the same payments referred to in the original letters of demand. The default notices stated that the defaults could be remedied if ABG paid to Mind within seven days the unpaid amounts, together with interest. Relevantly, the default notices were emailed by Mr Shergold of Mind to Mr Dahdouh at the email address: [email protected]. This was the email address in respect of which Mind had sent proposed versions of the deed of repayment and deed of surrender for execution by ABG and was the email address Mind had on record for ABG and Mr Dahdouh. The default notices clearly identify and are addressed to ABG as the debtor and Mr Dahdouh as guarantor under the repayment deed. The addresses referred to in the default notice are the physical addresses specified on page 1 of the repayment deed.
[14]See tendered exhibit ’MFI-1‘ which is an email from Mr Shergold to Mr Dahdouh dated 2 May 2021, together with attachment. Given 1 May 2021 was a Saturday, pursuant to cl 8.10 of the repayment deed Mind had until Monday 3 May 2021 to comply with cl 2.2.
I turn now to the grounds raised in support of the purported genuine dispute.
Whether genuine dispute that arrears due and payable in accordance with terms of repayment deed
The parties make competing submissions about the proper operation and construction of key provisions of the repayment deed. ABG submits:
(a) clause 4.1 of the repayment deed is mandatory in its terms and specifies the only available modes of service of notices and other communications under the instrument;
(b) the default notices were not delivered to ABG in the prescribed manner set out in cl 4.1 of the repayment deed. Instead, the default notices were sent by email to ABG’s director, Mr Dahdouh, who was himself a party to the repayment deed; and
(c) because the notice provision in cl 4.1 was not complied with, cl 3.1 of the repayment deed was never triggered. Accordingly, the entire amount of the arrears did not become immediately due and payable.
By contrast, Mind contends that:
(a) the repayment deed is not a deed of settlement and release but is better characterised as a deed of forbearance. ABG’s liability to pay the arrears was preserved in cl 9 of the deed of surrender;
(b) the arrears remained due and payable at all times, regardless of the operation of cl 3.1 of the repayment deed;
(c) clause 3.1 is no more than an acceleration clause that confirms when the arrears and interest payable in accordance with cl 2 of the repayment deed would become immediately payable;
(d) whilst the requirement in cl 4.1 to give notice in writing is mandatory, the manner in which notice is to be given is permissive; and
(e) the default notices were properly served under the repayment deed in any event because ABG’s director was provided with the default notices via an email address that he used to communicate with representatives of Mind.
Consideration of ground
For the reasons set out below, I am satisfied there is a genuine dispute as to whether the arrears claimed in the statutory demand are due and payable according to the operation of the repayment deed.
First, there are competing but plausible arguments as to whether the notice requirements and methods of delivery set out in cl 4.1 of the repayment deed are mandatory or facultative in nature.
In JPA Finance Pty Ltd v Gordon Nominees Pty Ltd,[15] the Victorian Court of Appeal considered whether an option deed required strict compliance with its notice provisions in order for a notice of termination to be effective. McLeish JA (with whom Beach and Niall JJA agreed) reviewed the relevant authorities and summarised the applicable principles as follows:
[15](2019) 58 VR 393 (‘JPA Finance’).
(a) whether a contract requires strict compliance with provisions as to notice, in order for notice to be effective, is a matter of construction of the relevant contract. That will turn on the language and, to some extent, the nature of the contract as one of suretyship or guarantee;[16]
(b) whether there has been compliance with a contractually stipulated mode of giving notice may also involve a process of construction of the notice itself. The construction of both the contract and the notice raises common issues and concerns the same contractual and commercial context;[17] and
(c) the principles of construction of notices are not relevantly different to those governing the construction of contracts.[18]
[16]Ibid 407-409 [55], [60]-[61].
[17]Ibid 411-2 [66]-[68].
[18]Ibid 410-1 [67].
In JPA Finance, while the relevant notice of termination was not specifically addressed to the relevant party in the manner prescribed, the content of the notice named the party and the notice was sent to the correct address. Further, the notice was held to meet the commercial purpose of the notice clause to ensure that notices were directed to the attention of the parties through their solicitors.[19] The notice was therefore held to be compliant with the notice provisions of the deed.
[19]Ibid 412-3 [72]-[74].
Whilst the notice provision under consideration in JPA Finance was not interpreted literally in that case, there have been earlier decisions which have construed the particular contractual notice requirements as being mandatory. In Bond v Hongkong Bank of Australia Ltd,[20] the relevant clause stated that a notice in connection with the agreement ‘must be left at the address of the addressee ... specified in the schedule’ or another address notified by the addressee. The notice was not sent to the specified address of a company but was instead sent to the guarantor’s home, his office, and a new address of the company. Whilst the parties were aware of the change to the company’s address, there had been no formal notification of the change under the agreement. The New South Wales Court of Appeal found the relevant notice to be ineffective with Gleeson CJ stating that ‘[t]here is no room for saying that near enough is good enough‘[21] and Kirby P finding that the requirement to give notice was expressed in imperative terms and that the use of the words ‘must’ and ‘may’ within the same clause suggested ‘some consequence of invalidity must be attached to a failure to comply with the requirement.’[22]
[20](1991) 25 NSWLR 286.
[21]Ibid 293.
[22]Ibid 312.
In Tricontinental Corp Ltd v HDFI Ltd,[23] Waddell AJA observed that it was ‘essential in commercial dealings that [notice] provisions of this kind should be applied strictly so that parties know exactly where they stand.’ However, as McLeish JA explained in JPA Finance, Tricontinental was determined on the basis that the specific requirements to give notice to a debtor were conditions precedent to the liability of a surety.[24] It was apparently not decided having regard to the manner in which notice was provided.[25]
[23](1990) 21 NSWLR 689, 718 (‘Tricontinental’).
[24]JPA Finance 407 [52] citing Tricontinental 716.
[25]Ibid citing Tricontinental 721.
In FAI General Insurance Co Ltd v Parras,[26] the New South Wales Court of Appeal held that the requirement for personal service of a notice on a lessor would not be satisfied by effecting personal service on the lessor’s servant or agent.[27]
[26](2002) 55 NSWLR 498.
[27]Ibid 503 (Hodgson JA), 509 (Young CJ in Eq).
Here, while cl 4.1 of the repayment deed specifies that a notice must be given in writing, it then states that notice may be given in any of the ways set out in cls 4.1(a) through to (d). Whether or not those modes of service were intended to be exhaustive, or whether the use of the word ‘may’ in cl 4.1 should be read permissively so as to allow other methods of service, are matters which depend upon the objective construction of the repayment deed as a whole. Similarly, establishing whether there has been compliance with the specified mode of giving notice in cl 4.1 may also entail construing the default notices themselves. It will be necessary for a court to ascertain the commercial purpose of the notice clause and the repayment deed itself. Relevant to that inquiry are the legal consequences to the parties of non-compliance with a default notice under the repayment deed, including the crystallisation of Mr Dahdouh’s liability as guarantor.
Further, whilst ABG’s construction of the notice provision appears to be a technical and literal one, it nevertheless has a sufficient degree of cogency so as to be arguable.
Secondly, if ABG is correct that cl 4.1 is expressed in imperative terms, it does not matter whether Mr Dahdouh, as ABG’s director, was provided with the default notices by email. There is no evidence that ABG ever changed its notice details under cl 4.2.2 of the repayment deed so as to nominate any email address. It would follow that service of the default notices was ineffective.
Thirdly, ABG’s argument that strict compliance with the notice provision in cl 4.1 is necessary to enliven the right to immediate payment of the arrears under cl 3.1 is also a plausible contention requiring investigation. Such an interpretation is open when each of the constituent parts of cl 3.1 are read cumulatively. On such a reading of the clause, if ABG breaches the repayment deed and does not remedy the breach within seven days of being provided with written notice of the breach by Mind, ‘then … the total amount owing to Mind pursuant to [the repayment deed] as at the date of the [default notices] shall become immediately due and payable to [Mind] as a debt’ and Mind may take all steps it ‘considers necessary to recover the debt from [ABG]’ [emphasis added]. On this interpretation, the use of the conjunctive ‘then’ serves to identify the legal consequences of a failure to comply with a properly served notice of default, namely, the rendering of the arrears as due and payable.
Fourthly, whilst the defendant contends that cl 3.1 only provides for the accelerated payment of the arrears which were otherwise due and payable at all times, there is some force to the plaintiff’s submission that such a construction would render cl 3.1 inutile. In construing a commercial contract, a court is entitled to approach the task on the basis that the parties intended to produce a commercial result which makes commercial sense,[28] as opposed to a result which leads to commercial nonsense or commercial inconvenience.[29] The proper construction of cl 3.1 is plainly a matter of genuine dispute between the parties.
[28]Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, 551 [16]-[17] (Kiefel, Bell and Gordon JJ).
[29]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656–7 [35] (French CJ, Hayne, Crennan and Kiefel JJ); Amcor Ltd & Ors v Barnes, Trevor Mark & Ors [2021] VSCA 6 [648] (Ferguson CJ, Beach and Whelan JJA).
Fifthly, the defendant’s suggestion that the repayment deed is better characterised as a deed of forbearance (by which the defendant agreed to forbear taking further action in respect of the arrears so long as the regular payments in cl 2.3 were maintained by the plaintiff), appears to assume that the amount of the arrears had been ascertained when the repayment deed was entered into. However, the repayment deed does not actually identify the amount of the arrears. Instead, cl 2.2 specifically requires Mind to provide ABG with ‘details of the [a]rrears payable in accordance with [the repayment deed]’ on or before the date of the first of the payments required by cl 2.3.
Sixthly, all of the competing questions of construction of the repayment deed referred to above are triable issues and should not ordinarily be considered in an application to set aside a statutory demand under s 459G of the Act. There are no compelling reasons to resolve these disputed questions of contractual interpretation in the present proceeding.
Seventhly, although the defendant relies upon the decision in Toskas Investments Pty Ltd v Toskas[30] to support its argument that the arrears remained due and payable at all times regardless of the operation of cl 3.1, that case can be distinguished on the facts. In Toskas, the defendant had served a statutory demand based upon a debt owed under a shareholder’s loan which was repayable upon demand or at call. Master Macready held that the amount owing under the shareholder loan was a debt that was due and payable for the purpose of s 459E(1) of the Act even in the absence of a formal demand for payment.[31] Here, rather than the arrears being repayable at call or on demand, the parties to the repayment deed made specific provision for the terms of payment of the arrears. By cl 3.1, the parties also turned their minds to the particular consequences of default of payment by the plaintiff. There were no such provisions in Toskas.
[30](2000) 34 ACSR 503 (‘Toskas’).
[31]Ibid [9].
Lastly, notwithstanding Mind’s insistence that the arrears were due and payable at all times as an underlying debt,[32] it is important to note that the statutory demand itself only refers to the outstanding arrears owing by ABG under the repayment deed and not on any other basis. Further, whether there is a debt which is due and payable by ABG that is independent of the amounts owing under the repayment deed, or whether Mind’s contractual right to payment of the arrears pursuant to the sublease has merged with its rights under the repayment deed, are additional instances of a genuine dispute between the parties.
[32]Mind relies on the plaintiff’s acknowledgment in the recitals to the repayment deed of its liability to pay rental arrears to the defendant and an apparent acknowledgment of indebtedness to the defendant in the deed of surrender.
Whether genuine dispute that repayment deed is unenforceable because obtained by economic duress
The second independent ground relied upon by the plaintiff is that there is a genuine dispute that the repayment deed is unenforceable because it was obtained by economic duress.
Legal principles
The following propositions emerge from the case law concerning economic duress:
(a) the rationale of the doctrine of economic duress is that the law will not give effect to an apparent consent which was induced by illegitimate pressure.[33] However, the test is a stringent one;[34]
[33]Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40, 45 (McHugh JA, with whom Samuels and Mahoney JJA agreed) (‘Crescendo’).
[34]Anozira Pty Ltd v Hunt [2002] ACTCA 10 [31] (Crispin P, Gray and Madgwick JJ) (‘Anozira’).
(b) an agreement may be vitiated or a transaction impugned if it is established that a party has used an illegitimate form of pressure, which is physical, economic or psychological in nature, to compel or induce the other party to enter into the relevant agreement;[35]
[35]Hingst v Construction Engineering (Aust) Pty Ltd (No 3) [2018] VSC 136; (2018) 281 IR 70 [172] (Zammit J, now Incerti J) (‘Hingst v Construction Engineering’), citing N Seddon, R Bigwood and M Ellinghaus, Cheshire and Fifoot’s Law of Contract (LexisNexis Butterworths, 10th ed., 2012) 743 [13.1]. See also Anozira [31] and Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366, 400 (‘Universe Tankships Inc of Monrovia’).
(c) generally speaking, pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct.[36] However, even lawful pressure can still operate as duress so long as the pressure is illegitimate or wrongful,[37] or goes beyond what is reasonably necessary for the protection of a party’s legitimate interests.[38] An actual or threatened breach of contract may constitute an unlawful threat for the purpose of duress;[39]
[36]Crescendo, 46 (McHugh JA); Electricity Generation Corp t/as Verve Energy v Woodside Energy Ltd [2013] WASCA 36 at [25], [30] (McLure P) (‘Electricity Generation v Woodside’).
[37]Westpac Corporation v Cockerill, Dingle & Dingle (1998) 152 ALR 267, 289 (Keifel J (as her Honour then was), with whom Northrop and Lindgren JJ agreed) (‘Westpac v Cockerill’).
[38]Thorne v Kennedy (2017) 263 CLR 85, 114 (Nettle J) (‘Thorne v Kennedy’) citing Edelman and Bant, Unjust Enrichment (Bloomsbury Publishing, 2nd ed., 2016) 211-2, 215-6.
[39]Electricity Generation v Woodside [26], [30] (McLure P), citing Furphy v Nixon (1925) 37 CLR 161; Smith v William Charlick Ltd (1924) 34 CLR 38; TASundell & Sons Pty Ltd v Emm Yannoulatos (Overseas) Pty Ltd [1956] SR (NSW) 323.
(d) illegitimate pressure may be evident even if the party alleged to have exerted the pressure genuinely believed it was properly exercising its legal rights,[40] although it can be distinguished from the ‘rough and tumble of the pressures of normal commercial bargaining’;[41]
[40]Electricity Generation v Woodside [30] (McLure P) and [184]-[185] (Murphy JA).
[41]DSND Subsea Ltd v Petroleum Geo-Services ASA [2000] BLR 530 at [131] (Dyson J) (‘DSND Subsea’); Mitchell v Pacific Dawn Pty Ltd [2011] QCA 098 at [52] (Fraser JA) (‘Mitchell v Pacific Dawn’).
(e) in considering whether illegitimate pressure has been applied, the words and conduct of the party alleged to have exerted the pressure are judged as a matter of substance and reality and not simply form.[42] For example, pressure may be applied by way of a veiled threat, even where there is no specific demand;[43]
[42]Electricity Generation v Woodside [180] (Murphy JA).
[43]Ibid [180]-[182] citing B & S Contracts and Design Ltd v VictorGreen Publications Ltd [1984] ICR 419, 424 (Eveleigh LJ, with whom Griffiths LJ and Kerr LJ relevantly agreed); Vantage Navigation Corp v Suhail & Saud Bahwan Building Materials LLC (The Alev) [1989] 1 Lloyds Rep 138, 142, 145 (Hobhouse J); Re Hooper & Grass’ Contract [1949] VLR 269, 271 (Fullagar J) and Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298, 303 (Priestley JA, with whom Clarke and Handley JJA agreed).
(f) the identified illegitimate pressure must have the effect of producing compulsion or an absence of real choice[44] and must leave a party with no reasonable or practical alternative but to enter into the relevant agreement.[45] However, it is not necessary to show that a person’s will has actually been overborne;[46]
(g) the illegitimate pressure must cause the complainant to assent to the agreement.[47] However, the illegitimate pressure need not be the sole reason for the complainant entering into the agreement; it is sufficient if it is one of the reasons;[48] and
(h) factors relevant to assessing whether the complainant truly consented to the agreement or whether they were placed under unlawful or illegitimate pressure include: whether they later affirmed or relied upon the agreement;[49] whether there was an adequate alternative to the bargain;[50] whether the complainant sought legal advice;[51] and whether they protested at the relevant time.[52]
[44]Westpac v Cockerill, 289, 292, citing Universe Tankships Inc of Monrovia, 400 and North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705, 717 (Mocatta J). See also Anozira [31].
[45]Hingst Construction Engineering [172].
[46]Crescendo, 46; Thorne v Kennedy, 97 (Kiefel CJ, Bell, Gageler, Keane and Edelmann JJ); Electricity Generation v Woodside [175] (Murphy JA); Anozira [31].
[47]Barton v Armstrong [1976] AC 104, 121; Dimskal Shipping Co SA v International Transport Workers Federation [1992] 2 AC 152, 152; Crescendo, 46; Hingst Construction Engineering [172].
[48]Crescendo, 46; Electricity Generation v Woodside [24] (McLure P).
[49]DSND Subsea [131] (Dyson J). Further, at [148], Dyson J suggested that even if the relevant agreement was entered into under duress, its later affirmation was also a ground to decline to set it aside. See also Alan Roy Hancock v Visy Board Pty Ltd [1997] FCA 113 (‘Hancock v Visy Board’).
[50]Pao On v Lau Yiu Long [1980] AC 614, 635 (Lord Scarman); Hancock v Visy Board.
[51]Ibid.
[52]Ibid.
Relevant evidence
The plaintiff’s director, Mr Dahdouh, has given evidence about the circumstances in which the plaintiff entered into the repayment deed. In the first Dahdouh affidavit, Mr Dahdouh deposes that at the relevant time, he was ‘under extreme pressure as there was a risk that ABG would lose the lease [of the property] if Mind did not consent to the transfer of the lease.’ He explains that ABG had previously invested over $150,000 in the property as subtenant and could not afford to lose the opportunity to have the lease transferred to it. He alleges that ‘[s]ignificant and undue pressure’ was put on him by Mr Shergold of Mind to sign the deed of repayment in a very short time frame. He says that he felt he could not negotiate anything in the repayment deed and that no legal advice was sought in relation to it.
Mr Dahdouh reiterates a number of these matters in the second Dahdouh affidavit. He says that in the context of discussions about ABG taking over the lease as tenant and settling the terms of the repayment deed, Mr Shergold said words to the effect of: ‘we don’t want the [landlord’s] agent to know you owe us money as this will affect your application.’ I take the reference to ‘your application’ to be a reference to ABG’s application to take over the lease from Mind. Mr Dahdouh explains his reaction to this alleged statement as follows:
I was incredibly nervous and concerned that Mr Shergold would tell [the landlord’s] agent that ABG was in arrears to Mind, which would result in [the landlord] not granting ABG the lease. I therefore felt like I had no choice and no reasonable alternative but to enter into the [repayment deed] and the terms dictated by Mind. That is, because of the conduct of Mind in setting the terms of the parties transfer of the lease and threatening to reveal damaging information to [the landlord’s] agent if ABG did not agree, I caused ABG to assent to the deed.
Mr Dahdouh explains that in the event the lease was not transferred to ABG, ABG stood to forfeit the value of $150,000 invested in the property during the course of its tenancy and the employment of up to 20 people working at the property would be in jeopardy. He confirms that neither himself nor ABG obtained legal advice before entering the repayment deed as he did not believe there was an opportunity to do so ‘given the pressure (both economic and psychological)’ to agree to the document and refrain from any negotiations. When Mr Dahdouh was shown a draft of the repayment deed which required payments of $2,500 plus GST per week, he says he informed Mr Shergold that he did not believe ABG could afford those payments. Mr Shergold apparently replied that the repayment deed was needed for the board of Mind to obtain approval for the release of the lease and that so long as ABG made some form of payment, it would be possible to ‘sort something out.’ Mr Dahdouh describes cl 2.2 of the repayment deed (which requires Mind to provide notice of the arrears, thereby binding ABG except in the case of manifest error or fraud) as being exceptionally unfair but something he believed he had ‘no alternative [but] to accept.’
Mr Dahdouh explains that ABG ultimately entered into the repayment deed on the basis of a number of factors, including:
(a) a belief that there was no scope to disagree or negotiate in relation to any aspect of the repayment deed in the form proposed;
(b) Mr Dahdouh being extremely worried that Mr Shergold would inform the landlord’s agent that ABG was in arrears on its rental payments to Mind and that the landlord might not consent to leasing the property to ABG;
(c) that ABG could not afford to lose the benefit of the $150,000 it had invested into the property;
(d) a concern that if the lease was lost, the future employment of ABG’s staff was uncertain; and
(e) the fact that Mr Shergold informed him that ABG could repay the arrears in smaller amounts to those specified by the repayment deed so long as it made regular repayments.
Mind’s evidence in relation to these matters can be found in the Shergold affidavit which was sworn by Mr Shergold in his capacity as a senior manager of Mind. Mr Shergold recalls that the negotiations with Mr Dahdouh and ABG took a number of weeks as there was a delay in ABG providing the landlord with certain information required for the purposes of it entering into a new lease directly with the landlord, among other things. He recalls Mr Dahdouh informed him that ABG wished to retain a lease on the property as it had spent approximately $150,000 fitting it out. He says that whilst Mind originally proposed monthly repayments of $10,000 plus GST, the parties ultimately agreed on the arrears being paid by way of $2,500 plus GST per week. It was also agreed that Mind would surrender the sublease and allow ABG to enter into a lease directly with the landlord. On 9 April 2021, Mr Shergold sent a draft copy of the repayment deed to Mr Dahdouh at his email address and the document was returned in executed form on 14 April 2021.
Mr Shergold explains that ABG was in default of the terms of the repayment deed from its commencement. Upon receipt of Mind’s initial letter of demand on 4 June 2021 and a follow-up email on 8 June 2021, Mr Dahdouh replied on ABG’s behalf requesting a reduction of the weekly payments to $1,000. Following the issuing of the default notices on 10 June 2021, Mr Dahdouh responded by email the same day stating: ‘I don’t know what you expect me to do with this? I am confused?’ Mr Shergold also received a second email from Mr Dahdouh on 10 June 2021 following up as to whether Mr Shergold had asked Mind’s board about reducing the repayment amounts to $1,000 per week. Mr Shergold responded to the effect that Mind required ABG to abide by the deed of repayment.
On 11 June 2021, Mr Shergold received an email from Mr Dahdouh in the following terms:
Hi Bob,
Made another payment.
Following up on the threats of litigation. I actually don’t care if you sue the company or myself because the company or myself has [sic] no assets so it would be a waste of financial resources by Mind Australia to do this and it would be done just out of spite.
I am paying money as a matter of principal [sic]. Not because litigation scares me!
I am not going to allow myself to affect my mental health by this! I felt that I have signed this under duress and agreed to that amount because of this.
I want to stick to paying but it would be helpful if it went to $1,000 a week for everybody’s benefit including mine. I don’t like this not keeping up to payments but when I cannot actually afford it, there is nothing I can do!
Please Bob I ask for your help to see if you can again ask to get it to a feasible amount of $1,000 which I can afford without stress!
Michael
Mr Shergold then states that ABG failed to comply with the default notices and, as a result, the statutory demand was issued by Mind. He confirms that since the statutory demand was served, ABG made four $1,000 payments between 26 July 2021 and 12 August 2021. The defendant’s submissions acknowledge a further two payments made by ABG on or around 18 October 2021 and 25 October 2021. The effect of these payments was to reduce the amount owing under the demand from $73,281.29 to $68,281.28.
Consideration of ground
Having regard to the evidence in its totality, I consider that ABG has established the existence of a genuine dispute about the enforceability of the repayment deed on the basis that it was allegedly entered into by ABG under economic duress.
In my view, the evidence demonstrates at least a credible basis for the contention that Mind illegitimately applied economic and/or psychological pressure on ABG to agree to the terms of the repayment deed, including the process for ascertaining the amount of the arrears as contemplated by cl 2.2. The relevant pressure is found in Mr Shergold’s statement to the effect of ‘we don’t want the [landlord’s] agent to know you owe us money as this will affect your application.’ Mr Shergold does not deny making the statement. The plaintiff submits the statement constituted a threat by the defendant to notify the landlord’s agent about the plaintiff’s history of overdue rental payments which caused it to enter into the repayment deed on uncommercial terms (particularly cl 2.2 in relation to the determination of the arrears). Whilst counsel for ABG accepted that Mr Shergold’s statement could only represent an implied threat (as opposed to a direct threat), there is authority that a veiled threat may still constitute illegitimate pressure for the purpose of establishing duress.[53]
[53]Electricity Generation v Woodside [180]-[182] (Murphy JA) and the cases cited therein.
Mind’s counsel submitted that Mr Shergold’s statement could be understood on the basis that: (a) Mind simply wished to help ABG to both maintain its tenancy and manage the payment of the arrears; or (b) Mind was reluctant to inform the landlord about the arrears because it was not in its own interests to do so as it wished to be released from the lease and to nominate ABG as the new tenant. Either of those explanations is plausible. However, as a matter of substance and form, the relevant words spoken by Mr Shergold are also capable of being construed in the way contended for by ABG.
The surrounding context to the alleged threat is particularly relevant. Mind risked losing the benefit of approximately $150,000 in fit-out works undertaken at the property in the event the landlord did not agree to the transfer of the lease from Mind to ABG. There is evidence that Mr Shergold was made aware of this issue by Mr Dahdouh during their discussions. Mr Dahdouh has also given evidence that he was concerned that a failure to secure the transfer of the lease would endanger the employment of ABG’s staff; that he had experienced economic and psychological pressure to enter the repayment deed; and that neither Mr Dahdouh nor ABG obtained independent legal advice in relation to its terms because he did not believe there was an opportunity to do so.
The evidence identifies the alleged illegitimate pressure (being the purported threat to disclose ABG’s adverse rental history to the landlord) which was apparently used to compel ABG to sign the repayment deed. There is also a suggestion that ABG had no reasonable or practical alternative to entering into the transaction. Finally, there is an apparent causal connection between the alleged pressure and ABG’s entry into the repayment deed in circumstances where it apparently had ‘no choice and no reasonable alternative.’ Even if the pressure was not the sole reason for ABG executing the repayment deed, it is enough if it was one of the reasons for doing so.
Further, in his email of 11 June 2021, Mr Dahdouh clearly suggested that the repayment deed, executed two months prior, was signed under duress and that the arrears fixed under cl 2.2 was agreed to (or at least not contested) by ABG because of this duress. The email gives the contention of duress a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion. Moreover, the email pre-dates the issuing of the statutory demand by six weeks and was therefore not raised in response to the statutory demand.
Although the defendant characterises the plaintiff’s allegation of economic duress as an exercise in historical revisionism because it was not raised until the commencement of this proceeding on 16 August 2021, the 11 June 2021 email does in fact raise the allegation at an earlier point in time. Whether the reference by Mr Dahdouh in the 11 June 2021 email to experiencing stress was a reference to the stress associated with being burdened with terms he regarded as being unfair, or whether it was simply a reference to the stress associated with falling behind in the instalments under the repayment deed are matters requiring further investigation. All of these things ultimately turn on a court’s assessment of the evidence at trial, including the evidence of witnesses under cross-examination.
The defendant contends that because the instalment amounts were changed from $10,000 per month plus GST to weekly payments of $2,500 plus GST, the plaintiff was able to have a say in the means of repayment most convenient to it and thereby negotiate the terms of the repayment deed. The extent to which this change is consequential or represents a real negotiation between the parties may be a matter of debate. Similarly, the fact that ABG was afforded five days to consider the draft repayment deed before executing it would need to be considered against other factors prevailing at the time, including the fact that ABG did not obtain any legal advice. Whether ABG later affirmed or relied upon the repayment deed by making payments under it and receiving the associated benefit of the surrender of the sublease and the entry into a new lease also requires consideration. The question of whether the conduct of Mind at the time of entry into the repayment deed, including the alleged implied threat made by Mr Shergold, represents the ‘rough and tumble of the pressure of normal commercial negotiation’[54] or whether it crosses the line and constitutes illegitimate pressure cannot be readily determined in this proceeding.
[54]DSND Subsea [131]; Mitchell v Pacific Dawn [52].
None of this is to say that ABG would necessarily succeed at trial in setting aside the repayment deed because of economic duress. Whilst the evidence is by no means extensive or overwhelming, it occupies the territory of something ‘between mere assertion and proof that would be necessary in a court of law.’[55] The plaintiff has cleared the requisite evidentiary hurdle of establishing a genuine dispute which is bona fide and which truly exists in fact. But it is not the Court’s role to determine the enforceability of the repayment deed in this summary proceeding. As Barrett J explained in Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2)[56]:
Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger.[57]
[55]TR Administration, 79 [71] (Dodds-Streeton JA).
[56][2003] NSWSC 896.
[57]Ibid [18].
Varying the statutory demand under s 459H(4) of the Act
For the sake of completeness, I will briefly deal with the last point raised in the proceeding; namely whether the demand should be varied to take account of payments made by ABG to Mind following service of the demand. The short answer is no. A demand can only be varied pursuant to s 459H(4) of the Act if the Court is satisfied under s 459H(1) of either: (a) the existence of a genuine dispute between the company and the respondent creditor about the existence or amount of a debt to which the demand relates; and/or (b) that the company has an offsetting claim. If so satisfied, the Court is then required to calculate the ‘substantiated amount’ for the purposes of ss 459H(2) and (5) and where the Court calculates the substantiated amount to be at least as great as the statutory minimum, the demand may be varied accordingly. However, the legislation does not empower the Court to vary a demand to take account of payments made in the absence of a finding of a genuine dispute or offsetting claim concerning those payments. Here, the later payments are not in contention. Payments made by a debtor in respect of a debt claimed in a statutory demand following its service would, however, be relevant in any subsequent winding up proceeding.
Conclusion
For the reasons set out above, the statutory demand will be set aside by reason of either or both of the alternative genuine dispute grounds advanced by the plaintiff pursuant to s 459H(1)(a). I will hear the parties on the question of costs.
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