Re Bendigo Central Pharmacy Pty Ltd
[2017] VSC 419
•21 July 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2016 04817
IN THE MATTER of BENDIGO CENTRAL PHARMACY PTY LTD
(ACN 163 432 120)
| BENDIGO CENTRAL PHARMACY PTY LTD (ACN 163 433 120) | Plaintiff |
| v | |
| WILLIAM ANDERSON KWAN | Defendant |
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JUDGE: | RANDALL AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 7 December 2016 and 13 February 2017 |
DATE OF JUDGMENT: | 21 July 2017 |
CASE MAY BE CITED AS: | Re Bendigo Central Pharmacy Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2017] VSC 419 |
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CORPORATIONS – Corporations Act 2001 (Cth), s 459 – Graywinter affidavit – Whether genuine dispute raised in 21 day affidavit expressly, by necessary inference or available inference – Setting aside statutory demand for ‘some other reason’ does not include a genuine dispute.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Strahan | Waters Lawyers |
| For the Defendant | Ms C G Rome-Sievers | Baker Jones |
HIS HONOUR:
This is an application to set aside a statutory demand dated 28 October 2016. The debt is described in the schedule as follows:
Money owed as at 28 October 2016 to the creditor by the company pursuant to a Guarantee and Indemnity granted by the company in favour of the creditor dated 17 May 2016 of $527,759.96.
The plaintiff argued that there was a genuine dispute.
Background
The affidavit filed in support of the application pursuant to s 459G of the Corporations Act 2001 (Cth) (‘the Act’) was sworn by Jeremy David Taylor, who is a director of Central Pharmacies Pty Ltd. That affidavit sets out a loan agreement between Central Pharmacies Pty Ltd with Xian Heng Qu dated 26 February 2016 (‘the Qu agreement’). Pursuant to the 26 February 2016 loan agreement, the sum of $500,000 was advanced, which was deposited on 4 March 2016.
Jeremy Taylor set out that:
The defendant produced a further Loan Agreement which was signed by Central Pharmacies Pty Ltd with me the deponent, Ross David Taylor and the plaintiff as guarantor and the defendant as lender and dated 17 May 2016. No monies were paid under this agreement. …
Jeremy Taylor also deposed that:
The plaintiff has provided a supplementary agreement dated 17 May 2016 … which purports to assign loan agreement dated 26 February 2016 with Xiang Qu to the defendant. That I have not seen this agreement before, I did not agree to this agreement and I have not executed such agreement. …
Jeremy Taylor then set out that the sum of $250,000 had been repaid in respect to the Qu agreement and the sum of $128,260 was retained by Central Pharmacies Pty Ltd for services provided. Neither of those contentions were relied upon in argument.
The affidavit in opposition was sworn by the defendant on 2 December 2016. That affidavit set out all the relevant documentation and explained the assignment of the original loan agreement dated 26 February 2016. There had been default in repayment so the defendant paid out Mr Qu and was substituted as the lender.
The 26 February 2016 Agreement was for a term of ‘upon receipt of business valuation results or within 45 days whichever is earlier.’
The Supplementary Agreement between Mr Qu and Central Pharmacies Pty Ltd (‘the Supplementary Agreement’) set out in its recitals the original loan agreement, the default and the sale of the principal sum to the new lender. The operative provisions as referred to in the recitals substituted the defendant as the lender and, save that a new loan agreement would be entered into at a later date, that the terms and conditions of the 26 February 2016 agreement were to apply. The term was not extended. That supplemental agreement was executed for Central Pharmacies Pty Ltd by Jeremy Taylor.
A new loan agreement was dated 17 May 2016. That agreement was by deed between the defendant and Central Pharmacies Pty Ltd as borrower; incorporating guarantees from Jeremy Taylor, Ross Taylor and the plaintiff. The new loan agreement was executed by Jeremy Taylor on behalf of Central Pharmacies Pty Ltd and by Tanya McKay on behalf of the plaintiff. The repayment date was 60 days from 17 May 2016 as agreed by the lender and the borrower.
The guarantee and indemnity provided by Bendigo Central Pharmacy Pty Ltd dated 17 May 2016 set out at recital C:
The Guarantor has, at the request of the Beneficiary, agreed to enter into this document in order to guarantee the Beneficiary the performance by the Debtor Company of its obligations under the Agreement.
The guarantee clause was in the following terms:
2.1 Obligations Guaranteed
In consideration of any financial accommodation that the Beneficiary may make available to or for the benefit of the Company the Guarantor guarantees to the Beneficiary the due and punctual payment by the Debtor Company to the Beneficiary of the Guarantee Money and performance by the Debtor Company of the Guaranteed Obligations.
On 17 June 2016, Central Pharmacies Pty Ltd made an interest payment to the defendant in the sum of $6,250.
On 15 July 2016, Ross Taylor for Central Pharmacies Pty Ltd transmitted to the defendant the following:
Although we don’t accept your version of the matters discussed at our meeting, we do confirm our request of you today that you extend the repayment date of your loan by a further 90 days from 17-7-16. The reason for this request is that we are currently making arrangements for the repayment to occur. This could occur within 60 days, but we would prefer to err on the side of caution and suggest a 90 day extension of due date for payment of your loan to us.
At our meeting we did discuss the need for transitional assistance in the form of working capital to enable us to continue to fund one of our pharmacies. During our discussion today you advised that this may not be forthcoming. Accordingly, we will use our best endeavours to pay your interest during the period between now and the repayment date. To the extent that any interest is unpaid, we will pay that at the repayment date.
In conclusion, we confirm that the repayment of your loan is our top priority, and we would be grateful for your support whilst we complete that task, which will now be along the lines outlined in the first paragraph of our email below.
By demand dated 15 August 2016, the defendant’s solicitors demanded repayment pursuant to the Guarantee.
Notwithstanding an argument that no funds had been advanced pursuant to the New Loan Agreement, it is clear that Central Pharmacies (the debtor) knew exactly what the position was.
Prior to setting out the plaintiff’s position, I note that the defendant submitted that the affidavit filed in support of the s 459G application was ‘defective and/or inadequate’ as:
(a) the deponent had not established his authority to make the affidavit on behalf of the plaintiff. On the face of the affidavit he was neither a director, office holder or employee of the plaintiff. ‘On this basis the affidavit ought to be struck out’;
(b) ‘much of the affidavit is mere assertion and offends the best evidence rule’;
(c) ‘much of the affidavit is irrelevant or otherwise inadmissible’; and
(d) ‘even if the affidavit were to be wholly received, the evidence is weak, unparticularised, implausible, and contradicted by contemporaneous and other evidence’.
The affidavit sworn by Jeremy David Taylor on 23 November 2016 relevantly sets out:
1.I am authorised by Tanya Jane McKay the director of the plaintiff to make this affidavit on its behalf.
2.I am the person who has the control of the day to day affairs of the plaintiff and had dealings along with David Ross Taylor with the defendant in relation to acquisition of pharmacies for Chinese investors.
It is common practice for an affidavit sworn on behalf of a corporation to merely set out that the deponent is ‘duly authorised’ by the corporation. It is rare that any supporting document is exhibited to confirm that authority. In the instance of a one director company it goes without saying that the company director has the applicable authority. In contrast, the courts accept affidavits where one of multiple directors deposes that he or she is duly authorised to swear the affidavit. In that instance, the Court does not require the resolution of the board of directors authorising the deponent to make the affidavit.
In this particular case if there is any doubt about the deponent’s authorisation being set out appropriately, that doubt is dispelled by there having been recorded on the front page of the affidavit in the tram tracks:
Filed on behalf of: The Plaintiff
Further, the affidavit was served upon the defendant in support of the s 459G application within the 21 day period (‘the 21 day affidavit’).
I will not deal with the specific objections referred to in paragraph [17b] to [17d] unless the issues become directly relevant. However, I note that the affidavit is made by Jeremy Taylor as the person ‘who has the control of day to day affairs of the plaintiff and had dealings along with Ross David Taylor and the defendant in relation to the acquisition of pharmacies for Chinese investors.’ The affidavit requires me to accept that he has ‘actual knowledge’ of the matters set out in the affidavit. If I determine that matters could not have been within his actual knowledge, there is no reliance upon information and belief. In those circumstances statements set out in the affidavit might be characterised as mere assertion rather than being statements in support of the s 459G application.
Recently, in Imagebuild Group Pty Ltd v Fokust Pty Ltd[1] the Victorian Court of Appeal considered a leave to appeal application in circumstances where the affidavit in support of the s 459G application had been sworn by the company’s solicitor. Leave to appeal was refused as Whelan JA and Almond AJA concluded that there was no ‘supporting affidavit’ filed and served within the 21 day period. That affidavit, although it exhibited an unsworn copy affidavit to be sworn by the company’s director at a later date, merely set out reasons for delay in swearing the affidavit rather than verifying the grounds of dispute. Whelan JA[2] observed:
…such [a supporting affidavit] might verify, on the basis for instructions or otherwise, the contents of the affidavit which is proposed to be sworn.
[1][2017] VSCA 131.
[2]Ibid [23].
There has been criticism of an affidavit accompanying a statutory demand when the same has not been sworn by the creditor or an officer of the creditor. That criticism does not flow into the use of an affidavit in support of a s 459G application which is not sworn by the creditor or an officer of the creditor. Given the rigidity of the 21 day time limit to make an application pursuant to s 459G there may be circumstances where it is simply not possible for an officer of a corporate debtor to swear the affidavit in support. The criticism by Whelan JA must be limited to the nature of the application before the Court of Appeal on the special leave application rather than the status of the deponent generally in an s 459G application, such as this one.
The plaintiff’s position
The plaintiff set out in paragraph 3 of the affidavit in support that:
…on the grounds that no monies were advanced by the defendant…under the loan agreement between the defendant and Central Pharmacies Pty Ltd…to which the plaintiff became guarantor.
However, I am satisfied that the documents produced to the Court demonstrate:
(a) the sum of $500,000 was advanced to Central Pharmacies Pty Ltd by Xiang Heng Qu pursuant to the agreement dated 26 February 2016;[3]
[3]Exhibit WAK-2.
(b) Central Pharmacies Pty Ltd failed to repay the advance within the 45 day term set out in the agreement dated 26 February 2016;
(c) the defendant paid out Mr Qu and took an assignment of the loan. That assignment or, perhaps, a novation, was constituted by a Supplementary Agreement made 17 May 2016.[4] That Supplementary Agreement was between Mr Qu and Central Pharmacies Pty Ltd. The Supplementary Agreement acknowledged the original loan agreement of 26 February 2016, recited the sale of the principal sum due thereunder to the defendant and agreed to amend the original loan agreement by entering into the Supplementary Agreement. The terms and conditions set out in the original loan agreement dated 26 February 2016 were preserved. Theoretically, nothing more was required. However, despite that, it was set out that: ‘The new lender will enter into a new loan agreement with the borrower at a later date’;[5] and
(d) on the same day, 17 May 2016, Central Pharmacies entered into what was obviously the ‘New Loan Agreement’. The parties to the New Loan Agreement were Kwan (as lender) and Central Pharmacies Pty Ltd (as borrower), Jeremy David Taylor (Guarantor A), Ross David Taylor (Guarantor B) and the plaintiff (as Guarantor C).[6]
[4]Exhibit WAK-10.
[5]Recital G.
[6]Exhibit WAK-5.
The recital to the New Loan Agreement relevantly includes:
A.The Lender has agreed, as [sic] the request of the Borrower, to provide a loan agreement to the Borrower, the principal amount of five hundred [sic]($500,000.00) dollars (‘principal sum’).
On its face, the recital does not refer to the original loan or the Supplementary Agreement or the effect of the same. However, the definition of ‘secured money’ means:
…all money and damages which now or in the future are owing (actually or contingently) by the Borrower to the Lender under this document and, without limitation, includes the Loan and all moneys and damages payable in relation to this document…
Per the recital, ‘”Loan” means at any time and from time to time, the principal sum of amount of the advance outstanding at the time.’ The ‘advance’ is not defined. It follows that the New Loan Agreement does not impose any limitation upon ‘the advance’ to exclude the formerly advanced $500,000, nor to limit the ‘advance’ to mean any sum advanced pursuant to the New Loan Agreement. That construction is confirmed by the default clause:
In the event of default the Loan, the Secured Money and all other amounts payable under this document and unpaid shall, at the option of the Lender and notwithstanding any delay…immediately become due and payable…[7]
[7]Clause 10.1.
The New Loan Agreement governs the previous $500,000 as well as any further advance pursuant to the same.
The recitals set out in the guarantee are as follows:
A.The Guarantor is a company and of the Debtor Company named in the Agreement to which this Deed is annexed.
…
C.The Guarantor has, at the request of the Beneficiary, agreed to enter into this document in order to guarantee to the Beneficiary the performance by the Debtor Company of its obligations under the Agreement.
D.The Guarantor acknowledges that the Beneficiary is entering into the Agreement in reliance on this Guarantee.
The guarantee clause is as follows:
2.1 Obligations guaranteed
In consideration of any financial accommodation that the Beneficiary may make available to or for the benefit of the Debtor Company, the Guarantor guarantees to the Beneficiary the due and punctual payment by the Debtor Company to the Beneficiary of the Guaranteed Money and performance by the Debtor Company of the Guarantee Obligations.
The ‘Guaranteed Money’ means:
All amounts (including damages) that are payable, owing, but not payable, or that otherwise remain unpaid by the Debtor Company to the Beneficiary on any account at any time under or in connection with the [the New] Agreement or any transaction contemplated by the Agreement, whether present or future actual or contingent or incurred alone, jointly, severally or jointly and severally and without regard to the capacity in which the Debtor Company is liable.
The definition of ‘Guaranteed Money’ is wide enough to include amounts previously advanced. In any event it was not argued on behalf of the plaintiff that that the guarantee clause did not cover past advances. It was argued that no funds had been advanced pursuant to the New Loan Agreement.
In the 21 day affidavit, Taylor set out the New Loan Agreement which had been executed by Central Pharmacies Pty Ltd and by the plaintiff as guarantor. He maintained:
No moneys were paid under this Agreement.
Taylor then referred to the Supplementary Agreement dated 17 May 2016:
…which purports to assign Loan Agreement dated 26 February 2016 with Xian Heng Qu to the defendant. That I have not seen this agreement before, I did not agree to this agreement and I have not executed such agreement.
The New Loan Agreement and the Guarantee provided by the plaintiff were executed by its director, Tanya McKay - not by David Taylor. In a responsive affidavit sworn by the defendant on 2 December 2016, the defendant deposed[8] that the [New Loan Agreement] and the Guarantee by the plaintiff were subsequently provided to him by Ross Taylor after the meeting of 17 May 2016.
[8]At [15].
The plaintiff’s counsel seized upon what was set out in the defendant’s affidavit at paragraph [15] and, inter alia, sought to argue that given the timing of execution of the Guarantee, there was no consideration for the same. Irrespective of a construction of the provisions of the Guarantee, I conclude that, provided the plaintiff is entitled to raise the issue, the timing of the execution of the Guarantee raises an issue about whether or not the consideration for the giving of the Guarantee is ‘past consideration’. If it is, then the Guarantee is not supportable. In those circumstances I requested that the parties file supplementary submissions to address the issue of whether or not I can characterise the question of ‘past consideration’ as falling within the category of genuine dispute notwithstanding that the point was not raised in the 21 day affidavit.
The plaintiff’s primary position was that it was:
…unequivocal, on the materials (and confirmed in the affidavit of the defendant dated 2 December 2016) is that a loan agreement was signed by the parties on 17 May 2016, the loan first in time, and the guarantee subsequently.
The plaintiff submitted that the 21 day affidavit:
Squarely raises:
(a)the issue of consideration on the guarantee by virtue of the express allegation by the Plaintiff that no moneys were advanced pursuant to the loan agreement the basis of the Statutory Demand; and
(b)alleging that the loan agreement upon which the moneys were advanced was the loan agreement dated 26 February 2016.
I do not accept that the issue about past consideration is raised in the 21 day affidavit. The context of timing of execution of documents was confined to an argument which could be distilled from the affidavit that the funds were advanced in March 2016 pursuant to the original loan agreement. I have already determined that the subsequent documents are effective to assign or novate the loan to the defendant.
The plaintiff’s fall-back position was that:
…whilst it is accepted that no new ground may be raised by the Plaintiff, not already raised in the affidavit filed and served within the 21 days of the Statutory Demand, Graywinter does not preclude a scenario where grounds are raised and evidence is later deposed to (even outside the 21 day time limit). The question turns on what is the threshold test, and was it satisfied here? It is submitted the test was satisfied by the Affidavit, as it clearly deposed to a disputed debt, was not a mere assertion, and supported the allegation of a deposed dispute by reference to an earlier loan agreement (with no guarantee) to which the moneys were actually advanced. There is a genuine dispute raised on what loan agreement determines the rights and obligations between the lender and the borrower, and in turn the terms and conditions (including enforceability) of any alleged guarantee.
There is also another fundamental point of distinction on the facts of this case.
In Graywinter another authority for the proposition that grounds must be raised in a supporting affidavit material within the 21 day time limit, it was the Plaintiff or Applicant who sought to rely on ‘new’ evidence to which it had deposed (new evidence being anything filed outside the 21 day time limit).
In this case, significantly, the Defendant elected to file materials with the Court. It was the defendant’s material which clarified or distilled the evidence as to what occurred on 17 May 2016 (being the order of signing of the agreements). In fact, if the Court here determines that the issue of timing of the execution of document(s) on 17 May 2016 is a ‘new’ ground, then it was not the plaintiff which raised the ground, but the defendant who did so.
In Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd[9] White J, in explaining the Graywinter principle, held:
It is not necessary for the applicant to expressly articulate the grounds in the affidavit, or to do so by necessary inference, as distinct from available inference. All that can be implied from the requirement of s 459G, that there be an affidavit filed and served within 21 days supporting the application, is that the grounds to challenge must be raised in that affidavit.
[9](2007) 61 ACSR 321.
It is useful to set out his Honour’s analysis as follows:
15.Perpetual submitted that the first ground of challenge was not available to Hansmar Investments by reason of the principles in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1986) 70 FCR 452 at 459-460. Perpetual submitted that the ground was not identified expressly or by necessary inference, so as to be clearly delineated as a ground for challenging the statutory demand (Process Machinery Australia Pty Ltd v ACN 057 262 590 Pty Ltd [2002] NSWSC 45 at [22]; Tokich Holdings Pty Ltd v Sheridan Constructions (NSW) Pty Ltd (in liq) (2004) 185 FLR 130, 22 ACLC 955 at [56]; Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 at [7]).
16In Process Machinery Australia Pty Ltd v ACN 057 262 590, Barrett J said (at [21] and [22]):
21It is thus reasonably clear that the relevant concept of ‘raising’ or ‘identifying’ a particular ground involves some verbal delineation of that ground in the s.459G(3)(a) affidavit. If a debt of $10,000 were claimed as one year’s interest under a contract providing for interest at the rate of 9% per annum on a principal sum of $100,000, it would not, in my opinion, be sufficient for the affidavit to annex the loan agreement and say no more. It would have to refer at least to the connection between the contract and the debt claimed and put in issue the calculation of interest – even if it merely said, ‘The debt does not accord with the annexed contract’.
22The real point is that the application and affidavit filed and served within the 21 day period must fairly alert the claimant to the nature of the case the company will seek to make in resisting the statutory demand. The content of the application and affidavit must convey, even if it be by necessary inference, a clear delineation of the area of controversy so that it is identifiable with one or more of the grounds made available by ss.459H and 459J. That process of delineation may not be extended after the end of the 21 day period, although it is open to the plaintiff to supplement the initial affidavit by way of additional evidence relevant to the area of controversy identified within the period.”
…
26However, whilst I hesitate to differ from any observations of Barrett J, I respectfully consider that the test enunciated in Process Machinery Australia Pty Ltd v ACN 057 260 950 Pty Ltd at [22] and repeated in Elm Financial Services Pty Ltd v MacDougal at [7] that the ground of challenge must be raised expressly or by necessary inference, is stated too strictly. The Graywinter principle is based upon an implication from the requirement in s 459G that an application to set aside a statutory demand be accompanied by an “affidavit supporting the application” which must be filed and served within 21 days after service of the demand. The implication is now firmly established. However, in my view, the implication is no more than that the grounds of the application to set aside the demand must be raised by the supporting affidavit.
27Exceptionally in this area of the law, an affidavit under s 459G may read like a pleading (Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund at 459). Thus, a supporting affidavit may raise a ground of dispute in a form which is inadmissible to prove the facts giving rise to the dispute, and those facts may be proved in a later affidavit filed and served outside the 21-day period. However, there is no requirement in s 459G that the supporting affidavit read like a pleading.
28The implication is now firmly established that the grounds for applying to set aside a statutory demand must be raised in the supporting affidavit, so that a ground which is not so raised cannot be relied upon. It is one thing to draw that implication from the requirement that an application be accompanied by a supporting affidavit. It is quite another to imply from the requirement that there be a supporting affidavit anything as to the precision with which such a ground must be expressed, other than that it be raised. Whether it is raised expressly, by necessary inference, or by a reasonably available inference, provided it is raised, in my view the requirements of s 459G are satisfied.
29In POS Media v B Family Pty Ltd (2003) 21 ACLC 533, Austin J observed that the observations of Barrett J in Process Machinery Australia Pty Ltd v ACN 057 260 590 Pty Ltd at [21] and [22] arguably took the observations of Sundberg J in Graywinter further than they were taken by the Court of Appeal of the Supreme Court of Western Australia in Energy Equity Corporation v Sinedie Pty Ltd (2001) 166 FLR 179, and might be inconsistent with Callite Pty Ltd v Adams [2001] NSWSC 52.
30In POS Media v B Family Pty Ltd, it was arguable that the debt demanded in the statutory demand was not owed because no debt for the price payable on the transfer of shares arose until the shares were transferred. However, this ground of challenge to the statutory demand had not been raised in any way in the supporting affidavit. The agreement under which the alleged debt arose was not annexed to the supporting affidavit. Austin J said that it was unclear whether it would have been open to the plaintiff to have relied upon that ground if the affidavit had annexed the agreement without articulating the argument. His Honour observed that it might be argued that the ground was obvious on the face of the document.
31Such a mode of reasoning would be consistent with Callite Pty Ltd v Adams. There, a solicitor served a statutory demand demanding payment of an amount of unpaid legal costs. One of the grounds of challenge to the demand was that the solicitor had failed to make the disclosure required by s 175 of the Legal Profession Act 1987 (NSW). Santow J (as his Honour then was) held that this ground of challenge was not available because no facts were deposed to from which one could infer that there was no fee disclosure and no costs agreement. However, the affidavit did depose to the receipt of accounts and those accounts were annexed. Santow J held (at [10]) that a perusal of the accounts showed that they lacked the prescribed statutory content as required by s 192 of the Legal Profession Act and Regulation 22A of the Legal Profession Regulations 1994. Section 192 of the Act precluded any action being taken for recovery of costs until 30 days had passed after the provision of a bill of costs which complied with the Act. Santow J held (at [12]) that the legal consequences which flowed from the form in which the accounts were rendered were not required to be pleaded in the affidavit. His Honour set aside the statutory demand on the basis that public policy precluded a statutory demand being used to bypass the safeguards of the Legal Profession Act.
32I doubt that it could be said that in Callite Pty Ltd v Adams it was a necessary inference from the affidavit that this ground of challenge was raised. However, it was an available inference, so that it could fairly be said that the ground was raised in the supporting affidavit.
33Having regard to the diversity of reasoning in these cases as to the precision with which a ground of challenge must be delineated in the supporting affidavit, I do not consider that comity requires me to follow the observations in Process Machinery Australia Pty Ltd v ACN 057 260 590 Pty Ltd at [21]-[22] that a supporting affidavit must clearly delineate the grounds of challenge to a statutory demand expressly or by necessary implication.
I have determined that the issue of consideration has not been raised in the 21 day affidavit. I further determine that the ground was not articulated in the 21 day affidavit by necessary influence. Further, I conclude that the phrase ‘available inference’ as used by White J is not intended to be a term of art, rather a phrase of literal meaning. I will not attempt to construe those words or otherwise define those words. I suspect it will depend entirely on each factual matrix as to how that phrase is applied.
In Van Motman Pty Ltd v Creative Fitness Marketing Pty Ltd[10] Atkinson J considered a statutory demand based upon two agreements. The claim which was continued to be relied upon in support of the statutory demand was in respect of a 2008 agreement.
[10][2010] QSC 105.
Atkinson J said:
The principal difficulty faced by the applicant is that Mr Van Motman, a director of the applicant, swore that the applicant and the respondent entered into the 2008 agreement. The affidavit exhibits that agreement. It is therefore necessary to look at what the 2008 agreement was said to be. ...[11]
[11]Ibid [15].
In this application, the timing of the execution of the guarantee was not raised. Further, it does not follow from the exhibited document that an available inference arises as all the documents executed in May 2016 share the same date. The issue is only raised by the defendant’s responsive material explaining who had executed the guarantee and when it was provided to the defendant.
Atkinson J’s analysis of the agreement exhibited led to the conclusion that it was not between the applicant and the respondent. On the face of the contract Mr Van Motman was mistaken as to whom the contracting parties were. Atkinson J said:
…That the respondent was not in fact the contracting party is an inference that is available from the contracts exhibited to the supporting affidavit. That ground of challenge was not precisely delineated in the affidavit itself nor was it a necessary inference from the affidavit. However it was an available inference from the exhibited material and so, as White J of the Supreme Court of New South Wales held in Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd, it could be said that the ground was raised in the supporting affidavit. …[12]
[12]Ibid [16].
Atkinson J turned then to the applicant’s alternative submission that the respondent in any event satisfies the test set out in s 459J(1)(b) of the Act. It was submitted that the Court may set aside the demand if it is satisfied that there is some other reason why the demand should be set aside.
Atkinson J referred to Neutral Bay Pty Ltd v Deputy Commissioner of Taxation.[13]In Neutral Bay Keane JA, with whom Holmes and Muir JJA agreed, said of s 459J(1)(b) of the Act:
The relevant statutory basis for setting aside a demand is ‘some other reason’. It is difficult to argue that one is dealing here with a code, but much less to say that the scope of what may be comprehended by ‘some other reason’ is impliedly narrowed by the terms of the three other bases. The broad comprehensive scope of the expression ‘some other reason’ cannot be narrowed by reading it as referring only to ‘other reasons’ which are eiusdem generis with the reasons expressly prescribed, if for no other reason than the impossibility of identifying a ‘genus’ common to s 459H(1) and (2) and s 459J(1)(a) and, as has been seen, s 459H is expressed to be subject to s 459J.
The discretion conferred by s 459J(1)(b) is a ‘discretion of broad compass’. It was described in these terms by the Full Court of the Federal Court in Arcade Badge Embroidery Co Pty Ltd v DCT. That the Full Court in that case went on to say that the discretion ‘extends to conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice’ does not suggest that the Court was seeking to give an exhaustive statement of the cases comprehended by the discretion which would exclude ‘unfairness’ the kind identified by the learned primary judge in this case.
Further his Honour said at [84] ‘it may, indeed, be preferable … to avoid attempts to categorise a ‘reason’ for setting aside a statutory demand under s 459J(1)(b) of the Act in terms of ‘unconscionability’ or ‘abuse of process’ because reference to these legal categories tends to distract attention from the real question which is whether there is a good reason to deny effect to a statutory demand as creating a ground for the winding up of a debt or company. Similarly, broad notions such as ‘substantial injustice’ or ‘unfairness’ may describe a judge’s reaction to circumstances which may constitute a reason to set aside a demand without affording an explanation of the analysis which has led to that conclusion.[14]
[13](2007) 25 ACLC 1341 (‘Neutral Bay’).
[14][2010] QSC 105, [19].
Atkinson J further noted:
This elucidation of the compass of s 459J(1)(b), with which I respectfully agree, has been followed in many subsequent cases. In Saferack Pty Ltd v Marketing Heads Australia Pty Ltd, Barrett J held that the operation of the subsection was not confined to cases coming within established categories such as unconscionability and abuse of process but that the section applied wherever there was a need to counter some attempted subversion of the statutory scheme.[15]
[15]Ibid [20].
Atkinson J determined:
There is in my opinion an attempted subversion of the statutory scheme if a company which is not a creditor serves a statutory demand upon a company which is not indebted to it as a precursor to using the court process to wind up the company served with the statutory demand in insolvency because of its failure to pay the amount demanded in the statutory demand. The demand should therefore also be set aside pursuant to s 459J(1)(b) of the Act.[16]
[16]Ibid [21].
Atkinson J further noted that some payments had been made and that there was a dispute about the amount of the payments and the allocation to which particular company the payments were to be attributed. Atkinson J set aside the statutory demand both under s 459H(1)(a) and s 459J(1)(b). I venture that the order in relation to s 459H(1)(a) related to the dispute about the amounts paid and the allocation.
Atkinson J considered the use of a statutory demand process in circumstances where the respondent was clearly not a creditor constituted unconscionability or an abuse of process. The respondent was not a creditor by reason of the identity of the contracting parties in the agreement.
I am not satisfied that merely raising an argument about the timing of execution which might, after investigation, lead to the conclusion that there has been past consideration and that the guarantee may not be enforceable, falls into the category of unconscionable or an abuse of process. Further, although the order in which documents were executed could be questioned by what is set out in the defendant’s material, I have not taken any paragraph of the affidavits filed on behalf of the defendant nor submissions made on behalf of the defendant to concede that the guarantee was not enforceable.
In Hoare Bros Pty Ltd v DCT,[17] Olney J said:
It is not altogether clear what the effect of s 459H(6) is in so far as it provides that s 459H has effect subject to s 459J. Obviously, if a demand is set aside pursuant to s 459J(1)(a) there can be no occasion to consider the provisions of s 459H and it would seem appropriate that questions relating to defects in the demand which cause substantial injustice should be dealt with in advance of any consideration of whether there is a genuine dispute as to the existence or amount of the debt but the real difficulty with s 459J is to know what is intended by the words “some other reason why the demand should be set aside” in subparagraph (1)(b). The “other reason” cannot be a defect causing substantial injustice nor can it be a mere defect (s 459J(2)), and it could hardly have been intended to refer to a genuine dispute between the company and the person making the demand about the existence or amount of the debt.
[17](1995) 16 ACSR 213.
Put simplistically, s 459J is not to be used as a ‘back door’ to ventilating a genuine dispute as to the existence or amount of the debt. Accordingly, I decline to exercise any power pursuant to s 459J(2).
Offsetting claim
Paragraph 10 of the Taylor affidavit sets out:
The sum of $250,000 has been repaid in respect of the Qu agreement (the original loan agreement) and the sum of $128,000 was retained by Central Pharmacies Pty Ltd for services provided.
The test to be embarked upon in an application such as this is set out in Malec Holdings Pty Ltd v Scotts Agency Pty Ltd (In Liq).[18] The Court of Appeal summarised the principles to set aside statutory demands as follows:
[18][2015] VSCA 330.
47The terms of s 459H of the Corporations Act and the authorities make clear that, on an application to set aside a statutory demand, the applicant is required only to establish a genuine dispute or offsetting claim. The applicant is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task. It is not necessary for the applicant to advance a fully evidenced claim. Therefore, the task faced by an applicant is by no means at all a difficult or demanding one.
48In determining such an application, it is not necessary or appropriate for a court to engage in an in-depth examination or determination of the merits of the alleged dispute. This is because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction and requires the applicant to establish that there is a ‘plausible contention requiring investigation’ of the existence of either a dispute as to the debt or an offsetting claim. It is therefore not helpful to perceive that one party is more likely than the other to succeed or that the eventual state of the account between the parties is more likely to be one result than another. Further, the determination of the ‘ultimate question’ of the existence of the debt at a substantive hearing should not be compromised.
49The court is required to determine whether the dispute or offsetting claim is ‘genuine’. It has been said that the criterion of a ‘genuine’ dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of a dispute be real and not spurious, hypothetical, illusory or misconceived. It has also been observed that the dispute or offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion. It must also have sufficient factual particularity to exclude the merely fanciful or futile. A rigorous curial approach is essential to the effective operation of the statutory scheme.
50The court is not required to accept uncritically every statement in an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be, as it may not have sufficient prima facie plausibility to merit further investigation as to its truth. The court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence, although this should not be read as suggesting that the applicant must formally or comprehensively evidence the basis of its dispute or off-setting claim. Except in such extreme cases, the court should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on by the applicant to set aside a statutory demand.
51Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd involved a demand for payment of a debt alleged to be due under a contract for the supply of goods. The applicant relied on four matters, each of which had the potential to affect the respondent’s entitlement to be paid the entire amount of the debt. Barrett J held that all four matters were sufficiently plausible to raise a genuine dispute. He relevantly stated:
The [applicant] will fail in [the] task [of establishing a genuine dispute] only if … the contentions upon which it seeks to rely … are so devoid of substance that no further investigation is warranted. Once the [applicant] 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 [applicant], it must find that a genuine dispute exists, even where any case apparently available to be advanced against the [applicant] seems stronger.
[Citations omitted]
The statements by Mr Taylor regarding the off-setting claims, are nothing more than bluster as referred to in Malec.[19] Having raised the question of an off-setting claim or off-setting claims in the 21 day affidavit, neither he as a director of Central Pharmacies Pty Ltd, nor did the plaintiff itself, provide any further material which would verify or go to verifying the amount claimed to have been paid, nor did the plaintiff offer any explanation as to the sums said to have been retained. Further, I accept the defendant’s position that the bluster is ‘inherently improbable’ given the request for the extension for time to repay in the 15 July 2016 email transmission.
[19]At [48].
Accordingly, I determine that there is no off-setting claim available to the plaintiff. I dismiss the originating process. The plaintiff pay the defendant’s costs including reserved costs on a standard basis.
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