Re BRC Group
[2024] VSC 563
•11 September 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2024 01494
IN THE MATTER of BRC GROUP PTY LTD (ACN 620 080 659) AS TRUSTEE FOR BRC GROUP UNIT TRUST
BETWEEN:
| BRC GROUP PTY LTD (ACN 620 080 659) AS TRUSTEE FOR BRC GROUP UNIT TRUST | Plaintiff |
| v | |
| WATAGAN PARK PTY LTD (ACN 128 663 749) AS THE TRUSTEE FOR CLANCY FAMILY TRUST MKT2 | Defendant |
---
JUDGE: | Barrett AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 19 August 2024 |
DATE OF JUDGMENT: | 11 September 2024 |
CASE MAY BE CITED AS: | Re BRC Group |
MEDIUM NEUTRAL CITATION: | [2024] VSC 563 |
---
CORPORATIONS – Application to set aside statutory demand pursuant to s 459G of the Corporations Act 2001 (Cth) – Statutory demand based on loan agreement – Plaintiff’s affidavit filed with application alleges there was no concluded loan agreement – Plaintiff subsequently sought to contend that there was a loan agreement but on different terms to those relied on by the defendant – Whether plaintiff precluded from relying on the ground that there was a concluded loan agreement but on different terms – Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452; Sceam Construction Pty Ltd v Clyne and Anor (2021) 64 VR 404 considered – Held: plaintiff precluded from relying on ground not raised in affidavit filed with application – Whether the contention that there was a loan agreement, but on different terms to that alleged by the defendant, is ‘genuine’ – Creata (Aus) Pty Ltd v Faull (2018) 125 ACSR 212, Re Sceam Constructions Pty Ltd [2021] VSC 437 and Re Showground Corporation Pty Ltd [2022] NSWSC 1491 considered – Held: dispute as to the terms of the loan agreement, even if raised by the affidavit filed with the application, is not genuine – Held: plaintiff failed to establish genuine dispute – Application dismissed.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Miller | Colin Biggers & Paisley |
| For the Defendant | Mr S L Freire | Kalus Kenny Intelex |
TABLE OF CONTENTS
Introduction
Background
Consultancy Services Agreement
Equity Right Agreement
Loan Agreement
Legal principles
What ground of dispute is raised in the 21 day affidavit?
Genuine dispute
Is there a serious question or plausible contention that the debt is not owing because there was no Loan Agreement?
Is there a serious question or plausible contention that the debt is not owing on the proper construction of the Loan Agreement?
Is the serious question or plausible contention ‘genuine’?
Defects and Interest
Conclusion
HIS HONOUR:
Introduction
This is an application by the plaintiff pursuant to s 459G(1) of the Corporations Act 2001 (Cth) (‘Act’) to set aside a statutory demand served on it by the defendant on 12 March 2024 claiming a debt totalling $1,044,372.42 pursuant to a loan agreement between the plaintiff and defendant.
The plaintiff relies on the:
(a)affidavit of Mark Hayden Dinnison filed on 2 April 2024 (‘21 day affidavit’);
(b)affidavits of Paul Docherty filed on 3 June 2024, 18 July 2024 and 12 August 2024;
(c)outline of submissions filed on 12 August 2024; and
(d)submissions in reply filed on 16 August 2024.
The defendant relies on the:
(a)affidavit of Sean Clancy filed on 21 June 2024;
(b)affidavit of Chenzi Dong filed on 31 July 2024; and
(c)outline of submissions filed on 14 August 2024.
Background
The plaintiff is the trustee of the BRC Group Unit Trust. Mr Paul Docherty (‘Mr Docherty’) and Mr Mark Hayden Dinnison (‘Mr Dinnison’) are the directors of the plaintiff. The defendant is the trustee for the Clancy Family Trust MKT2. Mr Sean Clancy (‘Mr Clancy’) is the sole director and shareholder of the defendant.
Various documents/agreements were entered into and discussed by the parties in 2021, including:
(a)an unsigned loan agreement between the plaintiff and defendant (backdated 1 January 2021) upon which the statutory demand is based;
(b)a consultancy services agreement between a subsidiary of the plaintiff and Mr Clancy (of Clancy Consulting) dated 1 January 2021 and 7 January 2021 which appears on its face to have been signed by Mr Clancy on 30 March 2021;
(c)an invitation to the defendant, under cover of a letter dated 1 January 2021, to apply for an equity right in the plaintiff and accompanying application form. It appears that an application was completed by Mr Clancy on 31 March 2021; and
(d)an Equity Right Agreement signed on 31 March 2021, comprised of an equity right application form, an agreement and acknowledgements form and terms and conditions (‘Equity Right Agreement’).
As noted above, the statutory demand is based on an amount said to be owing pursuant to the loan agreement. The plaintiff submits that the loan agreement must be understood in the context of other agreements entered into, particularly the Equity Rights Agreement. The defendant submits that the loan agreement is a stand alone agreement that is not linked to any other agreements. That issue is discussed further below.
Consultancy Services Agreement
Between 1 January 2021 and 3 March 2021, a subsidiary of the plaintiff, BRC Management Services Pty Ltd and Mr Clancy entered into a consultancy agreement under which Mr Clancy would provide consultancy services (‘Consultancy Services Agreement’). The Consultancy Services Agreement is dated 1 January 2021, and was signed by Mr Clancy on 30 March 2021.
In an email dated 5 December 2023, Mr Docherty wrote to Mr Clancy that this agreement is linked to the equity right as ‘it requires an employment and or consultancy agreement to be live/active.’
Equity Right Agreement
By way of general background, in about 2021 Mr Clancy considered investing in the plaintiff. Some of the relevant documents in this proceeding were dated 1 January 2021, although some were backdated.
On 1 January 2021, the plaintiff by its director, Mr Docherty, sent a letter to Mr Clancy which included an invitation for Mr Clancy to apply for an equity right in the trust. There is no dispute that this application form was signed by Mr Clancy and that the application was signed and returned on 31 March 2021. The application form contained terms and conditions of the Equity Right Agreement, including the basis upon which it would be granted and how and when it could be exercised. The terms include an option to purchase an equity interest in the plaintiff being the number of units equal to 3% of the value of the trust if the trust was valued above $50 million (clause 2). The ‘Equity Price’ is defined to mean $75,000 per equity option, although this was altered in October 2021. The parties agreed that the exercise price of the option was to be $900,000 although that figure does not appear in the application.
The terms also include a process of valuation of the trust that was to occur prior to any exercise of the equity option. The process is as follows:
(a)after the expiry of the minimum waiting period, Mr Clancy had 12 months to provide written notice to the trust requesting that the trust obtain a valuation (cl 1.1 and 5.1(a)). The minimum waiting period is defined as the period of 3 years from ‘the date of the Application Form …’ (cl 1.1 and 4.1). The Equity Application Form was provided to Mr Clancy under cover of a letter dated 1 January 2021. The application form is Schedule 1 to the letter. Mr Clancy has signed the application form in his own name and dated it 31 March 2021. There is an issue as to the meaning of the ‘date of the Application Form’ as that will determine when the minimum waiting period would end, in particular, whether on 31 December 2023 or 30 March 2024;
(b)if, during the 12 month period after the expiry of the minimum waiting period Mr Clancy provided a notice requesting a valuation, then the trust was to obtain a valuation promptly (cl 5.2(a)). If Mr Clancy did not provide a notice requesting a valuation, then at the expiry of the 12 month period he would be deemed to have provided such a notice and the trust was to obtain a valuation;
(c)once the trust had obtained a valuation it was to provide it to Mr Clancy as soon as reasonably practicable (cl. 5.3), after which Mr Clancy would have 30 days to give notice to the trustee whether or not he elects to exercise the option for equity (cl. 5.4(a)); and
(d)if the defendant elects to exercise the option, or provides no notification, then the defendant will be taken to have exercised its option and will receive its equity entitlement (cl. 5.6). Once it receives its equity entitlement the defendant ‘may exercise its Equity Options by paying the Total Exercise Price to the Trust’ (cl. 5.8 and 8.3). But the equity right would expire if the defendant gave notice that it ‘elects not to make the Equity Election’ (cl 5.4(c)(i)) or elects a Cash Nomination (cl. 5.4(c)(ii)). Clause (e) of the Agreement and Acknowledgments states ‘you … (no consideration) acknowledge that you are not required to provide any consideration for the grant of the Equity Right.’ There is nothing in the Equity Right Agreement Terms that requires payment of money prior to payment of the Total Exercise Price under cll. 5.8 and 8.3 after the valuation process.
Mr Docherty says that ‘on or about 10 June 2021, the Equity Right Invitation/Terms, the Cash Bonus Invitation/Terms were each signed and backdated as at 31 March 2021 and returned by Mr Clancy personally.’
Loan Agreement
The defendant says that on about 1 January 2021, the defendant as lender entered into a loan agreement with the plaintiff as borrower (‘Loan Agreement’). The plaintiff disputes that the agreement was entered into in the terms alleged, although as discussed below, the plaintiff’s position has been less than rigid.
An unsigned document headed ‘BRC loan agreement’ dated 1 January 2021 is exhibited to the 21 day affidavit (BRC Loan Agreement). The loan agreement describes the borrower as the plaintiff and the lender as the defendant and provides that:
(a)the lender will ‘make available’ to the borrower by ‘on or about August 2021’ the First Advance being the sum of $250,000 (cl. 1.1 and 2.1) by way of cleared funds to the borrower’s identified bank account (c. 2.3);
(b)between 1 September 2021 and 31 December 2021 the borrower may require the lender to advance $650,000 to the borrower by way of cleared funds to the borrower’s identified bank account (cl. 1.1 and 2.2). This amount is defined as the Second Advance and by the terms of the agreement was to be advanced by way of four payments of $150,000 in each of the months of September, October and November 2021 and an advance of $200,000 in the month of December 2021 (Schedule 3 – Further Advances);
(c)Interest:
(i)interest accrues daily calculated at 8% per annum on any Outstanding Balance from the date of any Advance, with such interest being payable quarterly in arrears (cl 1.1 and 3.1). The Outstanding Balance is defined as meaning ‘on any day, the amount of all Advances plus any relevant Interest Amount less the aggregate of any repayments made by the Borrower under this document in respect of the Advances’;
(ii)if any interest payment is not made when due, then such interest will be capitalised and will accrue interest at the Default Interest Rate [being 10%] from the due date (cl 1.1 and 3.1);
(d)the borrower must repay the ‘Outstanding Balance’ by the Repayment Date being 31 December 2023 (cl. 1.1 and 4.1) (emphasis added); and
(e)failure to pay by the due date would be an event of default in which case all monies advanced plus interest would become immediately due and payable (cl. 6).
While the written loan agreement is dated 1 January 2021, the parties negotiated its terms and exchanged drafts in September 2021, with the agreement being backdated. In an email dated 25 September 2021 from Mr Dinnison to Mr Clancy (copied to Mr Docherty), Mr Dinnison writes:
The attached loan agreement secures the loan amounts being paid. The repayment date (Dec 2023) aligns with the equity right conversion date. Interest is payable quarterly at 8% pa.
I have proposed further advance dates in schedule 3, please do not hesitate to amend as required.
In his affidavit, sworn on 3 June 2024, Mr Docherty says Mr Dennison sent the first draft of the Alleged Loan Agreement to Mr Clancy on 25 September 2021 at 10:27 am.
As the written loan agreement has not been signed, any agreement to loan funds is not entirely in writing and must, at least in part, be constituted by other communications or conduct.
In response to the service of the statutory demand, the plaintiff’s solicitors wrote to the defendants solicitors on 2 April 2024, which letter included the following:
Our client strenuously denies that the Alleged Loan Agreement was entered into. We have on hand the attached email exchange between the parties in or around September 2021 to October 2021 evidencing the parties negotiating the terms of the Alleged Loan Agreement. We are instructed that the Alleged Loan Agreement was not signed, nor was a concluded agreement reached. In these circumstances, your client cannot rely on the Alleged Loan Agreement.
Mr Docherty says in his 3 June affidavit that:
[T]he Plaintiff and Mr Clancy had initially agreed that the $900,000 would be paid to the Plaintiff in a lump sum but Sean [Mr Clancy] was unable to do so. Following further discussions between Mr Mark Dinnison, Mr Clancy and I [sic] from March 2021 till [sic] October 2021, the Plaintiff and Defendant and Mr Clancy agreed that the investment would be set up as an equity/loan arrangement, which is the same framework that the Plaintiff has with employees. …
It is not disputed that the defendant advanced to the plaintiff:
(a)$250,000 on or about 3 September 2021;
(b)$150,000 in or about November 2021;
(c)$250,000 on or about 31 August 2022.
It is also not in dispute that the further sum of $250,000 was advanced by Mr Clancy to the University of Melbourne in about May or June 2022. Mr Clancy says this was done with the agreement of the plaintiff and on the basis that it would constitute a part of the $900,000 total involvement that the defendant had in the dealings between it and the plaintiff.
Mr Clancy deposes in his affidavit that on or about 17 May 2022, the defendant advanced the sum of $250,000 to the University of Melbourne ‘on behalf of and at the direction of BRC…’. The plaintiff submits that ‘it was agreed that if Mr Clancy donates the $250,000 to the University of Melbourne that that would count as part of the price for the units in the unit trust.’ .
Mr Clancy further deposes in his affidavit that on 13 October 2023 he forwarded an email, between him and his accountant, Mr Russell, to Mr Dinnison to check the email was correct. By reply email sent on 16 October 2023, Mr Dinnison marked up the email in red capital letters as follows:
Hi Sean,
Following on from our discussion regarding your return and tax planning, I have received your excel spread sheet on the BRC Loan and have a few questions I need your clarification on to complete your return and for future tax planning.
1. You donated $250,000 direct to the University of Melbourne on behalf of BRC and I have a receipt dated 30 June 2022 (though you said it was paid earlier). I also understand that BRC will not be paying interest on this Loan but you can claim it against your Personal return for 21/22 FY. Can you firstly confirm this? CONFIRMED…
Secondly, you have mentioned that you are not obligated to Donate any further monies to the University. Can you confirm this? CONFIRMED
It is apparent from this email confirmation, and submissions, that the plaintiff’s position is that the payment of the $250,000 to the University of Melbourne was at the direction of BRC and that it formed part of the $900,000 sum that could ultimately be applied by Mr Clancy to the exercise of the equity option if he wished to exercise that option.
Notwithstanding the above email, the plaintiff submitted that there is a dispute as to whether the $250,000 was repayable as part of the loan funds because the funds were provided by Mr Clancy and not the defendant. The plaintiff further notes that the separate nature of the $250,000 University of Melbourne donation is supported by the defendant’s concession that interest is not payable on that sum.
In correspondence dated 2 February 2024, the defendant’s lawyers say that the defendant has received $34,410.97 by way of payments due under the loan agreement. It was not in dispute that the plaintiff has paid $34,410.97 by way of interest on amounts advanced pursuant to the alleged loan agreement. This is confirmed in an email sent from Mr Dinnison to Mr Clancy on 2 October 2023 at 9:59 am where Mr Dinnison states:
Sean,
Loan/interest summary as of today. $34,410.97 of interest paid for the year ending 30 June 2023.
Mark
17/08/2022 23,495.90
25/06/2023 10,915.07
34,410.97
The defendant seeks to rely on various communications between the parties which he says constitute admissions.
In an email from Mr Docherty to Mr Clancy dated 5 December 2023, Mr Docherty:
(a)in answer to Mr Clancy’s comment that ‘loans are repayable on 31/12/23’ says ‘yes it ended to align with the equity right date but repayment was intended to align with the equity right mechanism on the 31/3/24 …’;
(b)in answer to Mr Clancy’s question ‘all loans repayable on 31/12/23 – is there a problem or concern?’ says ‘we would not be capable of repaying the loan on the 31/12/23 however we are raising funds against the property for the 31/3/24 if an exit option was chosen.’
Mr Clancy deposes that on 7 December 2023, Mr Docherty handed him a document headed ‘PD Summary – Sean Clancy’[1] – which states:
[1]Mr Clancy deposed in his affidavit sworn on 20 June 2024 that he understands ‘PD’ to refer to ‘Paul Docherty’.
We structured the deal as a con note 01 January 2021 (this is also reflected as a ‘loan’ agreement to secure the funds, prior to convertible note conversion- this looks like it went unsigned but was still treated as a loan)…
Both parties operated on the loan-to-convertible note basis. It matures when the convertible note is exercisable - Dec 2023.
·Cash was paid Sep 2021 - $250k
·Cash was paid Nov 2021 - $150k
·Cash was paid August 2022 - $250k
·In addition you pay to UoM $250k to complete the $900k investment (tax treatment at your discretion).
Outstanding funds to be paid from the agreements – consultancy $11k and interest outstanding to Dec ’23 + $65k + $11k.
In December 2023 you can convert that note to 3% holding in BRC upon loan expiry. With the 3% holding valued at $3m[illion] today - June 2022 valuation…
Mr Clancy denies there is a connection between the loan agreement and equity option under the Equity Right Agreement and says that in any case, by email and letter from the defendant’s solicitor, Kalus Kenny Intelex Lawyers, dated 2 February 2024, he unequivocally stated that he had no intention of exercising any option for equity. That email includes the following:
1.On or around 1 January 2021, our client as the lender entered into a loan agreement with BRC Group Pty Ltd as trustee for BRC Group Unit Trust (Borrower and Loan Agreement).
2. The Loan Agreement provides that the Borrower must pay the Lender:
(a) quarterly in arrears commencing on 1 October 2021, interest… at 8% per annum…;
(b) by 31 December 2023 (Repayment Date), the outstanding balance …;
3.Pursuant to the Loan Agreement, our client advanced a total sum of $900,000 on the following occasions:
(a) $250,000 on 30 June 2021;
(b) $250,000 on 3 September 2021;
(c) $150,000 on 3 November 2021;
(d) $250,000 on 9 August 2022.
4. In breach of the Loan Agreement, the Borrower failed to pay the Interest Amount when they fell due...
5. Further and in breach of the Loan Agreement, the Borrower failed to repay the Outstanding Balance by 31 December 2023.
6.To date, our client has received $34,410.97 from the Borrower.
7. As of 31 January 2024, the Outstanding Balance is in the sum of $1,044,372.43 and default interest continues to accrue.
Other Agreements with BRC Group
8. In March 2021, our client entered [sic] a separate arrangement with BRC Group which in essence provided it with options to convert its entitlement under the Loan Agreement into equity right or cash entitlement in BRC Group Unit Trust.
9.In Mr Paul Docherty’s email to [sic] client dated 5 December 2023, you asserted that the date for the exercise of the options, was the repayment date under the Loan Agreement. Our client disputes this is the case, and the Loan Agreement has no such provision.
10. In any event, please be advised that our client will not exercise any such options.
(emphasis added).
By email sent by Mr Docherty to Mr Clancy on 5 February 2024, Mr Docherty stated:
…
Thanks for your patience around the return of your funds …
Firstly, I acknowledge the outstanding debt that is owed to you that was outlined in your correspondence of 2 February 2024 from Chenzi (emphasis added). We cannot meet the proposed date you set out for repayment in the letter. At this stage any significant claims on BRC would cause a further liquidation event, as its assets are now no longer tangible (excluding Arden). I acknowledge that you will reserve your rights as outlined in the contract.
I have been working with Mark to look at what we can do in the medium term to return some of, or at worst to guarantee your funds and their return…
I’d appreciate going over the options below with you over the phone if you can, and then formalising in an email/legals around what most gives you comfort:
…
2. It is difficult for Mark or I [sic] to provide any tangible and bankable liquidity to anyone in the first half of 2024 (emphasis added). I’d like it to be some other way, but would rather be honest about the capability and what we still have to face into, publicly and privately… We would work with you to try and create a schedule and acceptable timing tied to personal guarantees, and tranches of funds rather than a lump sum.
3. We propose that you become second guarantee on our house/s immediately. This will migrate into a first guarantee on the properties as we restructure the first guarantee. We are in the process of having this discussion, again with lawyers, as we seek to ringfence the family property from any business proceedings.
…
While I know none of the above can give you full comfort as I publicly traverse the collapse of the businesses and over time bankruptcy and court proceedings. I’m hoping that you and I can work through the viability of each option and come to a mutually agreed outcome as I get further clarity about my future (emphasis added).
It is apparent from this correspondence that the plaintiff was in significant financial difficulty.
Mr Clancy says that in response to this correspondence he instructed his lawyers to prepare documents giving effect to the registration of mortgages over properties discussed. He further says that on 25 February 2024 he handed the deeds to Mr Docherty and that Mr Docherty said he would have the deeds signed within 24 hours however he did not hear from him any further.
On 12 March 2024, the plaintiff was served with a copy of:
(a)a letter from the defendant’s lawyer, Kalus Kenny Intelex Lawyers;
(b)Creditor’s Statutory Demand (‘Statutory Demand’); and
(c)affidavit in support of the statutory demand sworn by Mr Clancy.
The statutory demand dated 12 March 2024 relevantly provides:
2. The Company owes Watagan Park Pty Ltd ACN 128 663 749 as the trustee for Clancy Family Trust MKT2 (the “Creditor”), the amount of $1,044,372.43 being the total amounts of the debts described in the Schedule.
3. The amount is due and payable.
4. Attached is the affidavit of Sean Joseph Clancy dated 12 March 2024, verifying the amount is due and payable by the Company.
The description of the debt in the schedule is that a ‘principal sum’ of $900,000 is owing and that interest as at 31 January 2024 is owing in the amount of $144,372.43. Thereafter is a table which records the dates the principal was advanced and provides details of the calculation of interest. The schedule indicates that loan principal was paid on 3 September 2021 in the amount $250,000, 30 November 2021 in the amount $150,000, 30 June 2022 in the amount $250,000 and 31 August 2022 in the amount $250,000. Interest is calculated at the standard rate to 30 September 2021 and thereafter on a monthly basis at the default rate. Interest is calculated on all amounts said to be outstanding including principal and capitalised interest (see cl 3.1).
The affidavit of Mr Clancy sworn on 12 March 2024, provides as follows:
1. I am the director of the Creditor company named in the statutory demand, which this affidavit accompanies, in respect of debt totalling $1,044,372.43 (Debt) owed by BRC Group Pty Ltd … [atf …] (Debtor Company), being the total amount owing to the Creditor pursuant a loan agreement dated 1 January 2021, which is described in the Schedule to the Statutory Demand.
2. I am authorised by the Creditor to make this affidavit on its behalf.
3.I have inspected the business records of the Creditor in relation to the Debtor Company’s debt to the Creditor.
4. As at the date of this affidavit, the Debtor Company has not paid the Debt.
5. The total of the Debt is due and payable by the Debtor Company to the Creditor.
….
Mr Dinnison relies on his affidavit affirmed 2 April 2024 (defined above as the ’21 day affidavit’). This is the affidavit that was filed within 21 days as required by s 459G of the Act. Mr Dinnison states as follows:
13. The amount of $900,000 was an equity investment by Sean Clancy, beginning on or around 1 January 2021. This was to be accompanied [sic] a consultancy agreement on the same date (Consultancy Agreement). The terms of which are confidential.
14. In order to obtain an improved purchase price, an equity right agreement was arranged, the funds were not advanced by the Defendant as agreed in early January 2021.
15. It was intended that the maturity dates of the loan agreement and the Consultancy Agreement be aligned to ensure that when the loan ended the equity component would commence.
16. The Defendant then requested that BRC Group enter into a loan agreement. This loan agreement was never finalised and as such, a final agreement as to the terms of the loan agreement was never reached (emphasis added).
17. In as late as September 2021, the parties were still engaging in negotiations about the terms of the loan agreement by email. …
Payments made to BRC group
18. The BRC Group received the following payments:
(a) $250,000 on or about 3 September 2021.
(b) $150,000 on or about 30 November 2021.
(c) $250,000 on or about 31 August 2022.
19. In the Affidavit in Support, Mr Clancy deposes that a $250,000 payment was made on 30 June 2022 to BRC Group (Donation). This is not correct.
20. The Donation was made to the University of Melbourne. It was intended that the this amount be an offset against the ultimate equity right payment that would become due.
Purported Loan Agreement
21. The Plaintiff alleged that the Alleged Debt is due and payable pursuant to a purported loan agreement dated 1 January 2021 (Alleged Loan Agreement). The Alleged Loan Agreement was never entered into and the parties never finalised the terms of this agreement (emphasis added).
22. I note that:
(a) the dates Watagan Park alleged that it advanced the amounts to the Company within the Statutory Demand are different from the dates alleged within the Letter.
(b) Schedule 3of the Alleged Loan Agreement (as noted below) had proposed that the amounts (highlighted in yellow) [being the amounts contained in Schedule 3] would be payable on different dates than actually advanced at paragraph 19 above. Watagan Park was in breach as it agreed to advance the funds.
“Schedule 3 – Further Advances
During the Second Advance Period, further advances broadly as follows:
(a) An advance of $150,000 on or about the month of September 2021;
(b) An advance of $150,000 on or about the month of October 2021;
(c) An advance of $150,000 on or about the month of November 2021; and
(d) An advance of $200,000 on or about the month of December 2021”;
(e)The alleged Interest Rate and Default Interest Rate (Total Interest Amount) sought by Watagan Park was not agreed between the parties. … In light of the dispute raised in relation to the Donation and the Total Interest Amount, the total amount of the debt, as described in the Schedule to the Statutory Demand is not correct.
(f) I am informed by Ms Mustafa-Ay that s 459J(1)(a) of the Act states that the statutory demand may be set aside if the Court is satisfied that because of a defect in the demand, substantial injustice will be caused unless the demand is set aside. A defect in relation to a statutory demand is defined to include an irregularity, a misstatement of an amount or total, a misdescription of a debt or other matter and a misdescription of a person or entity.
23. BRC Group disputes that the interest is due and payable on the Alleged Debt as alleged, and that even if interest is payable, which is not admitted, it was not agreed between BRC Group and Watagan Park that it would be calculated in the manner set out in the schedule to the Statutory Demand.
24. The Repayment Date of 23 December 2021 formed part of the terms of the Alleged Loan Agreement but was not ultimately agreed, given the timing of the advance.
25. In all of the above circumstances there is a genuine dispute as Watagan Park seeks to rely on the Alleged Loan Agreement in repayment of the Alleged Debt.
Mr Dinnison also said initially that the statutory demand is defective because it does not comply with the prescribed form in that it omitted two required notes. This submission was not pressed.
Legal principles
The principles in relation to section 459G and 459H of the Act are well-settled. In Thomson v Australia and New Zealand Banking Group Ltd,[2]the Queensland Court of Appeal recently summarised the principles as follows:
[2][2024] QCA 73 (Mullins P and, Morrison and Bond JJA).
[40]By reference to established authority, the principles applicable to whether there is a genuine dispute for the purpose of s 459H of the Act have been summarised as follows:
(a) for a dispute to be “genuine” it must be “bona fide and truly exist in fact”;
(b) “the grounds for alleging the existence of a dispute … [must be] real and not spurious, hypothetical, illusory or misconceived”;
(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”;
(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;
(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 …”;
(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; 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.
[41]As was summarised by Reeves J in Superior IP:
[22] … it can be seen from these decisions that, in determining whether or not there is a genuine dispute about the debt claimed in a statutory demand, the Court does not conduct a mini trial, or extended inquiry, in relation to the claims and counter-claims being made by the parties, nor does it, except in an extreme case, determine questions of credit. As well, the Court does not determine the merits of the dispute. Instead what the Court is required to do is to look to the material before it to ascertain whether there is a bona fide dispute that truly exists in fact and the grounds for alleging it are not ‘spurious, hypothetical, illusory or misconceived’.[3]
[3]Ibid [40]-[41] (Mullins P and, Morrison and Bond JJA) (citations omitted). See also MSA Renex Corp Pty Ltd v Create Environment Pty Ltd [2021] VSCA 178, [27]-[28] (Ferguson CJ, Kyrou and Walker JJA) citing Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (In liquidation) [2015] VSCA 330, [47]–[51] (Kyrou, Ferguson and Kaye JJA) (‘Malec’).
In relation to construction of contracts, as a basic principle it was not disputed that the objective theory of contract applies. That is, ‘the legal rights and obligations of the parties turn upon what their words and conduct would reasonably be understood to convey, not upon actual beliefs and intentions.’[4]
[4]Equuscorp Pty Ltd v Glengallen Investments Pty Ltd (2004) 218 CLR 471, 483 [34] (Gleeson CJ, McHugh, Kirby, Hayne, Callinan JJ).
In this case, the parties seek to rely on subsequent conduct in support of their submissions as to the contract. Subsequent conduct can be relevant in a number of different ways,[5] but there are limits.[6] Those limitations have been expressed as including the following:
(a)‘the probative value of … subsequent communications must be found in the light they throw on the proper interpretation of the earlier communications alleged to constitute a contract’;[7]
(b)‘probative force [of an admission] will usually vary inversely with the strength of the available direct evidence of the matters in question’.[8]
[5]See J D Heydon, Heydon on Contract (Thomson Reuters, 2019), 409 [9.1560].
[6]GC NSW Pty Ltd v Galati [2020] NSWCA 326, [93] (Gleeson JA)) (‘Galati’).
[7]Ibid.
[8]Ibid [95].
And in relation to admissions in particular:
…Admissions bearing upon contractual intention present difficulties. As Gleeson CJ said in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd at 550, “it will often be necessary to identify with some care the fact which is said to have been admitted”. What is said to be admitted may be a relatively straightforward fact, for example that A discussed with B the price for goods. But if a matter of mixed law and fact is involved, or the application of a legal standard, admissibility may be more contentious….[9]
[9]Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149, [106] (Giles JA, Hodgson and Campbell JJA agreeing).
Courts have expressed a reticence to deal with questions of contractual construction on s 459G applications. In Grandview AusBuilder Pty Ltd v Budget Demolitions Pty Ltd[10] White JA observed:
[10][2019] NSWCA 60 (Bell P, White JA, Sackville AJA) (‘Grandview’).
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”… or where it is “as plain as a pikestaff” that it has no basis… then there will be no genuine dispute…[11]
[11]Ibid [890] (citations omitted).
What ground of dispute is raised in the 21 day affidavit?
There is an issue between the parties as to what dispute is raised in the 21 day affidavit in support, and therefore what grounds may be relied on in the application. Section s 459G(2) of the Act requires the plaintiff to file a supporting affidavit within 21 days of service of the statutory demand verifying the grounds of dispute, and the plaintiff will be restricted to such ground, or grounds, as are raised by that affidavit.[12]
[12]See Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495, [10] (McColland Meagher JJA agreeing with Barrett AJA) (‘Ligon’), citing Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 (‘Graywinter’); Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd (2012) 297 ALR 372, [28]-[30] (Young JA agreeing with Hoeben JA); see Malec (n 3) [52]-[65]; MNWA Pty Ltd v Deputy Commissioner of Taxation [2016] FCAFC 154, [93]-[97] (‘MNWA’) (Rares, Farrell and Davies JJJ).
It is not contended that the plaintiff’s 21 day affidavit does not raise any ground of dispute[13] but rather that the grounds sought to be raised in subsequent affidavits go beyond the ground that was raised within the 21 day time limit, and the latter therefore may not be relied on. The principle was discussed in Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liquidation)[14] as follows:
…the Graywinter principle is not satisfied simply because the ground relied upon in the supporting affidavit and the ground sought to be raised in an affidavit filed after the expiration of the 21 day period deal with the same broad issue.[15]
[13]As was the case in Graywinter (n 12).
[14]Malec (n 3).
[15]Ibid [105] (Kyrou, Ferguson and Kaye JJA).
In Sceam Construction Pty Ltd v Clyne[16] the Court of Appeal explained the point as follows:
Finally, we note that Graywinter itself concerned an affidavit that did not state any material facts to show that there was a genuine dispute; it contained mere assertions, and thus was not an affidavit “in support” of the application. However, in other cases a supporting affidavit has been filed that does identify a genuine dispute on a particular basis, but the party seeking to set aside the statutory demand later seeks to rely on a different genuine dispute, identified in an affidavit filed outside the statutory time period. It is clear from the authorities that an affidavit filed within time that does not identify the dispute later sought to be relied upon is not a “supporting affidavit” in so far as the different genuine dispute is concerned, and that the party concerned is not permitted to rely on that different genuine dispute if it was not identified in the supporting affidavit filed within the statutory time period. That is, the particular “genuine dispute” on which an applicant seeks to rely must be identified in the supporting affidavit filed within time; it is not sufficient to identify one genuine dispute in the supporting affidavit, and then to identify a different genuine dispute in later affidavits filed out of time and at the hearing of the application.[17]
[16](2021) 64 VR 404 (‘Sceam’).
[17]Ibid [43] (Ferguson CJ, Sifris and Walker JJA) (emphasis added) (citations omitted).
The defendant submits that the ground of dispute raised in the plaintiff’s 21 day affidavit is limited to the ground that there was no concluded agreement, and that in subsequent affidavits, and submissions, the defendant impermissibly seeks to go beyond that ground and argue, broadly, that there was an agreement but on different terms. The defendant submits this is an impermissible breach of the Graywinter[18] principle. The defendant relies on the terms of the 21 day affidavit in which Mr Dinnison states:
16. The Defendant then requested that BRC group enter into a loan agreement. This loan agreement was never finalised and as such, a final agreement as to the terms of the loan agreement was never reached. (emphasis added)
…
[18]Graywinter (n 12).
Purported Loan Agreement
21. The Plaintiff alleged that the Alleged Debt is due and payable pursuant to a purported loan agreement dated 1 January 2021 (Alleged Loan Agreement). The Alleged Loan Agreement was never entered into and the parties never finalised the terms of this agreement. (emphasis added)
Mr Dinnison exhibits correspondence from September and October 2021 which he relies on as evidence that negotiations as to the terms of the loan agreement were continuing, presumably in support of his explicit position that no agreement had been reached. It is notable that Mr Dinnison does not say there was an agreement but it was on different terms, nor does he attach the Equity Option Application or Agreement and seek to align the loan agreement with it in his 21 day affidavit.
The defendant also relies on the letter from the plaintiff’s solicitor’s, Colin Biggers & Paisley dated 2 April 2024 which was sent in response to service of the statutory demand. In that letter there is a flat denial that the loan agreement was ever finalised. The solicitor states:
Our client strenuously denies that the Alleged Loan Agreement was entered into. We have on hand the attached email exchange between the parties in or around September 2021 to October 2021 evidencing the parties negotiating the terms of the Alleged Loan Agreement. We are instructed that the Alleged Loan Agreement was not signed, nor was a concluded agreement reached (emphasis added). In these circumstances, your client cannot rely on the Alleged Loan Agreement (emphasis added).
The defendant submits that the plaintiff is limited to the dispute raised in the 21 day affidavit, and that subsequent submissions based on there being an agreement but on different terms (as well as any question of rectification) are separate grounds of dispute that were not raised by the 21 day affidavit filed within the statutory time period and therefore may not be relied on.
The plaintiff submits that the 21 day affidavit sufficiently raises the grounds sought to be argued and that the subsequent affidavits expand on the grounds raised in the 21 day affidavit.
In subsequent affidavits, and in submissions made in support of the application, the plaintiff has sought to walk back this position to say that there was in fact an agreement, but that it was on different terms, and has also sought to argue that the agreement will need to be rectified. In particular the plaintiff submits that there was a term of the agreement binding on the parties that the date on which the loan funds were repayable was to align with the time at which the defendant was able to elect to exercise its equity option. That is the loan would be repayable no earlier than the valuation and election process could take place under the Equity Right Agreement. The plaintiff advances the submission based on several emails in late 2022 in which the parties discuss when the loan was to be repaid and there are references variously to December 2023, being the date nominated in the written loan document, and also to the alignment of the repayment with the equity option.
The plaintiff relies on the summary of principles in GoConnect Ltd v Sino Strategic International Ltd (in liq):[19]
…Affidavits filed outside the 21-day period which raise a new ground to set aside a statutory demand (as opposed to an affidavit which expands on grounds in an earlier affidavit) cannot be relied upon to set aside a statutory demand. The supporting affidavit must “fairly alert” the respondent to the nature of the case made in support of the application to set aside the statutory demand. It “must fairly notify the respondent of the evidentiary basis for a submission that the statutory demand should be set aside on the particular ground upon which the applicant seeks to rely”. It will be sufficient if the material facts on which the applicant intends to rely to support the genuine dispute are “discernible from the supporting affidavit and/or the annexures and exhibits to it”.[20]
[19][2016] VSCA 315.
[20]Ibid [40] (Santamaria and Kyrou JJA and Elliott AJA) (emphasis added, citations omitted).
The plaintiff submits that the 21 day affidavit fairly alerted the defendant to the grounds sought to be relied on, and that such grounds are at least discernible from the affidavit and exhibits. For the following reasons, I disagree with the plaintiff.
First, Mr Dinnison’s assertions that there was no concluded agreement is a clear statement of his position. He did not state any alternative along the lines that there was an agreement but on different terms, and it is difficult to see how in those circumstances, the defendant could have been fairly alerted to any such argument from the body of his affidavit.
Secondly, much of the correspondence exhibited to the 21 day affidavit was explicitly relied on for the purpose of establishing that there was no agreement because negotiations were continuing. In that sense the correspondence cannot be said to fairly raise the ground of dispute that there was an agreement, but on different terms. The two grounds are inconsistent.
Thirdly, the only part of the correspondence that seems to touch on issues subsequently sought to be relied on is in the email dated 25 September 2021 from Mr Dinnison to Mr Clancy in which he states:
The attached loan agreement secures the loan amounts being paid. The repayment date (Dec 2023) aligns with the equity right conversion date.
But this correspondence is relied on in the context of the clear assertion that no agreement was reached. In addition, the date nominated for repayment (being ‘Dec 2023’) is inconsistent with the date the plaintiff ultimately seeks to submit was the due date, being the end of the valuation process under the Equity Right Agreement. The plaintiff does seek to rely on the ground that the ‘true agreement’ was that the loan would be repayable at the equity right conversion date. But that ground was not fairly raised in the 21 day affidavit by the passing reference in the 25 September 2021 email, in the context of the explicit denial that there was any agreement, and in the absence of any correspondence constituting any purported acceptance of this suggested date.
In my view, any submission that the loan was repayable pursuant to the terms of the loan agreement no sooner than the equity option election could be exercised under the Equity Right Agreement goes beyond the grounds contained in the 21 day affidavit. The submission that the loan agreement will have to be rectified similarly goes beyond the grounds contained in the 21 day affidavit. I reach that conclusion primarily because the 21 day affidavit contains a clear statement that the genuine dispute was founded on the proposition that no concluded loan agreement was reached. Any argument that there was a concluded loan agreement reached, and that pursuant to the terms of that concluded agreement the loan amount was repayable not before a particular date, or after a particular process was undertaken, is irreconcilable with the initial clearly stated ground that there was no concluded agreement.
The question therefore is whether there is a genuine dispute that there was no concluded loan agreement.
Genuine dispute
Is there a serious question or plausible contention that the debt is not owing because there was no Loan Agreement?
The defendant relies on a number of matters to establish that the alleged amounts were due and owing pursuant to the terms of the Loan Agreement, in particular:
(a)the terms of the written document (albeit unsigned) which provides that the monies were repayable on 31 December 2023;
(b)the fact that loan monies were advanced in the amount set out in the loan document, at about the times set in the loan document;
(c)the fact that the plaintiff paid interest pursuant to the written loan document on loan monies that had been advanced (and this was confirmed in a subsequent email from the plaintiff);
(d)admissions by the plaintiff that the loan agreement was on foot including the email from Mr Docherty to Mr Clancy on 5 December 2023 where, in answer to the question raised by Mr Clancy ‘Loan agreement – Unsigned + no signed copy exists’ Mr Docherty answered ‘was in error but we consider it on foot.’ Further in this email, in answer to the question ‘All loans repayable on 31/12/23 – is there a problem or concern?’ Mr Docherty answered ‘we would not be capable of repaying the loan on the 31/12/23 however we are raising funds against the property for the 31/3/24 if an exit option was chosen.’
(e)Admissions in the email dated 5 February 2024 from Mr Docherty in response to a demand for repayment of the debt, in which he stated:
Thanks for your patience around the return of your funds …
… firstly, I acknowledge the outstanding debt that is owed to you that was outlined in your correspondence of 2 February 2024.
As discussed, in subsequent affidavits, the plaintiff submits that there was in fact an agreement, but that it was on different terms, in particular in relation to the repayment date.
In the face of those matters, I do not consider it is arguable that there was no finalised loan agreement, particularly having regard to the fact that moneys were advanced, interest was repaid, and there are admissions from the plaintiff that the amounts were outstanding pursuant to a loan agreement, and the plaintiff has proceeded with its application on the basis that an agreement was concluded, and the time for repayment of the loan is after the valuation process.
Accordingly the plaintiff has failed to establish there is a dispute on the ground that there was no concluded loan agreement.
The other difficulty the plaintiff faces is that if, as is alleged in the 21 day affidavit, there was no concluded agreement, then the moneys advanced would be repayable immediately and therefore would constitute a debt in any case.[21]
[21]Stone (liquidator), in the matter of Ironbark Blacksmithing Pty Ltd (in liq) v Mizzi [2024] FCA 696, [69]-[70] (Halley J).
In relation to the $250,000 donated to the University of Melbourne, the plaintiff submitted that it is arguable that that amount does not form part of any loan funds repayable to the defendant because the funds were advanced by Mr Clancy, and were to be applied to the exercise of the equity option. The first problem with that argument is that it was not raised in the 21 day affidavit. Secondly, even if it was raised, for the following reasons I do not agree there is a genuine dispute as to the $250,000 donation:
(a)the plaintiff candidly acknowledged in the email dated 16 October 2023 that the $250,000 was donated to the University of Melbourne ‘on behalf of BRC.’ I take that to be a clear indication that the funds were advanced at the direction of the plaintiff;
(b)there is no dispute that the total funds to be advanced under the loan agreement was $900,000. Nor is there any dispute that the $250,000 formed a part of the total funds to be advanced, to, or at the direction of, the plaintiff. Whether those funds were advanced by the defendant directly pursuant to the agreement, or were sourced and advanced by Mr Clancy in performance of the defendant’s obligations under that agreement, the funds would be repayable pursuant to the terms of the agreement.
(c)the plaintiff submits that ‘the $250,000 was to count towards the equity election if it was made.’ Insofar as this is a submission that the donation amount could only be converted into equity, and would not be repayable, I disagree. There is no apparent reason why those funds should not be treated in the same way as the other loan funds that had been advanced directly by the defendant. That is, there is no apparent reason why the $250,000 donated to the University of Melbourne at the direction of the plaintiff should not be repayable if the equity option was not exercised. Any submission that the $250,000 could only be converted into equity would be a departure from the plaintiff’s accepted position that the arrangement involved an option the Mr Clancy had the choice to exercise or not.
For the above reasons I am not satisfied that there is a serious question or plausible contention on a ground raised in the 21 day affidavit.
Is there a serious question or plausible contention that the debt is not owing on the proper construction of the Loan Agreement?
In case I am wrong, and the 21 day affidavit does sufficiently raise as a serious question or plausible contention as to the proper construction of the loan agreement and when the amounts claimed were due, I will consider whether there is a serious question or plausible contention as to that issue.
A central aspect of that allegation is that while there is undoubtedly a written loan document, it has not been signed by the parties. That being the case, it is at least arguable that the agreement must be constituted by words or conduct or implication. It is difficult to see how the agreement could be proved otherwise than by reliance on matters beyond the terms of the written document itself, whether in the form of offer and acceptance constituted by communications of some sort, or by implication from other matters, or by acts of performance.
In this case the defendant says the agreement is constituted in part by the written document, and partly by performance, and also seeks to rely on the admissions made.
The main issue that was sought to be agitated by the plaintiff concerns the date of repayment of the loan. The evidence that the repayment date was 31 December 2023 includes:
(a)the terms of the written loan document which explicitly states that the repayment date is 31 December 2023;
(b)the absence of any express connection either in the written loan document or the Equity Right Agreement connecting the two;
(c)the email from Mr Docherty to Mr Clancy on 5 December 2023 where, in answer to the question raised by Mr Clancy ‘Loans are repayable on 31/12/23’, Mr Docherty answers ‘yes it ended to align with the equity right date but repayment was intended to align with the equity right mechanism on the 31/3/24 and there may be some tax advantages to this date, I’m still checking this point.’ Further in this email, in answer to the question ‘All loans repayable on 31/12/23 – is there a problem or concern?’ Mr Docherty answered ‘we would not be capable of repaying the loan on the 31/12/23 however we are raising funds against the property for the 31/3/24 if an exit option was chosen.’
In this case, the agreement upon which the debt is claimed in the statutory demand is constituted partly in writing but also at least by conversations or other communications and perhaps also partly by conduct. The construction of such a contract requires ‘consideration not only of the text, but also of surrounding circumstances known to the parties, and the purpose or object of the transaction,’[22] including the genesis and context of the transaction.[23] That would likely include other relationships between the parties and related entities which in this case could include the Equity Right Agreement between the plaintiff and Mr Clancy.
[22]Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179 [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); citing Pacific Carriers v BNP Paribas (2004) 218 CLR 451, 461 [22] (Gleeson CJ, Gummow, Hayne, Callinan, Haydon JJ) (‘Pacific Carriers’) discussed recently in Michael Hill Jeweller (Australia) Pty Ltd v Gispac Pty Ltd [2024] NSWCA 211, [87] (Basten AJA).
[23]Pacific Carriers (n 22), [22].
Such matters are not appropriately resolved in the context of an application to set aside a statutory demand. It is not for the court at this stage to attempt to resolve such matters that would likely involve consideration of conversations had, communications exchanged, and the proper interpretation of conduct undertaken at particular times.[24] This general approach was discussed by Barrett AJA in Creata (Aust) Pty Ltd v Faull (‘Creata’)[25] as follows:
… s 459G proceedings are not ordinarily the occasion for the court to construe a contract where there are competing views about its meaning. This was such a case; and there was nothing to displace the principle ordinarily applicable. Competing but plausible submissions on the question of construction should have led to a finding that there was a dispute on that question and therefore dispute as to the existence of the debt the subject of the statutory demand.[26]
[24]Malec (n 3), [47].
[25](2018) 125 ACSR 212, [37] (Barrett AJA, Gleeson and White JJA agreeing) (‘Creata’); recently cited with approval in Re Showground Corporation Pty Ltd [2022] NSWSC 1491, [18]-[19] (Black J) (‘Showground Corporation’) and Re Jana Pty Ltd [2022] NSWSC 112, [15] (Williams J). See also Grandview (n 10) [90] (White JA).
[26]Creata (n 25), [37].
For those reasons, I would, if the ground was raised in the 21 days affidavit, have found that there is a serious question or plausible contention as to the proper construction of the agreement upon which the debt is based.
But that would not be the end of the matter. It is not sufficient to establish that there is such a question. The plaintiff must also establish that the dispute is ‘genuine.’[27]
[27]Ibid, [47] (Barrett AJA, Gleeson and White JJA agreeing); Ligon (n 12), [10] [13] as discussed in Showground Corporation (n 25), [20]-[21] (Black J).
Is the serious question or plausible contention ‘genuine’?
The meaning of ‘genuine’ in this context has been interpreted as requiring the dispute to be advanced ‘in good faith’ and not ‘merely created or constructed in response to the pressure represented by the service of the statutory demand.’[28] It has also been described as requiring:
a ‘genuine dispute’ must, first, be bona fide and truly exist in fact and, secondly, the grounds for asserting its existence must be real and not spurious, hypothetical, illusory or misconceived.[29]
[28]Ibid (n 25), [25] (Black J).
[29]MNWA (n 12), [98] (Rares, Farrell, Davies JJ).
The defendant relies on Re Showground Corporation Pty Ltd[30] (‘Showground Corporation’).In that case Black J considered that there was a serious question as to the construction of the agreement upon which the debt was based, but nonetheless, held that the dispute was not genuine, and so dismissed the application to set aside the statutory demand. Black J’s decision that the dispute was not genuine was based at least in part on the fact that the plaintiff had acknowledged in writing that the amount claimed was payable.[31] That is similar to the present case.
[30]Showground Corporation (n 25).
[31]Ibid (n 25) [24] (Black J).
In this case, even if questions of the proper construction of the loan agreement and in particular the repayment date were properly raised and arguable, I do not consider that the dispute is genuine in the sense discussed in Sceam[32], Creata, and Showground Corporation. A number of matters persuade me that the issue has been raised merely in response to the pressure brought by the statutory demand.
[32]Re Sceam Constructions Pty Ltd [2021] VSC 437, [14] (Hetyey AsJ).
First, in the email on 5 February 2024, the plaintiff has candidly admitted liability to pay the amount claimed. That email contains suggestions as to managing that liability going forward, but does not contain any denial of liability.
Secondly, that admission was accompanied by candid admissions as to the significant financial difficulty the plaintiff was facing.
Thirdly, the vigorous denials that the money was due first appeared in response to the service of the statutory demand.
Fourthly, there is an artificiality in the plaintiff’s submission that the ‘true agreement’ is that the loan is repayable at the end of the valuation period in the Equity Right Agreement. The methodology in that agreement is for the purposes of valuing the plaintiff so that the defendant can make an informed decision about whether to elect to exercise the equity option or not having regard to the value of the company. That technical argument ignores the reality that the defendant has unequivocally stated in his 2 February 2024 email that he has no intention of taking up the equity option. If there were any doubt about that, it must have been resolved having regard to the terms of the plaintiff’s email of 5 February 2024 in which Mr Dinnison explains the dire financial position the plaintiff was in. There is a further degree of unreality about requiring the plaintiff to go through what could be an expensive valuation process where it seems the plaintiff is under significant financial pressure and the process of valuation will inevitably be futile as the defendant has clearly stated that it will not elect to exercise the option to obtain equity in the plaintiff which would be valued having regard to such valuation.
Fifthly, the plaintiff does not submit that the money is not due at all, only that it is not due until the valuation process has been concluded. But the plaintiff accepted that if the valuation process was undergone at the earliest possible time under the Equity Right Agreement, then there would be no question that the amount would now be due and payable. That is, on the plaintiff’s best case, the minimum waiting period expired on 31 March 2024. On that day Mr Clancy could have provided notice requiring a valuation, which the plaintiff would have been compelled to obtain ‘promptly.’ Upon receipt of that valuation, the plaintiff would have to provide it to Mr Clancy ‘as soon as reasonably practicable.’ Immediately upon receipt of that valuation, Mr Clancy could have declined to exercise his option at which time the money advanced under the loan agreement plus interest would be repayable.
For those reasons I do not consider that the dispute is genuine.
Defects and Interest
The plaintiff initially submitted that the statutory demand was defective because of an absence of notes, and also submitted that there was a genuine dispute as to the interest payable. These submissions were not pressed.
Conclusion
The plaintiff’s application will be dismissed. The parties are directed to provide a minute of orders reflecting these reasons including as to costs. If there is any dispute as to costs the parties may file written submissions limited to five pages.
18
0