Re Kallawar Holdings Pty Ltd
[2010] VSC 288
•24 June 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST E
No. 10812 of 2009
IN THE MATTER of KALLAWAR HOLDINGS PTY LTD
| KALLAWAR HOLDINGS PTY LTD (ACN 103 071 549) | Plaintiff |
| v | |
| COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) | Defendant |
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JUDGE: | Davies J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10 June 2010 | |
DATE OF JUDGMENT: | 24 June 2010 | |
CASE MAY BE CITED AS: | Re Kallawar Holdings Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 288 | |
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CORPORATIONS – Statutory demand – Application to set aside – Claim of genuine dispute about existence of debt – Claim that “some other reason” why the demand should be set aside – Whether demand specified a fixed sum payable – Whether amount payable sufficiently verified – Corporations Act 2001 (Cth) ss 459G, 459H, 459J
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr. P G Cawthorn SC | B2B Lawyers |
| For the Defendant | Dr. A P Trichardt | Commonwealth Bank of Australia Legal Services Victoria |
HER HONOUR:
On 18 May 2010 Efthim AsJ dismissed an application by Kallawar Holdings Pty Ltd (“the company”) under s 459G of the Corporations Act 2001 (Cth) (“the Act”) to set aside a statutory demand served upon it by the defendant (“the CBA”). The company has appealed the order. The appeal proceeds as a rehearing de novo of the application to the Associate Judge.[1]
[1]Supreme Court (Corporations) Rules 2003 r 16.5(1); Supreme Court (General Civil Procedure) Rules 2005 r 77.06(7).
The company contended that the statutory demand should be set aside because:
(a)there is a genuine dispute between the company and the CBA about the existence of the debt to which the demand related;[2] and
(b)there are “other reasons” why the demand should be set aside.[3]
[2]Corporations Act 2001 (Cth) s 459H(1)(a).
[3]Corporations Act 2001 (Cth) s 459J(1)(b).
A. The statutory demand
The statutory demand was in the following form (omitting unnecessary parts):
1.The [company] owes [CBA] the amount of $18,904,122.29 being the total amount of the debt described in the Schedule.
2.The amount is due and payable by the [company].
3.The [CBA] requires the [company], within 21 days after service on the [company] of this demand:
(a)to pay the [CBA] the total amount of the debt …
…
SCHEDULE
Description of the debt
Arising under, and due and payable by the Debtor Company pursuant to a Deed of Guarantee dated 10 September 2007 between the Creditor and the Debtor Company in which the Debtor Company guaranteed to the Creditor the payment of all monies owing to the Creditor by Global Campus Management Pty Ltd (Administrators Appointed) (Global Campus) to the Creditor.
The amount of $18,904,122.29 (plus interest on that sum at the rate of 14.49% per annum from 8 December 2009) is due and payable and unpaid by Global Campus to the Creditor and is constituted by amounts owing under Multi-Option and Contingent Liability components of the Revised and Restated Facility Agreement (Third) between the Creditor and Global Campus dated 28 January 2009 (in the aggregate amount of $18,031,971.08 and under four Rental Agreements between the Creditor and Global Campus numbered 30720, 30956, 31393 and 66938 (in the aggregate amount of $872,151.21)).
Dated: 7 December 2009
Amount of the debt
$18,904,122.29
An affidavit of a bank officer accompanied the statutory demand in which the deponent verified the existence of the debt, the description of the debt and that the amount of $18,904,122.29 was due and payable.
B. Application based on section 459H(1)(a) of the Corporations Act
(i) The basis of the claim that there is a “genuine dispute”
The company supported its application by two affidavits, both sworn by Mark Henry Skinner, a director of the company. The second affidavit was sworn and served after the time period prescribed under s 459G of the Corporations Act.
The application to set aside the statutory demand was founded on the claim of Mr Skinner in his first affidavit that the company’s liability under the guarantee had been released by CBA.[4] This claim was based on alleged representations made to the company, about which the following evidence was given.
[4]Affidavit of Mark Henry Skinner sworn 17 December 2009, 3 [7].
Mr Skinner deposed in his first affidavit that in or about 23 December 2008 the company entered into a Share Sale and Subscription Agreement (“SSSA”) by which the company agreed to sell to Sinoed Group Limited (“Sinoed”) the company’s shares in Global Campus. The agreement provided that Sinoed must use its reasonable endeavours to obtain a release of the company from the guarantee “promptly after the Second Closing”.[5]
[5]Share Sale and Subscription Agreement, cl 7.12(a), Schedule 13.
In February 2009 the company transferred 29% of its shares in Global Campus to Sinoed. The SSSA contemplated that the company’s remaining 71% of shares in Global Campus would be exchanged by a share swap for shares in Sinoed. This was defined in the agreement as the “Second Closing”.[6]
[6]Share Sale and Subscription Agreement, cl 1.1.
Mr Skinner deposed that:
10.The [CBA] was kept apprised of all the negotiations which resulted into the entry into the SSSA, and approved all of the terms of the SSSA.
11. In or around February 2009 Glen Olley of the [CBA] told me that the [CBA] would consider a request to release the [company’s] guarantees after the Second Closing.[7]
[7]Affidavit of Mark Henry Skinner sworn 17 December 2009, 4.
On 13 August 2009 a further series of documents were entered into between the company and Sinoed by which the company disposed of its remaining interest in Global Campus. The documents included a Purchase Price Adjustment Deed (“PPAD”). Rather than the share swap contemplated originally under the SSSA the company transferred its remaining 71% share holding to Sinoed.
Mr Skinner deposed:
12.… the [CBA] approved the entry into the transaction and all of the terms of the PPAD, and represented that should the [company] enter into the PPAD to complete the transfer of its shares, the [company] would be released from its Guarantee and the [CBA] would not seek to rely on the Guarantee. I was told by Joff Allen [Sinoed] prior to signing the PPAD and other documents at the Second Closing meeting on 13 August 2009 that the [CBA] had told him that the [CBA] had approved the whole transaction including the PPAD, and it was my understanding that the [CBA] would release the [company] from any and all guarantees. The [company] relied upon those representations in entering into the PPAD. The [company] would not have entered into the PPAD had the [CBA] not made those representations to it.[8]
[8]Ibid.
Mr Skinner further deposed that immediately following the Second Closing meeting on 13 August 2009 he was told by Mr Allen:
Now the [company] and I would not have to worry about the guarantees because Wei Ming Chen was moving to Sydney and the next step was for [Sinoed] to finalise the release by the [CBA] of the [company’s] guarantees.[9]
[9]Affidavit of Mark Henry Skinner sworn 17 December 2009, 4-5 [13].
Mr Skinner also deposed that the company had not been able to compile all of the evidence upon which it might seek to rely at the hearing of the application due to the time available and the fact that the company did not have access to all the relevant documents and material relating to entering into the SSSA and PPAD.
In his second affidavit Mr Skinner repeated that he did not have access to all of the documents relating to entering into the SSSA and the PPAD. Mr Skinner explained that the files and records relating to the share sale were in the possession of the liquidator of Global Campus and that despite requests he had not been able to obtain copies of those documents from the liquidator. He had, however, been able to retrieve and review his diaries for the relevant period. By reference to those diary notes he deposed to:
(a) a series of conversations he had with Mr Chen and Mr Allen during the period leading up to the entry into the PPAD in which he appears to have been told that Mr Chen was arranging the release of the guarantee and that the matter was “under control”. In particular, he deposed to a conference telephone call with Mr Allen and Mr Chen in which he asked whether the CBA had agreed to the release of the guarantee and was assured by both Mr Chen and Mr Allen that the CBA had agreed to the release of the guarantee;
(b) a discussion he had with Mr Chen on 13 August 2009, before signing the PPAD, in the following terms:
(3)(k)(i) I asked him if the [CBA] had agreed to the release of the Guarantee and Mr Chen responded “yes, they have” and assured me that the [CBA] had advised him that it agreed to the release.
(ii)Mr Chen told me that he had spoken to Glen Ollie [sic] of the [CBA] and that Mr Ollie [sic] told him that they – [the company] – “simply want the necessary documents from [Sinoed] for the release, and that the release was fine”.
(iii)Mr Chen further said that “the Board of SinoEd in Shanghai has agreed to the release and has agreed to put in place the necessary support for the [CBA] to take that action”…
(c) a separate conversation with Mr Allen in which Mr Allen told him that Mr Chen had informed him that the guarantee was to be replaced and that the [CBA] had agreed to release the guarantee;
(d) a conversation with Mr Chen on 3 September 2009 in which he inquired about formalising the release of the guarantee and Mr Chen told him that he (Mr Chen) was not sure what was holding up the formalisation of the release but that he (Mr Chen) would take care of it;
(e) a meeting with Mr Chen and Mr Allen on 8 September 2009 in Sydney at which Mr Chen advised him that he was waiting for a document from the CBA formalising the release of the guarantee; and
(f) conversations that he had with Mr Solly (company secretary of the company) between April 2009 and August 2009 in which Mr Solly said that he had been told by Mr Allen that the CBA had agreed to the release of the guarantee, which could be formalised on the completion of the PPAD.
It was contended for the CBA that the nature of the dispute about the enforceability of the guarantee, based on alleged representations made by CBA to Mr Skinner through Mr Chen, were not raised in the first affidavit. It was submitted that Mr Skinner, in the first affidavit, had maintained that such representations came through Mr Allen. It was submitted that it was not open to the company to advance matters that were not raised in the first affidavit. That submission is correct if and in so far as the company sought to raise new grounds in support of its application through the second affidavit. That affidavit, filed out of time, cannot be relied on for the purpose of founding some separate additional or other ground to demonstrate that there is a genuine dispute but it is permissible to supplement the evidence contained in the first affidavit with further evidence relevant to the dispute, as identified in the first affidavit, about the existence of the debt.[10] Here the second affidavit did not raise any new or different basis for the contention that there is a genuine dispute about the existence of the debt. The content of both affidavits was directed at seeking to have the statutory demand set aside on the basis that CBA made representations, conveyed to Mr Skinner and on which the company purportedly relied in entering into the PPAD, to the effect that the company would be released from the guarantee. It is open to the company to rely on the material in the second affidavit to make the submission, based on that material, that there is a genuine dispute.
[10]Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 21 ACSR 581; Tuta Health Care v Nipro Asia [2005] NSWSC 664 (Unreported, Campbell J, 1 July 2005).
(ii) The test for a “genuine dispute” about the existence of the debt
The authorities make it clear that the company must put sufficient evidence before the Court to enable the Court to conclude that there is a dispute and that it is a genuine dispute.[11] In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd[12] the Full Federal Court stated that a “genuine” dispute requires that:
(a) the dispute be bona fide and truly exist in fact; and
(b) that the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.[13]
[11]Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290.
[12](1997) 76 FCR 452.
[13]Ibid 464.
In TR Administration Pty Ltd v Marchetti and Sons Pty Ltd,[14] Dodds- Streeton JA (with whom Neave JA and Kellam JA agreed) said:
[The company] is required to evidence the assertions relevant to the alleged dispute … only to the extent necessary for that primary task. The dispute … should 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. … it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something “between mere assertion and the proof that would be necessary in a court of law” may suffice.[15]
The Court must be satisfied that the claim may have some substance.
[14](2008) 66 ACSR 67.
[15]Ibid [71].
Although the standard of satisfaction is “not a particularly high one”,[16] as Dodds-Streeton JA went on to say:
A rigorous curial approach is nevertheless essential to the effective operation of the statutory scheme.[17]
Thus the material before the Court must contain the basis for establishing that a genuine dispute exists and be of sufficient probative value that the Court is satisfied that it is a real dispute.
[16]Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37, 39 (Lockhart J).
[17]TR Administration Pty Ltd v Marchetti and Sons Pty Ltd (2008) 66 ACSR 67, 72. See also Eyoto Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787 (McLelland J).
(iii) No “genuine dispute” about the existence of the debt shown
It is clear on the evidence that the company does not assert that there were direct communications between it and the CBA about the release of the guarantee, apart from a conversation that Mr Skinner had with Mr Olley of the CBA in February 2009. Mr Skinner deposed that Mr Olley told him that the CBA “would consider a request to release the [company’s] guarantees after the Second Closing”.[18]
[18]Affidavit of Mark Henry Skinner sworn 17 December 2009, 4 [11].
Rather, the relevant conversations were purported to be between Mr Chen and the CBA. Senior counsel for the company submitted that Mr Chen was “acting as an intermediary” and that the CBA made the representations to Mr Chen either as agent for the company or as agent for the CBA “knowing that Mr Chen was going to tell Mr Skinner of them”. It was contended that the company has legal claims against CBA in contract, arising under the Trade Practices Act and founded in estoppel based on the representations made by the CBA to the company through Mr Chen. It was submitted that those claims entitle the company to remedies that include preventing the CBA from enforcing the guarantee. It was also submitted that those claims are not spurious or futile and accordingly that the company has demonstrated that there is a genuine dispute about the company’s liability to pay any amount under the guarantee.
It is one thing to assert the existence of these causes of action and the alleged facts on which they may be founded. It is another thing to put before the Court sufficient probative evidence from which the Court may be satisfied that there is a real dispute about the debt, as distinct from one based on speculation. In my view the company has not done so.
The company’s evidence goes no further than Mr Skinner’s recounting of the conversations that he had with Mr Chen and Mr Allen. It is tolerably clear that Mr Skinner relied on assurances from Mr Chen and Mr Allen that the guarantee was to be released. That assurance could not have come from the only conversation that Mr Skinner had with the CBA about the release. Even on Mr Skinner’s version of that conversation, he was told only that the bank would consider a request for release.
It is apparent that Mr Skinner knew at the time that he signed the PPAD that the guarantee had not been released[19] and knew that the bank required “necessary documents from [Sinoed] for the release”.[20] It is also apparent that Mr Skinner knew that such documentation had yet to be put to the bank.[21] Mr Skinner’s own evidence is not to the effect that CBA had represented to Mr Chen that it had unconditionally agreed to release the company from the guarantee.
[19]Affidavit of Mark Henry Skinner Sworn 17 December 2009, 4 [13].
[20]Affidavit of Mark Henry Skinner Sworn 16 March 2010, 5 [3(k)(ii)]; Affidavit of Glenn Robin Olley sworn 30 March 2010, 3 [15].
[21]Affidavit of Mark Henry Skinner Sworn 16 March 2010, 6 [3(m)(ii)].
Affidavit material was filed on behalf of CBA by the bank officers with whom Mr Chen and Mr Allen appear to have dealt to obtain the bank’s agreement not to treat the change of ownership in Global Campus, upon the share transfer from the company to Sinoed under the SSSA and the PPAD, as an event of default under the facility which the company guaranteed. The three deponents were Mr Olley who is the Senior Vice President in the bank’s Institutional Banking and Markets Division, Ms Gregory, Relationship Manager in the bank’s Institutional Banking and Markets Division and Mr Seear, Risk Manager in the bank’s Risk Management Institutional Banking and Markets Division.
Mr Olley deposed to a conversation with Mr Skinner in February 2009 in which he told Mr Skinner that the bank would consider a request, should one be made, that the CBA release the company from the guarantee. Mr Olley recalled telling Mr Skinner that any such request would need to be assessed against the financial performance of Global Campus at that time and the provision by Global Campus, and proper documentation, of replacement security acceptable to the CBA. Mr Olley deposed that Mr Skinner responded with words to the effect that he understood what was required.
Mr Olley also gave evidence about the meeting on 12 August 2009 with Mr Allen and Mr Chen, at which Mr Seear and Ms Gregory and another person Mr Purcell[22] were also present. Mr Olley recalled saying to Mr Allen that the CBA had no objection to the PPAD and that the CBA would not deem the transfer of the balance of the shares in Global Campus to Sinoed as an event of default under the facility. He deposed that Mr Chen said words to the effect that the company may have to be released from the guarantee and that Sinoed would provide a substitute guarantee. Mr Olley deposed that he did not say “the bank simply want the necessary documents from [Global Campus] Sinoed for the release and that was fine”. He deposed that he said words to the effect that:
a.“as we are extremely concerned as to the ongoing financial viability of [Global Campus] we need three way financial projections – that is, Profit and Loss Statement, a Balance sheet and a cash flow projection – and a revised business plan, including amongst other things, more equity and a debt reduction proposal, in order for us to consider a restructuring of the facilities and arrangements”;
b.“any continuation of facilities would require all aspects of any proposals submitted to the Bank to be to the Bank’s satisfaction”; and
c.“any changes approved by the Bank would need to be fully documented prior to implementation due to our serious concerns over the ongoing financial viability of [Global Campus]”[23]
[22]There is no evidence of what position Mr Purcell held or who he was representing at that meeting.
[23]Affidavit of Glenn Robin Olley sworn 30 March 2010, 4 [17].
He also deposed that he did not receive any request or approach from Sinoed to finalise the release by the bank of the company’s guarantee and that the CBA has not released the company from its obligations under the guarantee.
Both Ms Gregory and Mr Seear swore affidavits confirming what was said by Mr Olley as it relates to them.
Although it is not the function of the Court on an application to set aside a statutory demand to resolve contested questions of fact or determine where the merits lie in any contest,[24] the Court must have regard to the bank evidence in considering whether a genuine dispute has been shown. Critically there was no affidavit from Mr Chen, Mr Allen or Mr Solly answering the banks’ evidence.[25] The state of the evidence is left at the bank’s evidence about what CBA told Mr Chen and Mr Allen and Mr Skinner’s evidence about what Mr Chen and Mr Allen told him.
[24]Kortz Ltd v Data Acquisition Pty Ltd (2006) 155 FCR 556; West International Pty Ltd v Ultradrilling Pty Ltd (2008) 68 ACSR 108, 110 [8].
[25]Mr Skinner deposed in his second affidavit that he was unable to compel Mr Chen or Mr Allen to swear an affidavit and would need to secure their attendance at any future trial by subpoena and that he is presently in dispute with Mr Solly and unable to obtain his co-operation to provide an affidavit. No details were provided about the efforts made by Mr Skinner to arrange for Mr Chen, Mr Allen or Mr Solly to swear affidavits.
In my view, there is insufficient objective evidence to provide a factual foundation for the company’s assertion that the CBA had represented to Mr Chen or Mr Allen that the company’s liability under the guarantee had bee released. First, the CBA’s evidence as to the content of those discussions was uncontested. Secondly, the actual release was not a condition precedent of the transaction and Mr Skinner knew when he signed the PPAD that the CBA required but had not received the necessary documentation to consider the request for a release. Thirdly, the evidence of the bank, which was not refuted, was that it never received that documentation. Fourthly, no actual release was given by the CBA.
Although the evidentiary onus is a low hurdle, nonetheless the evidence must be enough to enable the Court to form a view that a sufficient factual basis for the claim that there is a genuine dispute has been shown. That onus was not discharged.
In the circumstances, the evidence did not sufficiently disclose a “genuine dispute”.
C. Setting aside the demand on other grounds
The company also contended that the demand should be set aside for “some other reason” under s 459J(1)(b) of the Act by reason that:
(a) the demand did not specify a fixed sum to be paid to satisfy the demand;
(b) the debt said to be owed was due under a different agreement that was not the subject of the demand and business records were not produced evidencing and proving the amount of the debt.
I reject both contentions.
It was submitted that the demand did not specify a fixed sum to be paid to satisfy the demand because the debt was described as:
The amount of $18,904,122.29 (plus interest on that sum at the rate of 14.49% per annum from 8 December 2009) is due and payable and unpaid by Global Campus to the Creditor and is constituted by amounts owing under…[26]
[26]Statutory Demand dated 7 December 2009.
In my view the notice demanded payment of a fixed sum and is clear on its terms as to the amount that must be paid – viz $18,904,122.29. The debt carried interest and was properly described as carrying interest but the notice only required payment of the $18.9 million and not also of the interest to satisfy the demand. I am of the view that the notice clearly stated the amount claimed by the CBA and was not ambiguous or uncertain as to what the company had to pay in order to comply with the notice.[27]
[27]Cf Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 12 ACSR 381; Sultana Investments Pty Ltd v Cellcom Pty Ltd [2009] NSWSC 392 (Unreported, Barrett J, 15 May 2009).
In my view, the debt was properly evidenced. All relevant agreements were put into evidence. Specifically, cl 18 of the guarantee provided that a written statement of the amount of the secured monies due or owing at any date was sufficient evidence of the amount owing.
D. Orders
For the above reasons the application to set aside the demand is dismissed. The plaintiff is to pay the defendant’s costs of and incidental to the application.
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