Seventeenth Febtor Pty Ltd v National Australia Bank Ltd
[1997] FCA 360
•8 MAY 1997
CATCHWORDS
CORPORATIONS - Winding up - Statutory demand - Application to set aside - Genuine dispute as to existence or amount of debt - Guarantee - Guarantor a trustee - Contention that liability under guarantee limited to assets of trust - Existence and amount of debt not disputed
Corporations Law s459H
Harris v Caladine (1991) 172 CLR 84
Re Kwiatek; Ex parte Big J Ltd v Pattison (1989) 21 FCR 374
Ginnane v Diners Club Ltd (1993) 120 ALR 375
SEVENTEENTH FEBTOR PTY LTD (ACN 006 263 074) v NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937) VG 3452 of 1996
COURT:Sundberg J
PLACE:Melbourne
DATE:8 May 1997
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No VG 3452 of 1996
GENERAL DIVISION )
BETWEEN:SEVENTEENTH FEBTOR PTY LTD (ACN 006 263 074)
Applicant
AND:NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)
Respondent
COURT:Sundberg J
DATE:8 May 1997
PLACE:Melbourne
MINUTES OF ORDER
The Court orders that:
The application be dismissed.
The applicant pay the respondent's taxed costs of the application.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No VG 3452 of 1996
GENERAL DIVISION )
BETWEEN:SEVENTEENTH FEBTOR PTY LTD (ACN 006 263 074)
Applicant
AND:NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)
Respondent
COURT:Sundberg J
DATE:8 May 1997
PLACE:Melbourne
REASONS FOR JUDGMENT
SUNDBERG J:
On 29 July 1996 the respondent ("the Bank") served a demand on the applicant under s459E of the Corporations Law for payment of the sum of $882,742.12. That amount was claimed to be due by the applicant under a guarantee it and others had given the Bank in support of financial accommodation provided to Prahran Hodges Real Estate Pty Ltd. The applicant gave the guarantee in its capacity as trustee of the S L Wharton Family Settlement.
The applicant applied under s459H(1)(a) to set aside the demand on the ground that there was a genuine dispute as to the existence or amount of the debt. The application was dismissed by a Registrar. The applicant has sought a review of that decision pursuant to Order 71 rule 7(4) of the Rules. The review is by way of a rehearing on the material before
the judge: cf Harris v Caladine (1991) 172 CLR 84 at 125; Re Kwiatek; Ex parte Big J Ltd v Pattison (1989) 21 FLR 374 at 380-381; Ginnane v Diners Club Ltd (1993) 120 ALR 375 at 380. On 12 March 1997 I extended the time for compliance with the demand until after the determination of the review.
The evidence relied on by the applicant consisted of four affidavits sworn by the applicant's secretary, Mr Wharton, who until about November 1994 had been a director of the applicant. In the first affidavit he says that before he signed the guarantee he told officers of the Bank that the guarantee "was to be given only by the applicant in its capacity as trustee, including its right of indemnity from the assets of the Wharton Family Trust", and that such limitation to the Trust assets was crucial as the applicant carried on other activities beyond those of trustee of the Trust. He said that at no time did the Bank officers say or suggest that the guarantee would provide for liability beyond the Trust assets. In fact clause 12 of the guarantee provided:
where this Guarantee is given by the guarantor as trustee of the trust shortly described in item 5 of the Schedule, the liability of the guarantor hereunder shall extend to him personally and to him as such trustee ....
Mr Wharton says he was not aware of this provision when he executed the guarantee, and the Bank did not draw it to his attention. He says that the applicant also acted as trustee of the Wharton & Co Pooled Mortgage Fund. Clients invested money in the Fund, which was lent to borrowers and secured by registered mortgages over land. He says that it was because of "these activities" that he was anxious to ensure that the guarantee related only to the assets of the Wharton Family Trust.
In his second affidavit he denies a claim made by the Bank that one of its officers had explained the guarantee to him before he signed it. Had the import of clause 12 been drawn to his attention he would have "asked more questions" of the Bank and sought legal advice, and "upon hearing the true effect of clause 12" would not have signed the guarantee. In his third affidavit he repeats the denial. In his fourth affidavit, filed after the Registrar's decision, he refers in more detail to the events surrounding the execution of the guarantee. He spoke to a Bank officer and told him he had been replaced by the applicant as trustee of the Family Trust, and that a fresh guarantee would have to be executed in place of the existing one given by him. He says he pointed out that the applicant was not itself a borrower from the Bank and carried on other activities apart from those as trustee of the Wharton Family Trust. He told the officer that because of this it was only the assets of the Trust that were being provided pursuant to the guarantee. He says the officer agreed with this.
The Bank filed three affidavits in opposition. Only two require mention. The first was sworn by one of the Bank's managers, Mr Caffyn. He disputes that Mr Wharton was not aware that the guarantee was not limited to the Trust's assets, and produced two earlier guarantees given by Mr Wharton, as trustee of the Trust, which contained clause 12 in the form set out above. The second was sworn by the officer who witnessed the execution of the guarantee, Mr Holmes. He says he has no recollection of the event, but did at the time have a "normal practice of explaining" a guarantee, which he "invariably followed". That practice involved him highlighting to the guarantors that each of them was individually liable for the full amount secured by the guarantee. In this particular case he would have explained that each of the guarantors was jointly and severally liable for the debts of Prahran Hodges for the amount of $705,000. He would then have asked the guarantors if they understood the
document and were happy to sign it. He could not recall whether he would have asked them whether they wished to obtain legal advice before signing.
The parties are not in dispute about the appropriate test to apply when determining an application under s 459H(1)(a). One statement which has been approved on a number of occasions is that of the Chief Judge in Equity in Eyota Pty Limited v Hanave Pty Ltd (1994) 12 ACLC 669 at 671:
It is, however, necessary to consider the meaning of the expression "genuine dispute", where it occurs in s 459H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the "serious question to be tried" criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the Court must accept uncritically, as giving rise to a genuine dispute, 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", not having "sufficient prima facie plausibility to merit further investigations to [its] truth" ... or "a patently feeble legal argument or an assertion of facts unsupported by evidence" ....
But it does mean that, except in such an extreme case, a Court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving such a dispute.
See also Rohalo Pharmaceutical Pty Ltd v R P Scherer SPA (1995) 13 ACLC 96 where Lindgren J expressed the view that the task of establishing the genuineness of a dispute is no more onerous than that which would confront a company seeking to meet a creditor's application for summary judgment.
Section 459H(1)(a) speaks of the court being satisfied that there is "a genuine dispute ... about the existence or amount of a debt to which the demand relates". Counsel for the applicant submitted that the genuine dispute here was whether the guarantee was limited to the assets held by the applicant as trustee of the Wharton Family Trust or extended to its own assets.
The material before me strongly suggests that Mr Wharton's discussions with the Bank's officers prior to the execution of the guarantee were prompted by a concern that if the guarantee were not limited to the Family Trust's assets, it would catch the assets of the other unrelated trust. Thus in his first affidavit, after referring to the Pooled Mortgage Fund, and noting that the assets of this Fund are not assets of the applicant in its own right, but rather assets held by it on trust for the investors in the Fund, he continues: "It was because of these activities that I was anxious to ensure that the guarantee that was given ... related only to the assets of the Wharton Family Trust". In his fourth affidavit, speaking again of the discussions preceding the execution of the guarantee, Mr Wharton gave as the reason for wanting the guarantee limited to the assets of the Family Trust that the company "carried on other activities apart from that as being trustee of the S L Wharton Family Trust". There is no evidence that the applicant had any assets of its own (apart from its right of indemnity).
In any event, Mr Wharton's concern about the Pooled Mortgage Fund assets being at risk under the guarantee is misconceived. If, as he says, the assets of that Fund belonged to the investors (as indeed they would if the Fund were a trust), the Bank could not resort to them under the guarantee. When clause 12 speaks of the guarantee extending to the "trustee guarantor" personally and to him as such trustee, it does not purport to, and even if it did so purport could not, subject to the guarantee assets held by the guarantor as trustee of a trust other than that described in item 5 in the Schedule. As Mr Wharton said, these assets were
not owned by the trustee "personally" or in its own right. Accordingly Mr Wharton had no reason to be concerned that the guarantee might allow the Bank to resort to the Pooled Mortgage assets. Had he sought legal advice before executing the guarantee, he would have been told that clause 12 did not have the effect he feared.
I was urged by counsel for the applicant to treat Mr Wharton's concern more broadly than as a worry about the Pooled Mortgage Fund. In his fourth affidavit Mr Wharton spoke generally about "other activities" without limiting them to those involved in the Pooled Mortgage Fund. Counsel pointed out that while there might be no evidence that the applicant had assets of its own, it might in the future acquire them, and clause 12 would permit the Bank to resort to them.
I am prepared to assume that there is a genuine dispute as to whether the guarantee is limited to the assets held by the applicant as trustee of the Wharton Family Trust or extends to its own assets. But is that a genuine dispute within s459H(1)(a)? I do not think it is. For the section to apply, the dispute must be "about the existence or amount of a debt to which the demand relates". The statutory demand requires the applicant to pay the Bank the sum of $882,742.12 being the amount owing under the guarantee. It was not disputed that the amount claimed was owing under the guarantee. Nor was it disputed that that amount was owed by the applicant in its capacity as trustee of the Wharton Family Trust. So neither the existence of the debt nor its amount was disputed. Rather, what was in dispute was whether the Bank could resort to the applicant's own assets to satisfy the debt. That dispute assumes the existence of the claimed debt, and asserts that it can be satisfied out of only one of several funds under the control of the applicant, namely that belonging to the Wharton Family Trust. That is a dispute about the assets available to satisfy the debt, and not about the existence or amount of the debt.
In his reply, after the difficulty facing the applicant had been exposed, counsel submitted that because, on Mr Wharton's evidence, the guarantee was in truth limited to the assets of the Family Trust, the applicant was not liable to the Bank for the amount claimed. Since, as Mr Wharton deposed, all the Trust assets had been realised and the proceeds paid over to the Bank, the applicant was not liable to the Bank at all. It was contended that the Bank would never be able to obtain a judgment for the balance claimed in the demand, because its liability had been expunged when the net proceeds of realisation of the trust assets were paid to it.
In my view there is no substance to this submission. The Bank could only be precluded from recovering the balance if it had agreed, for some consideration, to accept the payment as a discharge of the debt. An agreement, such as that asserted by Mr Wharton, that the Bank would not look beyond the Wharton Trust assets for satisfaction under the guarantee, would not mean that the applicant was only indebted to the Bank in the amount of those assets; that where the Bank resorted to those assets, however little value they might have, the debt was taken to be satisfied. Doubtless a Bank could come to such an arrangement, but there is nothing in the evidence in the present case that suggests it did.
The applicant has not established a genuine dispute within s459H(1)(a), and the application is dismissed with costs.
I certify that this and the preceding seven pages are a true copy of the reasons for judgment of the Honourable Justice Sundberg
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Associate
8 May 1997
Counsel for the Applicant: A Panna
Solicitors for the Applicant: Oakley Thompson & Co
Counsel for the Respondent: M Garantziotis
Solicitors for the Respondent: Russell Kennedy
Date of Hearing: 5 May 1997
Place of Hearing: Melbourne
Date of Judgment: 8 May 1997
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