Valcam Pty Ltd atf the Valcam Family Trust v Westocean Pty Ltd atf the Birch Family Trust - [2010] WASC 135

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: VALCAM PTY LTD atf THE VALCAM FAMILY TRUST -v- WESTOCEAN PTY LTD atf THE BIRCH FAMILY TRUST [2010] WASC 135

CORAM: EM HEENAN J

HEARD: 28 APRIL 2010

DELIVERED : 28 APRIL 2010

PUBLISHED : 11 JUNE 2010

FILE NO/S: COR 18 of 2010

MATTER :VALCAM PTY LTD atf THE VALCAM FAMILY TRUST

BETWEEN: VALCAM PTY LTD atf THE VALCAM FAMILY TRUST
Plaintiff
AND
WESTOCEAN PTY LTD atf THE BIRCH FAMILY TRUST
Defendant

Catchwords:

Corporations - Statutory demand - Application to set aside - Partnership - Winding up of partnership - Unequal capital contributions - The partner taking over partnership business as a going concern - Whether amounts shown in capital account of retiring partner a 'debt' due to that partner - No ascertainment of values of partnership assets - Alleged acknowledgement of debt - Need for 90 days notice before debt is due and payable

Legislation:

Corporations Act 2001 (Cth)

Result:

Statutory demand issued by defendant against plaintiff dated 29 January 2010 be set aside
Defendant to pay plaintiff's costs to be taxed

Category: B

Representation:

Counsel:

Plaintiff: Mr A J Aristei
Defendant: Mr N P Gentilli

Solicitors:

Plaintiff: Irwin Legal
Defendant: Jackson McDonald

Case(s) referred to in judgment(s):

Nil

EM HEENAN J: The present application dated 4 February 2010, is by a company, Valcam Pty Ltd, seeking orders setting aside a statutory demand issued to it by the defendant, Westocean Pty Ltd, dated 29 January 2010; for costs; and for other incidental orders.
The evidence discloses that the two companies, Valcam Pty Ltd and Westocean Pty Ltd, were, until 30 June 2008, conducting business together in partnership with a view to profit. Each of those two companies is the trustee of a family trust and they are controlled, respectively, by members of the one family. The director and controller of Valcam Pty Ltd is Mr Cameron Ellis Birch and the director and controller of Westocean Pty Ltd is his father, Mr Kenneth Russell Birch. Although this litigation takes place between corporations, it is essentially a dispute between father and son.
The situation is that the business of the partnership, until it was terminated, was conducted in the name of Sentosa Fishing Charters, a maritime operation operating from Broome and elsewhere in the north‑west. There is a set of accounts of the partnership prepared at 30 June 2008, at pages 98 ‑ 108, of the first affidavit of Mr Cameron Ellis Birch sworn 4 February 2010 (exhibit 1), and there is other evidence to show that the parties agreed upon the accuracy of these accounts and upon the dissolution of the partnership as at that date.
There was no formal winding up of the partnership in the sense that all the assets of the partnership were realised, and the proceeds utilised to satisfy creditors, advances from partners, and then the partners' capital entitlements. Rather the agreement was that the whole of the assets of the former partnership as a going concern would be taken over by the plaintiff as from 1 July 2008. That occurred. The arrangement then was that whatever was duly payable, a somewhat optimistic concept, would be paid by the plaintiff to the defendant.
According to the financial accounts which have been accepted, there was a substantial excess in the value of the assets over the liabilities of the partnership as at the date of dissolution. The net assets are shown as $1,481,482 out of total assets of $1,751,056. The difference is largely accounted for by unsecured liabilities to various creditors of $86,267 and a secured loan to a bank of $182,808.
The agreement between the partners was to share the profits of the partnership equally. Unfortunately, it only traded for about a year and it made a loss of $547,621 for that period. The loss was shared equally and charged against each partner's capital account.
The partners' capital accounts show that there were unequal contributions towards the capital of the partnership at its formation and during its continuation. The total capital contribution by the plaintiff was only $2128 but the total capital contribution of the defendant was $2,018,918. After adjustment had been made for the year's trading loss and other charges, the final position on the capital accounts was that the plaintiff is shown to be indebted to the firm in the amount of $272,426 and the firm indebted to the defendant in the amount of $1,753,908.
Of course, if there had been a formal winding up of the partnership and a realisation of its assets and a distribution the assets may have fetched more or less than the amounts shown in these accounts. That could not be ascertained until that process of winding up had been fully completed and the amount of the surplus, after the satisfaction of all liabilities, distributed between the partners. Assuming that there would have been a surplus, it is still not possible to say whether the surplus would have been sufficient to discharge the capital liabilities to the defendant or not. If it had not been sufficient, the distribution would have had to be made in rateable proportions and might, perhaps, have required a contribution by the plaintiff towards the satisfaction of that liability. If, however, the surplus had been sufficient to discharge the capital liabilities and leave some over, the residue would have been distributable among the partners equally because of their equal entitlement to share in the profits. None of that happened, and now it is not possible because all the assets are in the hands of the plaintiff.
It is apparent that the amount shown on these accounts as due to the defendant on his capital account of $1,753,908 is the amount in respect of which the statutory notice of demand was made. In the affidavit verifying that demand (exhibit 2) Mr Kenneth Russell Birch for the defendant says that he is a director of the creditor company in respect of a debt of $1,538,769.06 owed by Valcam Pty Ltd in relation to moneys advanced by the creditor for the purchase of the assets of the business Sentosa Fishing Charters, and then he annexes a schedule which itemises the amounts claimed which include interest less various payments acknowledged to have been made.
In support of its application to set aside the statutory demand, the plaintiff submits that there was never a final winding up of this partnership which allowed the ascertainment of the due entitlement of the defendant to payment from the assets and that, in view of the events which have happened, there will, in all probability, be a significant liability to the plaintiff by the plaintiff to the defendant on the dissolution of the partnership, but it has not yet been ascertained and it is not a liquidated amount. The plaintiff submits that this is not, therefore, a debt immediately due and payable, which could support this statutory demand.
The course of argument and submissions has demonstrated that the defendant must accept that proposition. However, the defendant does not advance its alleged debt on the basis of an unliquidated entitlement to a portion of funds on the winding up of the partnership. Rather, it says that, as a result of negotiations between the interests which occurred after the date of dissolution, an agreement was struck, that the amount payable by the plaintiff to the defendant in the events which happened was the sum of $1,753,907.58, and that that was acknowledged by the plaintiff to be the position, among other places, in an incompletely executed loan agreement, which is undated but which seems to have been prepared in mid‑2009. This is annexure KRB6 of the defendant's affidavit sworn 25 February 2010 (exhibit 2).
That document (at pages 54 ‑ 65 of the affidavit) purports to be a loan agreement between the defendant, Westocean Pty Ltd, as lender, the plaintiff, Valcam Pty Ltd, as borrower and Mr Cameron Ellis Birch as covenantor, which acknowledges that an advance of $1,753,907.58 was made by the lender to the borrower on 1 August 2008 and which then sets out terms for the repayment of that advance, with or without interest, makes provision for events of default, but no particular provision for security other than the covenant of Mr Cameron Ellis Birch.
The defendant asserts that this draft agreement, although never executed by the defendant, is one of a series of documents which was prepared by the solicitors for the parties in the hope of reaching resolution of their unfinished commercial relations and, although unexecuted, that it constitutes an acknowledgment of debt by being an unambiguous statement that there was an advance of that sum as at 1 August 2008 which was then due and owing. The defendant submits that this acknowledgment of debt is sufficient to demonstrate the existence of the debt which is the subject of the statutory demand.
In making those observations I must take into account that the amount of the statutory demand and the amount of the debt alleged will vary according to whether or not interest is taken into account. As set out by the defendant in its written submissions, if the plaintiff is not required to pay interest the amount owed is $1,753,908 minus $322,547, namely a figure of $1,431,361, and that if there is any doubt over whether interest is payable, s 459H of the Corporations Act 2001 (Cth) will apply and the court should make an order under s 459H(4) vindicating the demand in the smaller sum.
The basis for the claim of interest, which is calculated at 6%, is said to be the terms of this unexecuted agreement which contains within it cl 2.3 (at page 57 of the affidavit) making provision for payment of interest at the rate of 8.5% on so much as is outstanding from time to time of the principal and that this is a reduced or concessional claim.
In relation to the submission that this undated agreement which is only partially executed cannot be regarded as an acknowledgment of debt, counsel for the plaintiff submits that it was only one of many attempts to reach agreement between the parties over the resolution of their affairs, that no agreement was ultimately reached and that it cannot possibly be regarded as an enforceable contract. I accept that, but that is not the true question. The question is whether it constitutes an acknowledgment of debt.
The submission in that regard is that the document was a statement of position by the plaintiff at one stage indicating the basis upon which the plaintiff was prepared to enter into terms with the defendant for the resolution of its otherwise unascertained liability, but I do not think that that is a sufficient explanation of the unequivocal acknowledgment that there was a debt of the sum specified in a document executed by the plaintiff by its principal director.
It seems that, in the absence of other reasons to question the authenticity in this document, it should be regarded as an acknowledgment of debt according to its terms, but the terms are important. It is not an acknowledgment of a debt immediately due and payable on demand. It provides for repayment on terms and by cl 2.4 there is the provision:
The borrower agrees to repay the principal sum to the lender at such times and in such sums as the borrower and the lender agree upon. In the event that the borrower and the lender fail to agree upon either the times or the sums for repayment of the principal sum, then the principal sum shall be repayable upon demand by the lender to the borrower which demand shall be effected by the lender providing the borrower with not less than 90 days' prior written notice thereof. The borrower will, in any event, repay the principal sum to the lender not later than 1 July 2018.
Accordingly, if this document is an acknowledgment of debt, it is an acknowledgment of a debt repayable on those terms which include the provision that demand is not to be made without 90 days' prior notice.
Counsel for the defendant, however, draws attention to the default provisions in cl 4 which include, so it is submitted, events which have happened as indicating that the defendant, as creditor, is entitled to demand immediate repayment of the debt. Clause 4.2 reads:
If an event of default occurs, the lender may at any time declare by written notice to the borrower that the principal sum is immediately due for repayment whereupon the borrower shall forthwith repay to the lender the principal sum or so much thereof as then remains outstanding for repayment together with any interest due thereon.
Despite some attempts to identify in the exhibits to the various affidavits correspondence which might constitute such notice under cl 4.2, it was finally acknowledged that no such notice had been given. It seems therefore, that the most that can be said is that if this document is an acknowledgment of debt, it is an acknowledgment of a debt repayable on 90 days' prior notice or upon demand after notice of default has been given, and no satisfaction of either of those conditions preceded the issue of this statutory demand.
That being the case, I am not satisfied that this alleged debt was due or payable when this demand was made and, for that reason, there is a basis to set the notice of demand aside, and I shall make that order.
However, in making that order, I wish to stress that the only grounds upon which there has been any attempt made to suggest that the partially executed loan agreement may not operate as an acknowledgment of debt are those which I have canvassed and rejected.
These proceedings and this decision should not be regarded as a determination of whether or not there are other grounds to impeach that alleged acknowledgment of debt and no issue as to that was joined between the parties in the present proceedings.
I make these observations in case it might be suggested that this decision as to the efficacy of this suggested acknowledgment of debt gives rise to any estoppel. I do not think that it could because the matter has not been fully investigated and decided. All that I have determined is whether or not there are arguable reasons to conclude that the alleged debt is not immediately due and payable. I am satisfied that there are, and I order that:
(1)the statutory demand issued by the defendant against the plaintiff dated 29 January 2010 be set aside; and
(2)the defendant pay the plaintiff's costs to be taxed.