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Securicom (NSW) Pty Ltd v Charter Pacific Corporation Ltd

 

[2018] QSC 109

SUPREME COURT OF QUEENSLAND

CITATION:

Securicom (NSW) Pty Ltd v Charter Pacific Corporation Limited [2018] QSC 109

PARTIES:

SECURICOM (NSW) PTY LTD

(applicant)

v

CHARTER PACIFIC CORPORATION LIMITED

(respondent)

FILE NO/S:

BS No 513 of 2018

DIVISION:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

29 May 2018

DELIVERED AT:

Brisbane

HEARING DATE:

31 January 2018

JUDGE:

Martin J

ORDER:

  1. The Applicant is to bring in minutes of order reflecting these reasons.

CATCHWORDS:

CORPORATIONS – STATUTORY DEMAND – APPLICATION TO SET ASIDE DEMAND – GENUINE DISPUTE AS TO INDEBTEDNESS – where applicant has been served with statutory demand – where applicant seeks to set aside statutory demand on the basis that there is a genuine dispute as to the existence or amount of the debt – where source of obligations for certain debts are underlying agreements for loans to the applicant – where applicant disputes the source of those obligations for certain debts – whether each loan is governed by debt facility agreements that are in effect and enforceable – whether there arises a plausible contention requiring investigation – whether the disputes as to the sources of those obligations for certain debts have an element of rational controversy to them – whether certain arguments were raised within the time limitation

CORPORATIONS – STATUTORY DEMAND – APPLICATION TO SET ASIDE DEMAND – GENUINE DISPUTE AS TO INDEBTEDNESS – OFFSETTING AND OTHER LIKE CLAIMS – where applicant has been served with statutory demand – where applicant seeks to set aside statutory demand on the basis that there are genuine offsetting claims against the respondent – whether the applicant entered share purchase agreement on the basis of certain representations – whether there were representations made by the respondent that there would be a capital raising – whether this argument was raised within the time limitation – whether the applicant has an offsetting claim in relation to costs awarded to it – whether an untaxed or unassessed order for costs can constitute an offsetting claim – whether the court is satisfied that there is a serious question to be tried that the applicant has an offsetting claim – whether the offsetting claim is bona fide, real and not spurious – whether there is sufficient evidence to support an offsetting claim

CORPORATIONS – STATUTORY DEMAND – APPLICATION TO SET ASIDE DEMAND – FOR DEFECT OR SOME OTHER REASON – where applicant has been served with statutory demand – where the applicant argues that there is a defect in the statutory demand as no basis was provided for the calculation of interest – where the applicant argues that there is a defect in the statutory demand as no exchange rate was nominated for claims expressed in foreign currencies – whether these grounds of challenge to the statutory demand were, expressly or by reasonably available inference, identified in the application or supporting affidavit – whether there is a defect in the demand – whether there is evidence that substantial injustice will arise as a result of that defect – whether the absence of information as to the manner of calculation of interest constitutes a defect – whether the foreign currency argument was raised, expressly or by necessary or reasonably available inference, by the application 

CASES AND LEGISLATION:

20*20 Pty Ltd v D & G Developments Pty Ltd [2009] WASC 343

20*20 Construction Systems Pty Ltd v Dryka and Associates Pty Ltd [2010] WASC 22

Azed Developments Pty Ltd v Frederick & Co Ltd (In Liq) (1994) 14 ACSR 54

Building Solutions and Waterproofing Pty Ltd v Robin H Wright Pty Ltd [2017] QSC 110

Chains & Power (Aust) Pty Ltd v Commonwealth Bank of Australia (1994) 15 ACSR 544

Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37

Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300

Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85

David Grant & Co v Westpac Banking Corporation (1995) 184 CLR 265

Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785

Fleur De Lys Pty Ltd v Jarrett (2004) 51 ACSR 238

Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (19996) 70 FCR 452

Hamilhall Pty Ltd (In Liq) v A T Phillips Pty Ltd (1994) 15 ASCR 247

Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd [2012] NSWCA 365

Kalamunda Meat Wholesalers Pty Ltd v Red Russell & Sons Pty Ltd (1994) 13 ACSR 525

Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd [2002] NSWSC 219

Metro Chatswood Pty Ltd v Cri Chatswood Pty Ltd [2010] NSWSC 1017

QNI Resources Pty Ltd v North Queensland Pipeline No 1 Pty Ltd & Ors [2017] QCA 297

Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation (2006) 94 SASR 269

Reale Bros Pty Ltd v Reale [2003] NSWSC 666

Re Jackaroo Agencies Pty Ltd [2005] QSC 333

Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411

Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89

Tennant Ltd v Flomin Inc [2009] NSWSC 1246

WEC P/L Cypriot Company of Qld Inc [2002] QCA 506

Corporations Act 2001 (Cth)

COUNSEL:

I Klevansky for the applicant

C Schneider for the respondent

SOLICITORS:

Simmons and McCartney Lawyers for the applicant

Corrs Chambers Westgarth for the respondent

Introduction

  1. The applicant (Securicom) applies to set aside the Statutory Demand served on it by the respondent (Charter).
  2. Charter claims to be owed $445,419.45 pursuant to 28 separate loans made by it to Securicom. It described the debt in the Statutory Demand as follows

“The total amount of the debts are owed to the Creditor by the Debtor under the debt facilities listed in this table below, entered into between the Debtor and Creditor.

By virtue of the agreements governing the debt facility agreements, interest on the principal loan amounts is payable monthly in arrears, commencing one calendar month after the Commencement Date and on the same day in each calendar month thereafter until all money owing has been paid in full or as agreed between the Debtor and Creditor.”

The Parties

  1. Securicom forms part of the group of companies known as Microlatch.
  2. Christopher John Burke is:
  1. the sole director and company secretary of Microlatch Pty Ltd, and
  2. is a director and company secretary of Securicom (NSW) Pty Limited.
  1. Charter is an investment company that was listed on the Australian Securities Exchange in around 1989. It retired its listing on 12 May 2017.

The Originating Application

  1. In its Originating Application of 12 January 2018, Securicom sought:

“1. An order pursuant to section 459G of the Corporations Act 2001 that the Statutory Demand served on the Applicant by the Respondent on 22 December 2017 be set aside on the grounds that:

1.1 Pursuant to section 459H of the Corporations Act 2001, the Applicant has a genuine dispute with the Respondent about the amount of the alleged debt and has an offsetting claim greater than the amount claimed.

1.2 The statutory demand is defective as it does not set out a method of calculation of interest claimed.

  1. An order under section 459H of the Corporations Act 2001 that the Respondent pay the Applicant’s costs.
  1. Such further and other orders as the Court deems fit.”

The Submissions

  1. In its submissions, Securicom argued that the Statutory Demand should be set aside because:
  1. there is a genuine dispute between the company and the Respondent about the existence or amount of a debt to which the demand relates –  s 459H(1) of the Corporations Act 2001 (the Act), 
  2. the Applicant has offsetting claims greater than the amount claimed – s 459H(2) of the Act,
  3. there is a defect in the Statutory Demand as it does not set out a method of calculation of interest claimed – s 459J(1) of the Act,
  4. there is a defect in the Statutory Demand as it contains a claim expressed in foreign currency with no exchange rate nominated ­– s 459J(1) of the Act.
  1. The contention that a claim expressed in a foreign currency without an exchange rate being nominated is a defect was not raised in the Originating Application or supporting affidavit. Securicom sought an amendment of its application to deal with this. I will deal with it later in these reasons.

What must be shown on an application of this kind?

  1. An Applicant must prove the existence of a genuine dispute.[1]
  2. In QNI Resources Pty Ltd v North Queensland Pipeline No 1 Pty Ltd & Ors,[2] Holmes CJ held at [20] that the task for the Court on an application such as this is:

“…to determine whether there exists a genuine dispute about the debt in question; it is               not to determine whether the debt exists. The bar for establishing a genuine dispute is               not set high; a ‘plausible contention requiring investigation’ will suffice.”

  1. In Spacorp Australia Pty Ltd v Myer Stores Ltd [3], the Court held:

“…judges should, in general at all events, in dealing, whether at first instance or on appeal, with the question of genuine dispute, be at pains to perform the admittedly delicate task of disposing of that question without expressing a view on what we have called the ultimate question….”

  1. In Creata (Aust) Pty Ltd v Faull [4] Barrett AJA, with whom Gleeson and White JJA agreed, said:

“[26] The grounds of appeal raise squarely the question of the extent to which it is open to the court to decide questions of construction in s 459H(1)(a) cases. In every such case, the issue is, of course, merely whether it has been shown that a “genuine dispute” exists. In determining that issue, the court is neither required nor expected to avoid all issues of construction. Where a contract contains a simple and unambiguous promise to pay, the court embarks on a task of construction (albeit not a difficult or controversial one) in determining that that promise creates a debt and no argument to the contrary is plausible. But where the question of construction has any element of rational controversy to it, the court must exercise particular restraint.

[27] That matter was recently addressed by Gleeson JA in both In the matter of Litigation Insurance Pty Ltd [2017] NSWSC 334 and In the matter of Linton Developments (Qld) Pty Ltd [2017] NSWSC 336. In each of those cases, his Honour quoted the following passage in the judgment in Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192 at [45]:

‘A dispute as to the existence of a debt that is the product of a dispute about construction is not removed from s 459H(1)(a) just because the issue in contention is one of construction. While it has been said that “a short point of law or the construction of documents or agreed facts” may, unlike a disputed question of fact, be determined upon a s 459G application (see Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379 at 384), it does not follow that the court is compelled to make such a determination. In the case of a legal argument, determination might be appropriate if it were, in the words of McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, a “patently feeble legal argument”.’” (emphasis added)

  1. The expression ‘genuine dispute’ therefore can be read as meaning a plausible contention requiring investigation.[5] The demand will be set aside if there is a bona fide disputed issue of fact or law, which is not spurious, hypothetical, illusory or misconceived.[6]
  2. It is true that the Court is not expected to weigh or resolve the merits of any genuine dispute.[7] Nor is it the Court’s task to embark upon an extended inquiry for setting aside of a statutory demand.[8]
  3. Nevertheless, the Court will not accept uncritically every statement in an affidavit as giving rise to a genuine dispute, no matter how equivocal or inconsistent with contemporary documents.[9] The Court will not accept “patently feeble legal argument(s)”.[10]
  4. In Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd,[11] Lockhart J said, at 39:

“The notion of a ‘genuine dispute’…suggests to me that the Court must be satisfied that there is a dispute that is not plainly vexatious or frivolous. It must be satisfied that there is a claim that may have some substance. On the other hand the Court must be careful, because if all an applicant has to do is to assert both a claim and some basis for it, without more, it would mean in almost every case that the court would set aside statutory demands where application is made to that effect. Plainly that is not what the legislature intended…”

  1. In 20*20 Pty Ltd v D & G Developments Pty Ltd,[12] Murphy J that:

“3…Too often in these kinds of applications the legal threshold for establishing a genuine dispute or a genuine offsetting claim is taken, wrongly, as a licence to put on vague and even inadmissible evidence, and bulk is mistaken for cogency. It is inappropriate, in my view, for a party to put on vague and ambiguous evidence on the basis that it may be deployed in argument to convey any meaning which is then seen to be most favourable to that party’s position, bearing in mind the relatively low threshold to be applied in applications of this nature.”

Section 459H(1)(a) of Corporations Act 2001: Genuine Dispute

  1. Section 459H(1)(a) of the Corporations Act 2001 provides:

“459H Determination of application where there is a dispute or offsetting claim

  1. This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
  1. that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates…”
  1. Securicom disputes the source of the obligation for certain debts (in this case, “Loans”). It admits that it has received $221,700.40 (“agreed amount”) from Charter but denies it is due. That denial appears to be the product of confusion in the approach Securicom takes to this application. In its submissions, Securicom asserts the agreed amount is not due and relies on material in an affidavit from Mr Christopher Burke[13] (a director of Securicom).  In para 3(c) of that affidavit he asserts:

“The Applicant has genuine grounds of dispute and/or offset in an amount greater than he Respondent’s claim which were well documented previous to the service of the demand.”

  1. The affidavit material does not establish any uncertainty about whether the agreed amount is owed. The most that is said is: “My clients admit that pursuant to various loan agreements they have received $221,700.40 but deny that those amounts are due and payable as they are capable of offset and cross claim for damages claims for breach of the share purchase agreement by your clients.”[14] Nothing else was put forward which amounted to a plausible contention requiring investigation so far as the agreed amount is concerned. The argument about the agreed amount is not whether it is owed, but whether there is an offsetting claim.
  2. The balance of the amount claimed (putting interest and foreign currency matters to one side) relies upon whether there are underlying agreements for the various loans. There are contentions as to whether each Loan is governed by a Debt Facility Agreement that is in effect and enforceable. The relevant contentions are set out below:

Is there a Debt Facility Agreement?

Loan Number

Applicant

Affidavit of Christopher John Burke filed 31 January 2018, paragraphs [23] – [28].

Respondent

Affidavit of Steven Allan Cole sworn 25 January 2018.

1

Yes

Yes

2

Yes

Yes

3

No

Yes, because it is governed by an overarching Debt Facility Agreement – Clause 1.1. allowing further advances at discretion.

4

No

Yes, because it is governed by an overarching Debt Facility Agreement – Clause 1.1. allowing further advances at discretion.

5

No

Yes, because it is governed by an overarching Debt Facility Agreement – Clause 1.1. allowing further advances at discretion.

6

Yes

Yes

7

No

Yes, because it is governed by an overarching Debt Facility Agreement – Clause 1.1. allowing further advances at discretion.

8

No, because the Applicant’s signature is not affixed to it.

Yes, the Applicant’s signature is affixed to it.

9 & 10

Yes

Yes

11

Yes

Yes

12

Yes

Yes

13

No

Yes, because it is governed by an overarching Debt Facility Agreement – Clause 1.1. allowing further advances at discretion.

14

Yes

Yes

15

Yes

Yes

16

No, the agreement is not signed.

Yes, there is evidence to that Mr Burke sent a signed execution page.

17

Yes

Yes

18

Yes

Yes

19

Yes

Yes

20

Yes, (but only to the extent of $20,000)

Yes

21

Yes

Yes

22

No

Yes, because it is governed by an overarching Debt Facility Agreement – Clause 1.1. allowing further advances at discretion.

23

Yes

Yes

24

Yes

Yes

25

Yes

Yes

26

Yes

Yes

27

Yes

Yes

28

Yes

Yes

  1. The “loans” may be separated into the “admitted loans” and the “disputed loans”:

Admitted Loans

Loans 1, 2, 6, 9, 10, 11, 12, 14, 15, 17, 18, 19, 20 (but only to the extent of $20,000), 21, 23, 24, 25, 26, 27, 28

Disputed Loans

Overarching Debt Facility Agreement and Clause 1.1: Loans 3, 4, 5, 7, 13 and 22

Loan 8

Loan 16

  1. The only Loans “disputed”, for the sake of this s 459H(1)(a) argument regarding genuine dispute, are 3, 4, 5, 7, 8, 13, 16 and 22.

Overarching Debt Facility Agreement and Clause 1.1 Argument – Loans 3, 4, 5, 7, 13 and 22

  1. With respect to Loans 3, 4, 5, 7, 13 and 22, the Respondent argues that these monies were advanced on the same terms pursuant to the “extension” clause of the existing Debt Facility Agreements which governed Loan 1.
  2. Clause 1.1 of that Debt Facility Agreement relevantly provides:

“C[harter] may from time to time at his discretion make a further advance to S[ecuricom] on the terms and conditions set out in this letter.”

  1. It was contended that this “extension” clause constitutes an overarching debt facility agreement in relation to the advances made and referred to as Loans 3, 4, 5, 7, 13 and 22. The liability, or obligation, to pay the debt therefore arises under Clause 1.1 of this overarching debt facility agreement.
  2. But, clause 2.1 of that same agreement provides:

“C[harter] and S[ecuricom] agree that the Principal Amount will be repaid by SPL to CPC on demand or from a capital raising.”

  1. “Principal Amount” is defined in Clause 14 as being:

“‘Principal Amount’ means the amount capable of being drawn down under this Debt Facility up to a maximum of $15,000;”

  1. The question therefore arises: how can the Respondent submit that this Debt Facility Agreement acts as an overarching agreement permitting the further advancement of monies and thereby creating an obligation upon the Applicant to pay, when the agreement itself is limited to a certain monetary amount?
  2. In argument, Ms Schneider (for the respondent) accepted that there appeared to be some “controversy” with this issue.
  3. The argument advanced by the applicant, namely that it is unclear whether a Debt Facility Agreement governs each of the Loans 3, 4, 5, 7, 13 and 22, has an element of rational controversy to it. There is, then, a “genuine dispute” for the purposes of s 459H(1)(a) of the Corporations Act 2001 for Loans 3, 4, 5, 7, 13 and 22. It may not succeed on a full exploration of the material facts at trial, but that is for another time.

Loan 8

  1. The Applicant submits that the electronic signature for the Debt Facility Agreement for Loan 8 was not provided by him.
  2. In response, counsel for the Respondent argued, first, that this was the first time such a contention had been raised. That is correct. Therefore, the Applicant did not fairly raise the matter within the 21 day time limitation stipulated by section 459G of the Corporations Act 2001. In Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund[15]it was held that, if an affidavit in support of an application under s 459G does not state material facts sufficient to show the existence of a genuine dispute or offsetting claim, the Court lacks jurisdiction to entertain the application unless the deficiency is repaired within the 21 day period. A company cannot rely on new grounds which are not contained in the material filed within the 21 days.[16] It follows that the applicant cannot rely on this contention.
  3. Secondly, and in the alternative, the Respondent argues that the Debt Facility Agreement in relation to Loan 8 was in fact signed.
  4. The Respondent refers to pages 85-87 of “DLY-6” which is a copy of a Debt Facility Agreement. It is signed by both Charter Pacific and Securicom.
  5. In the Affidavit of Steven Allan Cole sworn 25 January 2018, Mr Cole says that:

“I prepared the Loan 8 Facility Agreement and it was signed by Mr Burke and Mr Dart in my presence at a meeting at the Southport Yacht Club. Ms Penko was also in attendance at this meeting. After the Loan 8 Facility Agreement was signed, I instructed Ms Penko to make the transfer referred to in the Loan 8 Facility Agreement.”

  1. There is no evidence from the Applicant to the contrary, other than a “mere assertion” that the Loan 8 Debt Facility Agreement signature is denied.

Loan 16

  1. The Applicant asserts that the Debt Facility Agreement for Loan 16 is not signed. This was not raised within the 21 day period referred to above.
  2. Mr Burke says[17] that:

“The debt facility agreement exhibited and numbered 16 is not signed by the applicant.”

  1. The Respondent argues that there was, in fact, a Debt Facility Agreement for Loan 16 and that it was signed.
  2. At pages 152-155 of “DLY-6” is a Debt Facility Agreement dated 6 September 2016. It is signed by both Charter and Mr Burke.
  3. At 12:08 p.m. on 6 September 2016, Mr Cole sent Mr Burke an email attaching the Debt Facility Agreement.[18]
  4. At 12:20 p.m. on 6 September 2016, Mr Burke responded, attaching a signed Debt Facility Agreement.[19] Mr. Burke, in the email, requested that the money be transferred to Microlatch Limited Hong Kong.
  5. At 12:49:18 pm on 6 September 2016, payment of AUD 20,000.00 was transferred to Microlatch Limited, as requested by Mr Burke.[20]
  6. The failure to include this ground in an affidavit filed within 21 days means that the applicant cannot rely on it.

Section 459H(1)(b) of Corporations Act 2001: Offsetting Claim

  1. Section 459H(1)(b) of the Corporations Act 2001 provides:

“459H Determination of application where there is a dispute or offsetting claim

  1. This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:

  1. that the company has an offsetting claim.”
  1. Pursuant to section 459H, “offsetting claim” means:

“a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).”

  1. The test for determining whether there is an offsetting claim has been considered many times. A very useful summary appears in Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation[21], where the Full Court of the Supreme Court of South Australia said:

“46. … Thus, when deciding whether an offsetting claim exists, the test is whether the court is satisfied that there is a serious question to be tried that the person on whom the demand has been served has an offsetting claim (Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 47 FCR 451 at 467), or that the claim is not frivolous or vexatious (Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty               Ltd (1994) 13 ACSR 37), or that it is not fictitious or merely colourable (Edge Technology Pty Ltd v Lite-On Technology Corporation (2000) 156 FLR 181 at 184-185, citing Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 122 ALR 717).

  1. The test whether an offsetting claim exists is the same as for a genuine dispute, that is to say, the claim must be bona fide and truly exist in fact and that the grounds for alleging the existence of the dispute are real and not spurious, hypothetical, illusory or misconceived. The issue is whether the offsetting claim is bona fide, real and not spurious: Edge Technology at [25] per Santow J.
  1. I do not think that the test identified by Santow J imposes a more onerous task on the party disputing the statutory demand than the serious question test. The expression “good faith” means arguable on the basis of facts asserted with a sufficient particularity to enable the court to determine that the claim is not fanciful: Macleay Nominees v Belle Property East Pty Ltd [2001] NSWSC 743 per Palmer J. McPherson JA expressed the same concept in these terms in JJMMR Pty Ltd v LG International Corp [2003] QCA 519 at [18]:

‘Anyone can make a claim to a right of set off against a creditor. What the definition in s 459H(5) requires, however, is that it be “genuine”. The same word in s 459H(1) has already elicited so many synonyms and shades of meaning that it will not help to add more. Its antithesis is to be seen in the word “artificial”. The claim to set off against the debt demanded must not have been manufactured or got up simply for the purpose of defeating the demand made against the company. It must have an existence that is objectively demonstrable independently of the exigencies of the demand that evoked it.’

The observations of Palmer J and McPherson JA were applied by Chesterman J in Cooloola Dairys Pty Ltd v National Foods Milk Ltd [2005] 1 Qd R 12.

  1. The task for the court, therefore, is not to decide the issue on its merits but examine whether there is a genuine offsetting claim. If there is a genuine claim sufficiently quantified to give rise to an offsetting amount the demand must be offset: see s 459H(4) and Edge Technology (at [55]).”
  1. There are two aspects to the alleged offsetting claim:
    1. the representations made concerning the Share Purchase Agreement and capital raising promises; and
    2. a costs orders relating to the previous order setting aside the first statutory demand, and the adjournment.

Share Purchase Agreement

  1. The Applicant argues that the purpose of the Share Purchase Agreement (SPA) was to facilitate the further development, commercialisation and exploitation of Securicom’s intellectual property which included a number of patents with the Charter acting as the financial partner.[22]
  2. Charter is the “Buyer” under the SPA. Clause 3.1 of that Agreement provides:

“Subject to clause 2, each Seller agrees to sell and the Buyer agrees to buy from each Seller, those Company Shares held by each Seller.”

  1. The “Seller” is defined in Schedule 1 of the Agreement:

NAME of Seller

ADDRESS for notices, email and facsimile

Total number of Company Shares as at the date hereof.

SECURICOM (NSW) PTY LTD

 

 

Christopher John Burke

[address redacted]

4

MICROLATCH LIMITED (UNITED KINGDOM)

 

 

Christopher John Burke

[address redacted]

1,000

  1. In consideration for selling his shares, Mr Burke was to receive shares in Charter (SPA, cl 4.1).
  2. In his first affidavit, Mr Burke says:

“9.  The Company [Securicom] entered into the SPA on the basis of representations made by the directors of the Respondent that ASX listing would be achieved which would in turn release equity to its shareholders … which included the Company and its related entities which were to be issued with 10.22 billion shares in the Respondent.”

  1. Securicom was not a party to the agreement. It was not selling anything to Charter. So much was obvious to Mr Burke when, in August 2017, he wrote to Charter and terminated the SPA. In that letter he referred to himself as “Christopher Burke trading as Microlatch Pty Ltd, Microlatch Limited UK and Securicom (NSW) Pty Ltd.” Likewise, Securicom was not to receive anything under the SPA.
  2. The argument presented in Mr Burke’s first affidavit is based on the misapprehension that Securicom entered into the SPA on the basis of certain representations. It did not. As set out above, it was not a party to the SPA. If loss has been suffered, then it may be that it was suffered by Mr Burke.

Capital Raising Promises

  1. The Applicant submits that at some point there was a representation by Charter Pacific that there would be a capital raising.
  2. The Respondent primarily argues that any material facts that may support such a contention have not been provided in the Supporting Affidavit. Therefore, in accordance with the Graywinter principle, this is not a ground properly raised on the Application. It is therefore not a ground that can be relied upon by the Applicant to set aside the Statutory Demand.
  3. In the alternative, the Respondent argues that the claim is entirely illusory.
  4. Clause 2.1 of the Share Purchase Agreement provides:

“Clauses 3, 4 and 6 will not bind the parties and are of no force or effect unless and until each of the following conditions precedent (Conditions) are fulfilled met, waived or varied in accordance with the terms of this Agreement…”

  1. Mr Klevansky referred to Conditions 10 and 12 as examples of these conditions precedent. Condition 10 requires Charter Pacific to obtain all necessary regulatory approvals and to satisfy all requirements under the Corporations Act and the ASX Listing Rules. Condition 12 requires that the ASX confirm that it is satisfied that Charter Pacific has re-complied with the ASX Listing Rules.
  2. Ms Schneider submitted that the Agreement clearly contemplates an intention by both parties that if the conditions precedent weren’t satisfied then the agreement would not proceed. That is, the shares would not be sold.
  3. Other claims were advanced in Mr Burke’s second affidavit but it was filed out of time.

Earlier Costs Order

  1. Securicom argues that it has an offsetting claim in relation to the costs awarded to it by virtue of the first statutory demand being set aside on 25 October 2017.
  2. On 20 November 2017, in a letter written by Simmons & McCartney to the Respondent, Securicom demanded payment of its costs from the order setting aside the first statutory demand:

“In relation to your failed Supreme Court winding up application where our client Securicom (NSW) Pty Ltd was successful in their set aside application and awarded costs the amount of $15,372.50 plus GST (subject to final costing) is due and payable. Our clients extend to you the opportunity to make this payment within seven days failing which they will proceed to assessment and costs will increase accordingly.”

  1. Securicom also argues that it has a further offsetting claim for costs thrown away by the adjournment of 19 January 2018. This, obviously, could not be included in the original supporting affidavit as it had yet to come to pass.
  2. An untaxed, or unassessed, order for costs can constitute an offsetting claim. As Hely J put it in Fleur De Lys Pty Ltd v Jarrett:[23]

“[30] An ‘offsetting claim’ is not confined to a debt which is presently due and payable. Even if the section were so confined, there is some authority, albeit in a different statutory context, which suggests that the fact that costs have not as yet been taxed does not necessarily prevent the costs from constituting a debt: Tubby Trout Pty Ltd v Sailbay Pty Ltd (1996) 63 FCR 530 (but see Re Elgar Heights Pty Ltd [1985] VR 657 ; (1985) 9 ACLR 846 )…”

  1. The amount claimed as an offset is much less than the claim made by Charter. It follows, then, that (on this aspect) this a case in which the best outcome that Securicom can achieve is an order under s 459H(4) varying the amount of the demand. This type of issue was considered by Barrett J in Metro Chatswood Pty Ltd v Cri Chatswood Pty Ltd[24] where he said:

“[22] But the court’s power to make such an order is exercisable only if the substantiated amount is as great as the statutory minimum of $2,000. The substantiated amount is to be calculated under s 459H(2). One of the components is the “amount” of the offsetting claim. The amount of an offsetting claim was said in Jessoron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (1994) 13 ACSR 787 at 790 to be the amount claimed in good faith so long as that claim is not fictitious or merely colourable on this basis.

[23] On one view, the court should concern itself only with an appraisal of the sum the plaintiff attaches to its offsetting claim, so that, if the plaintiff fails to make good the proposition that its chosen sum has the necessary stance, then the task of quantification will be found not to have been performed.

[24] I think that is probably too mechanistic and strict an approach. Once the plaintiff has adduced evidence going to quantification, I think it is open to the court to come to its own view on the question of the figure, if any, in relation to which a genuine claim has been shown to be maintainable.

  1. In Metro Chatswood the applicant had adduced evidence in the form of memoranda of costs and disbursements from its solicitors. Those memoranda were criticised by Barrett J:

“[25] … There is an unsatisfactory aspect to the memoranda of costs in that they omit the narration showing the work done. This, coupled with the circumstances in which they were tendered as I have described, obviously compromises their usefulness.”

  1. The costs claim in this case is not even as well articulated as the unsatisfactory memoranda in Metro Chatswood. All that has been done is that a bald assertion, unsupported by any detail, has been made. As such, Securicom has not afforded the court any information upon which it form a view as to whether the claim has been shown to be maintainable.

Section 459J(1) of Corporations Act 2001: Defect as to the Method of Calculating Interest Claimed

  1. Securicom argues that there is a defect in the Statutory Demand as no basis was provided for the calculation of interest in the Statutory Demand Schedule.
  2. Section 459J of the Corporations Act 2001 provides:

“459J Setting aside demand on other grounds

  1. On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
  1. because of a defect in the demand, substantial injustice will be caused unless the demand is set side; or
  1. there is some other reason why the demand should be set aside.
  1. Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.” (emphasis added)
  1. “Defect’ is defined in section 9 of the Corporations Act as follows:

“‘defect’, in relation to a statutory demand, includes:

  1. an irregularity; and
  1. a misstatement of an amount or total; and
  1. a misdescription of a debt or other matter; and
  1. a misdescription of a person or entity.”
  1. An applicant must establish not only that there exists a defect within the meaning of that term as used in the Corporations Act 2001, but also that if the Statutory Demand is not set aside, there will be substantial injustice.
  2. Section 459E of the Corporations Act 2001 sets out the form a Statutory Demand must take:

“459E Creditor may serve statutory demand on company

  1. The demand:

  1. if it relates to 2 or more debts – must specify the total of the amounts of the debts.
  1. Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that:
  1. verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and
  1. complies with the rules.”
  1. The provisions of the Corporations Act 2001 “in relation to the setting aside of a statutory demand are intended to be a complete code for the resolution of disputes involving statutory demands, and to do so on the basis of the commercial justice of the matter, rather than on the basis of technical deficiencies.”[25]
  2. In 20*20 Construction Systems Pty ltd v Dryka and Associates Pty Ltd[26] Beech J noted at [37]:

“These two provisions in combination mean that a party alleging a defective statutory demand to be a nullity faces a high hurdle. Not all defects render a statutory demand liable to be set aside under s 459J, only those giving rise to substantial injustice…”

  1. Mr Burke deposes in his first affidavit that the relevant defect in the Statutory Demand was that:

“The claim for interest does not set out a method of calculation and in this respect the Applicant is unable to respond.”[27]

  1. Mr Klevansky argued that the substantial injustice arising out of this defect was the inability of the Applicant to respond.
  2. No evidence, apart from Mr Burke’s assertion, was adduced about this “substantial injustice”.
  3. Ms Schneider argued a) that there is no relevant defect; and b) even if there is a defect, there is no evidence that substantial injustice will arise as a result of that defect. The Debt Facility Agreements, which each specified the Interest Rates, were provided to the Applicant.
  4. In the Affidavit of Mr David Yates sworn 24 January 2018, he deposes:
  1. that all the documents contained within “DLY-6”, which include the Debt Facility Agreements, were sent to the Applicant via a “secure hyperlink”,
  2. that the secure hyperlink was sent to the Applicant on 12 December 2017, and
  3. the Applicant received and downloaded the documents via the secure hyperlink on 14 and 15 December 2017 – seven days before the Statutory Demand was issued (22 December 2017).
  1. The Notice of Demand, with “Schedule 2” attached, was sent to Mr McCartney (solicitor for the Applicant) on 11 December 2017. Schedule 2 outlines the loans made, the dates of those loans, the principal amount of those loans, the interest rate, the interest calculation, the total of the principal amounts, the total of the interest amounts, and the total of all loans.
  2. In Azed Developments Pty Ltd v Frederick & Co Ltd (In Liq),[28] Hayne J held that to “verify” under s 459E meant to make “a formal affirmation”, rather than to “prove or demonstrate by good evidence or otherwise substantiate”, the matters referred to. That decision has been followed in a number of cases: see, for instance, Hamilhall Pty Ltd (In Liq) v A T Phillips Pty Ltd;[29] Chains & Power (Aust) Pty Ltd v Commonwealth Bank of Australia;[30]Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd .[31]
  3. In Chains & Power (Aust) Pty Ltd v Commonwealth Bank of Australia, Sackville J considered an application to set aside a statutory demand in which Chains & Power submitted that the demand should be set aside because it did not contain a breakdown showing how the amount had been calculated. Specifically, the company argued that the demand failed to specify how much of the sum consisted of principal and interest.
  4. It was argued that the failure to segregate the components of the sums due amounted to a “defect” sufficient to constitute “substantial injustice”.
  5. Sackville J rejected that argument and held:
  1. The notice complied with the Act by setting out the total amount of the debt.
  2. There was nothing in the legislation which required that interest charges be specified and segregated.
  3. If there had been a failure to comply with the Act’s requirements then the failure to specify interest would have been a defect, but there was no evidence to show that any defect had caused substantial injustice.
  1. In Kalamunda Meat Wholesalers Pty Ltd v Red Russell & Sons Pty Ltd[32] Hill J said:

“…if the case is one where a defect in the demand is alleged, a notice could only be set aside if the case is one where because of the defect substantial injustice would be caused unless the demand was set aside. Such a construction accords with what is said in the second reading speech and explanatory memorandum to which I have referred.”

  1. Sackville J in Chains & Power (supra) agreed with Hill J’s reading that section 459J(1)(a) and (b) are mutually exclusive.[33]
  2. The absence of information as to the manner of calculation of interest does not constitute a defect.

Foreign Currency Argument

  1. The Statutory Demand refers to 16 loans which were said to be in the currencies of foreign countries – United Kingdom, United States and Hong Kong. By way of example, one of the foreign currency loans is described in this way:

“Loan of HK$4,400 from Charter to Microlatch Ltd for payment of monies to Venner Shipley

Principal amount owing      $45,204.75

Interest        $7698.43”

  1. Neither the date on which the foreign currency conversion was calculated nor the exchange rate used is set out anywhere in the Statutory Demand or the supporting affidavit.
  2. The Originating Application of 12 January 2018 does not include either a reference to section 459J, or that a relevant “defect” relates to foreign currency.
  3. Mr Klevansky sought an order amending the Originating Application to include a reference to s 459J. He relied on Re Jackaroo Agencies Pty Ltd[34] in which an order was made amending an originating application to correct a party’s name. It is not necessary to consider whether such an amendment is available because any such amendment would be futile.
  4. Section 459G(3) requires that the affidavit supporting an application to set aside a statutory demand must set out the material facts on which the applicant intends to rely to show a genuine dispute.
  5. In Infratel Networks Pty Ltd v Gundry’s Telco & Rigging Pty Ltd,[35] Young AJA (Hoeben JA and Ward J agreeing) said, referring to the principle that was outlined in Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund[36] and the cases that have subsequently applied it:

“29. The most authoritative of these decisions is that of the Full Court of the Supreme Court of Western Australia in Financial Solutions in Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; 167 FLR 106. In POS Media v B Family [2003] NSWSC 147; 21 ACLC 533 at [35] Austin J remarked, “the Financial Solutions case has reduced the Graywinter ‘principle’ to a more fact-specific enquiry.”

  1. In the Financial Solutions case, Parker J (with whom Anderson and Scott JJ agreed) said at 115 that there was no settled and universal principle, which must be satisfied by an affidavit before it can be accepted as “supporting the application” within the meaning of s 459G(3)(a) and as satisfying the jurisdictional requirement being considered. The statutory yardstick remains that the affidavit should support the application. The precise nature of the application may well influence what this requires.

  1. In Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; 87 ACSR 1, [36], Ward J summed up the principle in its present state by noting that whilst ‘mere assertions’ were insufficient, the vital question was whether, expressly or by reasonably available inference, the grounds of challenge of the statutory demand were sufficiently identified in the affidavit.”
  1. There is no reference in either the body of the originating application or Mr Burke’s affidavit to anything which relates to or concerns the foreign currency loans. There are some references to the foreign currency loans in some of the exhibits to the affidavit, but they are there as records of their existence and there is no assertion of any matter which equates to notice that an argument will be advanced about those loans. I respectfully agree with what Forster J said in Tennant Ltd v Flomin Inc:[37]

“[20] … merely annexing a copy [the] standard terms and conditions of purchase without more does not satisfy the “minimum requirement” referred to in Graywinter. There must be something further provided to identify the point to be taken. Otherwise, the mere annexation of all possibly relevant contractual documentation would be sufficient to permit an applicant for relief to raise any contractual argument, no matter how obscure, on the hearing of the application.”

  1. The foreign currency argument was not raised, expressly or by necessary or reasonably available inference from Securicom’s material.

Conclusions

  1. The applicant has demonstrated a genuine dispute for the purposes of s 459H(1)(a) of the Corporations Act 2001 with respect to Loans 3, 4, 5, 7, 13 and 22. The applicant has failed to demonstrate that there is a genuine dispute, or an offsetting claim, or a defect in the demand which will cause substantial injustice if the demand is not set aside, with respect to the balance of the loans.
  2. The applicant is to bring in minutes of order reflecting these reasons.

Footnotes

[1]Building Solutions and Waterproofing Pty Ltd v Robin H Wright Pty Ltd [2017] QSC 110 at [16].

[2][2017] QCA 297.

[3](2001) 19 ACLC 1270; [2001] VSCA 89.

[4][2017] NSWCA 300.

[5]Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 at [44].

[6]Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 at [45].

[7]WEC P/L v Cypriot Company of Qld Inc [2002] QCA 506, per McMurdo P at [10]-[11].

[8]Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411 per Barrett J at [23].

[9]Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787.

[10]Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787.

[11](1994) 13 ACSR 37.

[12][2009] WASC 343.

[13]Affidavit of Burke, filed 12.1.18.

[14]Ex 8.

[15](1996) 70 FCR 452.

[16]See Reale Bros Pty Ltd v Reale [2003] NSWSC 666, [25]-[26].

[17]At paragraph [27] of his Affidavit sworn 30 January 2018.

[18]“SC-6” of Affidavit of Steven Allan Cole sworn 25 January 2018.

[19]“SC-7” of Affidavit of Steven Allan Cole sworn 25 January 2018.

[20]“DLY-6” of David Yates Affidavit, page 159.

[21](2006) 94 SASR 269.

[22] Affidavit of Christopher John Burke, affirmed 12 January 2018, [5].

[23] (2004) 51 ACSR 238

[24] [2010] NSWSC 1017

[25]David Grant & Co v Westpac Banking Corporation (1995) 184 CLR 265 at 270.

[26][2010] WASC 22.

[27]Paragraph [3(a)].

[28](1994) 14 ACSR 54 at 56.

[29](1994) 15 ASCR 247.

[30](1994) 15 ACSR 544.

[31][2002] NSWSC 219.

[32](1994) 13 ACSR 525.

[33]At 552.

[34][2005] QSC 333.

[35][2012] NSWCA 365.

[36](1996) 70 FCR 452.

[37][2009] NSWSC 1246.

Close

Editorial Notes

  • Published Case Name:

    Securicom (NSW) Pty Ltd v Charter Pacific Corporation Limited

  • Shortened Case Name:

    Securicom (NSW) Pty Ltd v Charter Pacific Corporation Ltd

  • MNC:

    [2018] QSC 109

  • Court:

    QSC

  • Judge(s):

    Martin J

  • Date:

    29 May 2018

Litigation History

Event Citation or File Date Notes
Primary Judgment [2018] QSC 109 29 May 2018 Application to set aside statutory demand granted in part and dismissed in part: Martin J.

Appeal Status

No Status