Willaire Pty Ltd v Equititrust Limited
[2010] QCA 350
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- Notable Unreported Decision
- Appeal Determined (QCA)
- Willaire Pty Ltd v Equititrust Limited[2010] QCA 350
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Willaire Pty Ltd v Equititrust Limited[2010] QCA 350
Willaire Pty Ltd v Equititrust Limited[2010] QCA 350
SUPREME COURT OF QUEENSLAND
PARTIES: | |
FILE NO/S: | SC No 8485 of 2010 |
Court of Appeal | |
PROCEEDING: | General Civil Appeal |
ORIGINATING COURT: | |
DELIVERED ON: | 10 December 2010 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 12 November 2010 |
JUDGES: | Margaret McMurdo P and Muir JA and McMeekin J Separate reasons for judgment of each member of the Court, each concurring as to the orders made |
ORDERS: | 1. The appeal be allowed.2. The order of 3 September 2010 be set aside.3. The statutory demand dated 29 July 2010 be set aside.4. The respondent pay the appellant's costs of the application to set aside the statutory demand and of this appeal. |
CATCHWORDS: | CORPORATIONS – WINDING UP – WINDING UP IN INSOLVENCY – STATUTORY DEMAND – APPLICATION TO SET ASIDE DEMAND – GENUINE DISPUTE AS TO INDEBTEDNESS – ASSESSING GENUINENESS – GENERALLY – respondent advanced money to a third party under a credit facility deed to which the appellant was not a party – appellant granted two mortgages in favour of the respondent – credit facility deed was varied by another deed to which the appellant was a party – respondent issued appellant with a statutory demand – appellant applied under s 459G Corporations Act 2001 (Cth) to have the statutory demand set aside – primary judge dismissed appellant’s application – appellant submitted its liability was limited by the terms of the second mortgage – appellant submitted that the description of the money secured in the second mortgage meant no debt was “due and payable” by the appellant to the respondent until the mortgaged properties were realised – respondent submitted appellant’s liability arose under the deed as varied – function of statutory demand procedure – whether there was a genuine dispute in respect of the debt alleged to be owed in the statutory demand – whether primary judge erred in dismissing appellant’s application CORPORATIONS – WINDING UP – WINDING UP IN INSOLVENCY – STATUTORY DEMAND – APPLICATION TO SET ASIDE DEMAND – FOR DEFECT OR SOME OTHER REASON – SOME OTHER REASON – appellant submitted primary judge erred in finding there was not “some other reason” to set aside the statutory demand pursuant to s 459J Corporations Act 2001 (Cth) – whether there was “some other reason” to set aside the statutory demand – whether primary judge erred in dismissing appellant’s application Corporations Act 2001 (Cth), s 459E, s 459G, s 459J(1)(b) Trade Practices Act 1974 (Cth), s 52, s 87 Braams Group Pty Ltd v Miric (2002) 171 FLR 449; (2002) 44 ACSR 124; [2002] NSWCA 417, cited David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265; [1995] HCA 43, cited Island Industries Pty Ltd v Pitcher [2005] NFSC 2, cited Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71; [1988] HCA 34, cited Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd (2002) 20 ACLC 726; [2002] NSWSC 219, cited Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290; (1993) 11 ACSR 362; (1993) 11 ACLC 1062, cited Neutral Bay P/L v DCT (2007) 25 ACLC 1341; [2007] QCA 312, cited Re Elgar Heights Pty Ltd (No 1) [1985] VR 657; (1985) 9 ACLR 846, cited Remuneration Data Base Pty Ltd v Pauline Goodyer Real Estate Pty Ltd [2007] NSWSC 59, cited State Bank of New South Wales v Tela Pty Ltd (No 2) (2002) 188 ALR 702; [2002] NSWSC 20, cited |
COUNSEL: | J Sweeney for the appellant G Handran for the respondent |
SOLICITORS: | Nyst Lawyers for the appellant Tucker & Cowen Solicitors for the respondent |
[1] MARGARET McMURDO P: I agree with Muir JA’s reasons for allowing the appeal and setting aside the statutory demand. I agree with the orders proposed by Muir JA.
[2] MUIR JA: Introduction
The appellant appeals against an order of a judge of the trial division of this Court made on 3 September 2010 dismissing the appellant's application under s 459G of the Corporations Act 2001 (Cth) ("the Act") to have a statutory demand set aside. The statutory demand, dated 29 July 2010, was in respect of $3,000,000 described as:
"Outstanding advances of money to GAMP Developments Pty Ltd ACN 106 875 148, and owing pursuant to a Credit Facility Deed dated 22 November 2004 (as varied from time to time) between, inter alia, GAMP Developments Pty Ltd and the Creditor, and owing by the Debtor Company pursuant to a Deed of Variation dated 19 September 2008, provided during the period 22 November 2004 to 30 April 2010."
[3] The appellant is a member of a group of companies, referred to as the "Spottiswood Group", controlled by Mr Graham Spottiswood. Since April 2004 the respondent lender has advanced money to GAMP Developments Pty Ltd (GAMP), a joint venture company with which Mr Spottiswood was involved, under a credit facility deed dated 22 November 2004 ("the Deed"). The appellant was not a party to the Deed.
[4] In May 2008 the appellant granted a mortgage ("the Nerang mortgage") over land owned by it at Nerang in favour of the respondent. Item 5 of the schedule to the mortgage provides that the debt or liability secured by the mortgage is:
"All moneys owing by GAMP Developments Pty Ltd ACN 106 875 147 to the Mortgagee [the respondent] under the Credit Facility Deed dated 22 November 2004 (as varied from time to time) but the liability of the Mortgagor to the Mortgagee under this mortgage is limited to the amount of $3,000,000."
[5] Another mortgage ("the Southport mortgage") was granted by the appellant to the respondent in September 2008 over land owned by the appellant at Southport. The Southport mortgage described the "Money Secured" as:
"All moneys owing by GAMP Developments Pty Ltd ACN 106 875 147 to the Mortgagee under the deed of variation of Credit Facility Deed dated on or about 18 September 2008 (as varied from time to time) but the aggregate actual and contingent liability of the Mortgagor to the Mortgagee under this mortgage and under mortgage 711657015 is limited as follows:
(a)$3,000,000 in total;
(b)the Mortgagee's rights are limited under this Mortgage and under mortgage 711657015 to realizing money from the sale of the Mortgaged Property under this Mortgage and under mortgage 711657015; and
(c)no assets of the Mortgagor other than its interest in the Mortgaged Property under this Mortgage and under mortgage 711657015 may be claimed by the Mortgagee as a source for payment of the Secured Moneys."
[6] The Southport mortgage was executed by the appellant on 18 September 2008 and by the respondent on 23 September 2008.
[7] The Deed was varied by a deed dated 19 September 2008 to which the appellant, MrSpottiswood, the respondent, GAMP and others were parties ("the Deed of Variation").
The grounds of appeal
[8] The appellant alleges that the primary judge erred in finding that:
(1)There was no genuine dispute in respect of the debt alleged to be owed in the statutory demand;
(2)There was a debt due by the appellant as trustee for the Flowershop Unit Trust to the respondent; and
(3)There was not some other reason to set aside the statutory demand pursuant to s 459J of the Corporations Act 2001 (Cth).
The appellant's contentions
[9] Counsel for the appellant advanced only one argument in support of the grounds of appeal. It was that under the Southport mortgage the respondent's rights were limited. The respondent could recover from the appellant a total amount of $3,000,000; the obligations of the appellant were to be satisfied only from the proceeds of realisation of the Nerang and Southport properties and the respondent could not have recourse to any property of the appellant, apart from the Nerang and Southport properties. That being so, it was submitted, the primary judge should have found that there was "some other reason why the demand should be set aside".[1] A subsidiary contention but faintly pursued, was that by virtue of the description of "money secured" in the Southport mortgage there can be no debt due and payable by the appellant to the respondent until the mortgaged properties are realised.
[10] The respondent, initially without troubling to put before this Court copies of the documents upon which it relied or any part of them, contended that the liability upon which the statutory demand relied arose under the Deed and the Deed of Variation. The respondent's outline of argument asserted:
"5.Item 7 of the schedule to the deed of variation introduces the appellant, amongst other parties, as a 'Security Provider' (security provider) under the credit facility deed.
6.Clause 4.7 of the credit facility deed provides that each security provider 'unconditionally and irrevocably … guarantees payment' to the respondent of all money owing or payable to the respondent by GAMP and, further, indemnifies the respondent against 'any liability or loss' arising if any of the security providers, including GAMP, does not or is unable to pay all moneys owing by GAMP to the respondent.
7.Clauses 8 (events of default) and 9.1 (when money secured becomes payable) are also relevant." (footnotes omitted)
[11] The outline of argument accepted that the Nerang and Southport mortgages did not create what was described as "any debt obligation on the part of the appellant to pay the respondent". However, it was submitted that the appellant gave a personal covenant "upon entry into the Deed of Variation by cl 4.7 of the … deed" and that this covenant "is a personal obligation independent of the bills of mortgage". Theargument continued as follows. GAMP did not pay the "money secured" to the respondent when due, judgment in the sum of $5,428,222.61 was entered against GAMP on 15 May 2009 and by virtue of cl 8 of the Deed GAMP and each Security Provider (and thus the appellant) were immediately in default. By cl9.1, the "Money Secured" was immediately due and payable.
Consideration
[12] Clauses 2, 5 and 6 of the Deed of Variation provided:
"2.AFFIRMATION OF AGREEMENTS:
The Borrower and the Security Provider HEREBY REAFFIRMS ITS AGREEMENTS AND OBLIGATIONS to the Lender under and pursuant to the Principal Security as are varied by this Deed AND shall duly and punctually pay to the Lender all moneys due, owing and payable under the Principal Security and all securities collateral to the Principal Security at the times and in the manner provided for therein and as amended by this Deed AND shall duly and punctually observe and perform all the covenants, conditions and obligations expressed or implied in the Principal Security or in any security or other instrument now or hereafter expressed to be collateral to the Principal Security AND it is HEREBY DECLARED that each covenant, condition and obligation contained in the Principal Security is to be incorporated in and to form part of this Deed as if each covenant, condition and obligation thereof had been set out in full in this Deed.
…
5.GUARANTOR'S CONSENT AND COVENANTS:
(a)IN CONSIDERATION of these presents, the Guarantor HEREBY CONSENTS to the variation of the Principal Security as provided by this Deed; and
(b)The Guarantor HEREBY COVENANTS AND AGREES with the Lender that the liabilities and obligations of the Guarantor pursuant to the Guarantee shall also extend and apply to the liabilities and obligations hereunder of the Borrower in the same manner and to the same extent as if the terms and covenants of this Deed had originally been contained in the Principal Security AND nothing herein contained shall abrogate or otherwise detract from the liability of the Guarantor pursuant to the Guarantee or otherwise prejudicially affect any provision contained therein.
6.SECURITY PROVIDER'S CONSENT AND COVENANTS:
(a)IN CONSIDERATION of these presents, the Security Provider HEREBY CONSENTS to the variation of the Principal Security as provided by this Deed; and
(b)The Security Provider HEREBY COVENANTS AND AGREES with the Lender that the liabilities and obligations of the Security Provider pursuant to the Credit Facility Deed shall also extend and apply to the liabilities and obligations hereunder of the Borrower in the same manner and to the same extent as if the terms and covenants of this Deed had originally been contained in the Principal Security AND nothing herein contained shall abrogate or otherwise detract from the liability of the Security Provider pursuant to the Guarantee or otherwise prejudicially affect any provision contained therein."
[13] In the Deed of Variation:
● The "Borrower" was GAMP
● The "Lender" was the respondent
● The "Security Provider" was the appellant and others.
[14] The appellant, although named as a Security Provider, was not identified as a"Guarantor".
[15] The "Principal Security" was defined in the recitals to the Deed of Variation as "theCredit Facility Deed and Letter of Offer described in Item 4 of the Schedule".
[16] By Item 6 of the schedule to the Deed of Variation, the Nerang and Southport mortgages were included in "the Security" specified in Item 9 of the schedule to the Deed.
[17] "Security" is defined in cl 1.1 of the Deed as meaning, inter alia, "This Credit Facility Deed and any security described in Item 9". "Money Secured" is defined in cl 1.1 of the Deed as including "all money now or hereafter owing or payable to the Lender by the Borrower and/or the Security Provider … including all such money arising from … the Security".
[18] Clause 4.7 of the Deed provides:
"Each Borrower and each Security Provider who is a party to this Credit Facility Deed unconditionally and irrevocably:
(1)guarantees payment to the Lender of the Money Secured owing by any other one or more of them to the Lender; and
(2)indemnifies the Lender against any liability or loss arising if any other one or more of them does not, or is unable to, pay the Money Secured owing by them to the Lender."
[19] Clause 8 relevantly provides:
"The Borrower and each Security Provider who is a party to this Credit Facility Deed shall at the option of the Lender be immediately in default without the necessity for any notice or demand upon the occurrence of any of the following events of default:
(1)the Borrower and/or the Security Provider fails or neglects to pay on the due date for payment any part of the Money Secured, or any interest or other moneys payable at the time and in the manner provided by this Credit Facility Deed or under any Security;"
[20] Clause 9.1 provides:
"At any time after the occurrence of an Event of Default, at the discretion of the Lender, the Money Secured will be immediately become payable."
[21] Clause 11.1 provides:
"The Borrower will pay all moneys payable and observe and perform fulfil and keep all the covenants conditions agreements stipulations and conditions to be observed performed fulfilled and kept by the Borrower under the Security."
[22] Clause 4.2 of the Deed provides:
"The Borrower and each Security Provider acknowledge that the Security is charged with payment of the Money Secured."
[23] The appellant was not a party to the Deed but by operation of the Deed of Variation, to which the appellant was a party, the appellant assumed the obligations of aSecurity Provider under the Deed as if it were one of the original Security Credit Providers thereunder.
[24] Consequently, if the Deed and Deed of Variation are construed without reference to the provisions of the Southport mortgage, upon default by GAMP under the Deed as amended, the appellant, as Security Provider, became liable to indemnify the respondent against any failure by GAMP to pay the Money Secured. On the face of it, the respondent's contention that a debt became due and payable is correct. Butwhat is to be made of the terms of the Southport mortgage?
[25] One role of the description of the Money Secured in the Southport mortgage is to identify the monetary obligation which the Southport mortgage secures. Another,and related, role is to limit the aggregate actual and contingent liability of the appellant to the respondent "under this mortgage and under [the Nerang mortgage]" to $3,000,000 total and as provided for in paragraphs (b) and (c).
[26] Paragraph (b), like the words which introduce all of paragraphs (a), (b) and (c), identifies the rights affected (in the introductory words, "the liability of the mortgagor to the mortgagee") as being rights under the Southport mortgage and the Nerang mortgage.
[27] Paragraph (c), like paragraph (a), does not contain words like those in paragraph (b) limiting the respondent's rights under the mortgages. It must be construed by reading it in conjunction with the introductory words, "the aggregate actual and contingent liability of the Mortgagor to the Mortgagee under this mortgage and under mortgage 711657015 is limited as follows". When paragraph (c) is read in this way, its function appears to be to limit the liability of the mortgagor to the mortgagee under the two mortgages. In other words, it appears not to address rights and obligations under any other instrument. That was the construction urged by counsel for the respondent.
[28] But paragraph (c), construed in such a way, is odd, as each mortgage is given only over a specified parcel of land and under the mortgage no assets of the appellant mortgagor, other than its interests in the subject land, could be "claimed by [therespondent] as a source for payment of the secured moneys". It therefore appears that, despite the words which appear to limit the operation of the provision to rights and obligations under the mortgages, the provision was intended to have abroader application.
[29] If paragraph (b) is construed as being confined to identifying only the respondent mortgagee's rights under the mortgages, the result is also surprising. Under the mortgages the respondents can do no more to recover the total secured sum of $3,000,000 than sell the mortgaged land and apply the balance of the proceeds of sale in satisfaction of the secured sum. But, on the respondent's argument, the respondent could at any time, while any part of the $3,000,000 is outstanding, obtain judgment against the appellant in respect of the appellant's obligations to the respondent under the Deed as varied and levy execution on any property of the appellant. It also follows from the respondent's argument that paragraph (c) would not prevent the respondent from acting as just described.
[30] If the respondent's construction is correct, cl 4.5 of the Deed, which provides that each Security Provider "mortgages and charges all … property owned by it, in favour of the Lender", makes paragraph (c) of the description of the liability secured by the Southport mortgage pointless. Also, if the Deed and Deed of Variation are to be construed as unqualified by paragraphs (a), (b) and (c) of the description of the liability secured by the Southport mortgage, the $3,000,000 limit on the appellant's liability to the respondent is also largely pointless. Under cl 4.5 each Security Provider agrees to do anything the respondent asks "to provide more effective security over its property for the payment of the Money Secured".
[31] There are difficulties in qualifying the rights and obligations arising under the Deed and the Deed of Variation by reference to the terms of the Southport mortgage. However, the respondent accepted that the $3,000,000 limit on the appellant's liability applies. This acceptance, it would seem, was based on an agreement recorded in a letter dated 21 April 2008 from the respondent's solicitors to the appellant's solicitors signed by Mr Spottiswood. The letter relevantly stated that if the mortgages over the Nerang and Southport properties in the form of the documents accompanying the letter "are enforced at any time, our client agrees to limit the amount that it may recover under each mortgage to $3,000,000 per mortgage (being a total of $6,000,000). In agreeing to this, it does not affect the liability of GAMP or the guarantors".
[32] Plainly, that bargain was overtaken by the Southport mortgage which limits the security provided under both mortgages to a total of $3,000,000. Although, in the material before this Court, there are difficulties in construing the Deed and Deed of Variation as if they included the agreement in respect of the security contained in the Southport mortgage, there is a basis for an argument concluding that the intention of the parties at the time the Deed of Variation and the Southport mortgage were executed was that the former operate subject to the latter. There also appears to be a foundation for a claim for rectification or for relief under s 52 and s 87 of the Trade Practices Act 1974 (Cth).
[33] As I mentioned earlier, the contention that, because of the terms of the Southport mortgage, there was no debt due and payable was raised but pursued only faintly, if at all. Neither counsel advanced any argument on the point or referred to relevant authorities. Accordingly, it would not be appropriate for this Court to decide the appeal on that ground without calling for further submissions. And because of my conclusion on the principal ground relied on by the appellant there is no need to resolve the "due and payable" question.
[34] I will therefore limit myself to these observations. The learned author of Statutory Demands: Law and Practice,[2] states that the central function of the statutory demand procedure established by the Act is to facilitate proof of a company’s inability to pay its debts by creating a rebuttable presumption of insolvency in the event that the company fails to comply with a demand that has been properly served on it.
[35] Gummow J, with whose reasons the other members of the court agreed, said in David Grant & Co Pty Ltd v Westpac Banking Corporation[3] that "Pt 5.4 [of the Corporations Act] constitute[s] a legislative scheme for quick resolution of the issue of solvency and the determination of whether the company should be wound up without the interposition of disputes about debts, unless they are raised promptly".
[36] In Mibor Investments Pty Ltd v Commonwealth Bank of Australia,[4] Hayne J described a statutory demand as "no more than a precursor to an application for winding-up in insolvency".
[37] As Barrett J observed in State Bank of New South Wales v Tela Pty Ltd (No 2):[5]
"The scheme of the legislation makes it clear that a creditor who has duly served a statutory demand which remains unsatisfied for the relevant period has a right to seek winding up."
[38] In Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd,[6] his Honour, in describing the role of a statutory demand said:[7]
"By serving a statutory demand on a company, a creditor takes the first step towards bringing into existence a statutory presumption of insolvency on the basis of which the creditor may proceed to ask the court to supplant the existing custodians of the company's property and affairs in favour of an officer of the court whose first duty is to attend to the interests of the general body of creditors. If the court accedes to that request, the established order of administration within the company is put into abeyance and a regime in which the interests of shareholders are subordinated or deferred comes to the fore. The first step to which I have referred involves, in essence, a clear delineation of the creditor's assertion of an entitlement to receive payment of a debt in respect of which there exists not only an unquestionable obligation to pay but also an unconditional obligation to pay immediately. The message conveyed by the demand is effectively a message of last chance: that, unless the payment already unequivocally and immediately required to be made is in fact made within the period stated in the demand, the company will be vulnerable to the grave consequences which the court may, on application made, visit upon it on the basis of the statutory presumption of insolvency."
[39] In light of the foregoing observations it would be remarkable if Pt 5.4 contemplated the making of a statutory demand in respect of a debt which the creditor was entitled to have satisfied only out of the net proceeds of sale of particular secured property of the debtor. And, not surprisingly, there are authorities which support the proposition that for a debt to be "due and payable" for the purposes of s 459E it must be "immediately payable".[8]
[40] However, I am satisfied that if the demand is not to be set aside on the basis of agenuine dispute about the existence of a due and payable debt, the demand should be set aside under s 459J(1)(b). Sub-section (1) provides:
"(1)On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
(a)because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b)there is some other reason why the demand should be set aside."
[41] The discretion conferred by s 459J(1)(b) is broad.[9] For the reasons given above, if the dispute concerning the Southport mortgage is resolved against the respondent, the failure to set aside the statutory demand will permit a statutory presumption of insolvency to come into existence in circumstances in which any failure to pay the debt cannot bear on the appellant’s solvency. Moreover, the respondent will be using, unjustly and unconscientiously, the statutory demand mechanism to circumvent the terms of the bargain it struck with the appellant.
[42] It is appropriate to record that the ground on which the appeal succeeded was only raised obliquely at first instance and was pursued only faintly. It was effectively buried under a number of arguments on which much greater reliance was placed by the appellant's then counsel. Counsel for the respondent did not submit, unless Imisunderstood him, that the point just considered had not been raised sufficiently to permit the appellant to pursue it on appeal and in fact the point was raised sufficiently at first instance. Counsel for the respondent submitted that if the appellant succeeded on this ground there should be no order for the costs at first instance or of the appeal having regard to the lack of emphasis at first instance and in the original outline of argument on appeal on the point which ultimately succeeded. As there is nothing to suggest that the respondent would have pursued adifferent course had more emphasis been placed on the point under discussion and as the point was raised below, I do not consider it appropriate that the successful appellant be deprived of its costs.
Conclusion
[43] For the above reasons I would order that:
● The appeal be allowed.
● The order of 3 September 2010 be set aside.
● The statutory demand dated 29 July 2010 be set aside.
● The respondent pay the appellant's costs of the application to set aside the statutory demand and of this appeal.
[44] McMEEKIN J: I agree with the reasons of Muir JA and the orders his Honour proposes.
Footnotes
[1] Corporations Act 2001 (Cth), s 459J(1)(b).
[2] Assaf, Farid, Statutory Demands: Law and Practice, LexisNexis Butterworths, 2008.
[3] (1995) 184 CLR 265 at 270.
[4] [1994] 2 VR 290 at 295.
[5] (2002) 188 ALR 702, referred to with approved in Braams Group Pty Ltd v Miric (2002) 44 ACSR 124 at 131.
[6] [2002] NSWSC 219.
[7] [2002] NSWSC 219 at para [21].
[8] Re Elgar Heights Pty Ltd [1985] VR 657 at 664; Island Industries Pty Ltd v Pitcher [2005] NFSC 2; Remuneration Data Base Pty Ltd v Pauline Goodyer Real Estate Pty Ltd [2007] NSWSC 59 and Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd [2002] NSWSC 219.
[9] Neutral Bay P/L v DCT [2007] QCA 312 at [79].