Pioneer Investments (Aust) Pty Ltd v Smits
[2006] QSC 380
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- Pioneer Investments (Aust) Pty Ltd v Smits[2006] QSC 380
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Pioneer Investments (Aust) Pty Ltd v Smits[2006] QSC 380
Pioneer Investments (Aust) Pty Ltd v Smits[2006] QSC 380
SUPREME COURT OF QUEENSLAND
CITATION: | Pioneer Investments (Aust) Pty Ltd v Smits [2006] QSC 380 |
PARTIES: | PIONEER INVESMENTS (AUST) PTY Ltd ACN 070 004 045 |
FILE NO: | BS10163 of 2006 |
DIVISION: | Trial Divison |
PROCEEDING: | Application to set aside statutory demand |
DELIVERED ON: | 14 December 2006 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 30 November 2006 |
JUDGE: | Mullins J |
ORDER: |
|
CATCHWORDS: | CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - STATUTORY DEMAND - APPLICATION TO SET ASIDE DEMAND - genuine dispute as to indebtedness - offsetting claims – where statutory demand served as a defensive step after the commencement of a proceeding by the debtor against the creditor arising out of dealings undertaken by both of them in relation to mortgages over land that was sold by one of the mortgagees exercising power of sale – whether offsetting claim can be characterised as genuine Corporations Act 2001 (Cth) Land Title Act 1994 JJMMR Pty Ltd v LG International Corp [2003] QCA 519 Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 |
COUNSEL: | SS Monks for the applicant DA Savage SC for the respondent |
SOLICITORS: | James Conomos Lawyers for the applicant Morgan Conley for the respondent |
- MULLINS J: The applicant seeks an order pursuant to s 459H of the Corporations Act 2001 (Cth) (“the Act”) that the creditor’s statutory demand for payment of debt issued by the respondent to the applicant dated 31 October 2006 be set aside. The application is opposed by the respondent.
The parties
- Mr Loel who is a solicitor is a director of the applicant. The respondent is the sole director of Zonebar Pty Ltd (“Zonebar”). It is common ground that the applicant and the respondent together with Kevin Richard Shirlaw personally and as receiver and manager of Ostabridge Pty Ltd (to whom I will refer collectively as “Mr Shirlaw”) are parties to a declaration of trust made on 11 November 2005 (“the 11 November trust”) in relation to registered mortgages numbers 702987988 and 704246070 (“the first and second mortgages”) that were granted by Ammbar Pty Ltd (“Ammbar”) over land described as Lot 202 on SP161001 in the County of Livingstone Parish of Hewittville and situated at Yeppoon. Ammbar is associated with Mr Peter Gallus. Mr Loel acted as the solicitor for Mr Gallus and Ammbar in relation to the Yeppoon land during the period April to October 2005.
- For the purpose of this application it is common ground between the applicant and the respondent that the applicant had to pay the respondent the sum of $250,000 and Mr Shirlaw the sum of $250,000 for its share of the first and second mortgages held under the 11 November trust. It is in issue between the parties as to the true nature of the relationship among the beneficiaries of the 11 November trust. The applicant asserts that there was a joint venture formed among the beneficiaries to purchase the first and second mortgages. The respondent denies that there was any joint venture or other agreement between the parties, apart from the written declaration of trust made on 11 November 2005. On 11 November 2005 the holder of the first and second mortgages which was Citimark Finance Pty Ltd (“Citimark”) assigned the first and second mortgages to Mr Shirlaw. It appears that the sum of $1,006,910.77 was owing under the first and second mortgages on 11 November 2005 and that was the amount paid by Mr Shirlaw to Citimark to obtain the assignment of the first and second mortgages. It is the applicant’s claim that further advances of $500,000 were then made by Mr Shirlaw under the first and second mortgages.
Events resulting in the statutory demand
- The respondent claims to have become involved with the Yeppoon land early in October 2005 at the request of Mr Loel. This in turn resulted, at the least, to the setting up of the 11 November trust and associated transactions.
- By written contract dated 16 December 2005 Mr Shirlaw exercising power of sale as mortgagee agreed to sell the Yeppoon land to Zonebar as buyer for a purchase price of $3.4m. The contract is not included in the material relied on by either party for this application. It appears at settlement on 23 December 2005 Zonebar paid $1.9m and took a conveyance of the Yeppoon land. There were many mortgages secured over the Yeppoon land. On 23 December 2005 one of the other mortgagees, Business Bridging Finance Pty Ltd (“BBF”) transferred to Kevin Richard Shirlaw its interest in registered mortgages numbers 703494840, 704544382, 707227959 and 709100851. The consideration shown in the transfer of those mortgages was $1,368,112.32 and the transfer was the result of a settlement of proceedings between BBF and Mr Shirlaw. The effect of a transfer executed by a registered mortgagee after the exercise of the power of sale under the registered mortgage is that registration of the transfer vests in the transferee the mortgagor’s interest that is transferred, free from liability under the mortgage and any other mortgage registered after it: s 79 Land Title Act 1994.
- By deed of assignment made on 31 July 2006 between Mr Shirlaw and the respondent, Mr Shirlaw assigned to the respondent a number of rights arising out of involvement in the Yeppoon land including all Mr Shirlaw’s interest in registered mortgage number 704246070, all choses in action actionable under, concerning, relating to or touching upon mortgage number 704246070 and/or the sale of the Yeppoon land by Mr Shirlaw to Zonebar and the 11 November trust.
- As a result of the sale of the Yeppoon land a fund of $500,000 from the sum of $1.9m paid by Zonebar at settlement came to be held in a bank account in the names of Mr Shirlaw, Phillip Gregory Jefferson and Matthew Leslie Joiner and BBF pursuant to an order of the court which was then varied by the order of the Chief Justice made on 17 October 2006 in proceeding BS6354 of 2006 (“the contract proceeding”). Mr Jefferson and Mr Joiner were the court appointed receivers to Ammbar and another company to receive the assets of the joint venture (the Yeppoon land) as the joint venturers had fallen out. The applicant is the plaintiff and the respondent is the third defendant in the contract proceeding. Zonebar is the first defendant and Mr Shirlaw is the second defendant in the contract proceeding. The pleadings for the contract proceeding are exhibited to the affidavit of Mr Loel filed on 22 November 2006 in this application.
- In a hearing before Fryberg J on 18 September 2006 in proceeding BS9791 of 2005 in which the entitlement to the fund of $500,000 was in issue the respondent claimed that he was entitled to receive all of the fund, as he was the only person who had any claim to that fund. The applicant intervened in that application and was successful in preventing the fund being paid out to the respondent, pending resolution of the claims between the applicant and the respondent in respect of the fund.
- In the contract proceeding the applicant seeks to establish that the execution of the transfer by Mr Shirlaw in favour of Zonebar of the Yeppoon land on 22 December 2005 was a mistake and that, in order to give effect to the terms of the contract dated 16 December 2005, Zonebar should be ordered to execute a mortgage in favour of Mr Shirlaw as trustee for the applicant, Mr Shirlaw and the respondent in equal shares over the Yeppoon land to secure repayment of $1.53m and interest thereon at 18.74 per cent per annum from 23 December 2005 and otherwise on the terms and conditions of the formerly registered mortgage number 704246070, so far as practicable. As alternative relief in the contract proceeding, the applicant seeks an order that the respondent pay to the applicant one-third of the sum of $1.5m (that the applicant asserts in the statement of claim should have remained secured on the Yeppoon land in favour of Mr Shirlaw as trustee under mortgagee number 704246070 after the transfer to Zonebar) plus interest on $500,000 at 18.7 per cent per annum from 22 December 2005 until payment. That claim is based on an allegation in the statement of claim in the contract proceeding that by virtue of a guarantee given by the respondent to Mr Shirlaw and the mistake that the applicant alleges that Mr Shirlaw made in executing the transfer in favour of Zonebar, the respondent is indebted to Mr Shirlaw as trustee under the 11 November trust for the sum of $1.5m plus interest at 18.7 per cent. Mr Monks of counsel for the applicant conceded that the statement of claim in the contract proceeding requires amendment. The guarantee that the applicant alleges against the respondent in the contract proceeding is not identified, although I note that in the defence of Zonebar and the respondent in the contract proceeding, it is alleged that the respondent provided a written guarantee on 22 December 2005 to Mr Shirlaw for $1.5m which had been discharged. As alternative relief in the contract proceeding, the applicant also seeks a declaration that the fund of $500,000 (which is the subject of the order made on 17 October 2006 in the contract proceeding) be paid to Mr Shirlaw and that it be held by Mr Shirlaw as trustee pursuant to the 11 November trust.
- The respondent and Zonebar allege in the defence in the contract proceeding that there were no debts secured by the first and second mortgages as they had been redeemed by payment in full of the facilities secured by the mortgages on each occasion when payments were made to obtain an assignment of the mortgages. In paragraph 8 of the defence in the contract proceeding the respondent and Zonebar deny that the applicant ever paid any amount pursuant to the declaration of trust for it to hold an interest as tenant in common of the trust property and make the following allegation in paragraph 8(e) of the defence:
“(e)says that the plaintiff wrongly purported to rely upon monies paid into the trust account of John M O'Connor and Company by the second defendant as the basis to acquire the plaintiffs interest under the Declaration of Trust.”
- On the basis that the respondent denies that Mr Shirlaw, the applicant and the respondent as beneficiaries under the 11 November trust were joint venturers, the respondent denies in the defence in the contract proceeding that the beneficiaries owed each other fiduciary duties. The respondent and Zonebar assert in the defence that Mr Shirlaw purported to exercise the power of sale under both registered mortgages numbers 702987988 and 703570735. The respondent and Zonebar allege in paragraph 11(j) of the defence:
“(j)say that on the advice of Mr Loel that instrument 704246070 was to only remain as a disincentive to the priority being alleged by the court appointed receiver but was known to be otherwise empty.”
The respondent and Zonebar also allege in the defence that Zonebar accounted for the balance purchase price to the mortgagees of the other mortgages in accordance with its requirements under the law.
- In the contract proceeding Mr Loel swore an affidavit on 17 October 2006. This affidavit dealt with the applicant’s contribution of $500,000 to the 11 November trust. In paragraph 4 of that affidavit the applicant was described as making the contributions set out in the table. That table shows that the applicant paid the Finlay Trust (associated with Mr Shirlaw) the sum of $250,000 on 10 November 2005. The table then shows a series of payments made by the applicant which are described in paragraph 8 of the affidavit as being “made for and on behalf of Mr Smits at his direction”. The table sets out the name of the payee, the date and number of the cheque and the amount for which the cheque was drawn, except in two instances. One of those is not the subject of dispute. The other is and the description set out in the payee column for this item is as follows:
“1/3 if legal fees payable by Mr Smits by paid by Pioneer Investments (Aust) Pty Ltd for work undertaken by Ammbar Pty Ltd.”
The amount attributed to this description (which does not make sense) is $53,590. That is dealt with at paragraph 9 of this affidavit of Mr Loel:
“9.The amount of $53,590.00 represents legal fees paid by my company, the plaintiff, for work undertaken for Ammbar Pty Ltd, which was agreed to be shared equally between Mr Smits, Mr Shirlaw and the plaintiff.”
- During the hearing of the application, I had interpreted the description attributed to the sum of $53,590 in the table in Mr Loel’s affidavit as suggesting that one-third or the legal fees payable by the respondent were paid by the applicant for work undertaken by Mr Loel’s firm for Ammbar. Counsel for the applicant, however, submitted that what was being alleged was that the applicant was paying the applicant’s share of the fees payable by Mr Gallus and that the applicant was not alleging that it had paid the respondent’s share of those fees and no submission was being made about whether, and if so to what extent, the respondent ever paid a one-third share of these fees (Transcript, pp22-23).
- Although the respondent by its defence in the contract proceeding denied that the plaintiff had contributed an amount of $500,000 to purchase the one-third interest in the first and second mortgages, after the applicant had filed Mr Loel’s affidavit sworn on 17 October 2006 in the contract proceeding, the respondent caused the statutory demand dated 31 October 2006 to be served on the applicant. In the respondent’s accompanying affidavit sworn on 31 October 2006, the respondent stated:
- The Debtor company, in accordance with a Declaration of Trust dated 11 November 2005, was liable to pay the Creditor the amount of $250,000 which it has acknowledged by sworn affidavit by its authorised representative Mr James Beresford Loel on 17 October 2006.
- The Debtor company failed, refused or neglected to pay the amount of $53,590 from the amount due and owing of $250,000.
- The amount that is now due and owing by the Debtor company to the Creditor is $53,590.”
- Mr Loel in paragraph 14 of his affidavit filed on 22 November 2006 in this application dealt with the manner in which the applicant took care of the sum of $53,590 as follows:
“14.To make up the balance of the $500,000.00 to be contributed by the applicant, the applicant caused to be paid or be responsible for part of these fees in the sum of $53,590.00.”
Grounds relied on by applicant
- There are three grounds advanced by the applicant for setting aside the statutory demand. They are:
(a)there is a genuine dispute about the existence of the debt of $53,590;
(b)the applicant has an offsetting claim as a result of the payment of the sum of $55,281.48 to the respondent on 13 December 2005 to obtain a one-half share of the interest to be held by the respondent in registered mortgage number 703570735 (“the fourth mortgage”) over the Yeppoon land; and
(c)there is an offsetting claim, as a result of the claims made by the applicant against the respondent in the contract proceeding.
Dispute about existence of the debt
- I have not set out a complete recitation of all the apparent dealings between the parties and the claims made by the parties against each other, as revealed by the material relied on in this application. To the extent that the material reveals various dealings, claims and disputes involving the parties, it shows that the respondent’s claim that the applicant is indebted to him in the sum of $53,590 is unusual. It was a debt that was not being pursued by the respondent until the applicant provided particulars of how it said that it had paid the sum of $250,000 to the respondent to acquire the one-third interest in the first and second mortgages. The one particular that the respondent disputes has formed the basis for the claim that a debt of $53,590 is owed by the applicant to the respondent.
- Whether that debt exists depends on whether the applicant can show that the beneficiaries under the 11 November trust assumed an obligation in respect of the legal fees owed by Mr Gallus on account of work done by Mr Loel’s firm relating to Ammbar.
- Apart from the joint venture alleged by the applicant, the applicant asserts that on or about 10 November 2005 it was orally agreed between Mr Shirlaw, the respondent and Mr Loel on behalf of the applicant that each would pay one-third of the legal fees of Mr Gallus and Ammbar which related to the dispute between Mr Gallus and Ammbar and other parties associated with the Yeppoon land and the first and second mortgages. At the time of this alleged oral agreement Mr Loel was a consultant to the firm of solicitors John M O'Connor & Company. As at the commencement of November 2005, John M O'Connor & Company had issued accounts to Mr Gallus totalling about $242,600.
- There is no consideration suggested by the applicant for the promise by the respondent to pay one-third of the legal fees incurred by Mr Gallus prior to the 11 November trust coming into existence. The declaration of trust makes no reference to such an obligation. Recital E of the declaration of trust states:
“For valuable consideration the mortgagee holds the mortgage, the mortgage debt and all associates rights for and on behalf of the beneficiary.”
The applicant claims, however, that the oral agreement in relation to the payment of the legal fees was a separate agreement to that entered into by Mr Shirlaw, the applicant and the respondent that resulted in the creation of the 11 November trust. There is no contemporaneous reference or record relied on by the applicant to evidence such oral agreement in relation to the payment of legal fees. There is no affidavit from Kevin Richard Shirlaw dealing with any such agreement.
- The applicant does rely on a payment directed to be made by Mr Shirlaw for Mr Gallus’ legal costs from funds held in trust by John M O'Connor & Company on 13 November 2005 which the respondent confirmed to Mr Shirlaw that it was in order for him to sign the authority. The amount of the funds paid was $85,466.20 which appears to relate to an invoice from John M O'Connor & Company to Mr Gallus dated 31 October 2005 for the sum of $85,466.16. The authority, however, authorises the payment as a further advance under the first and second mortgages to Ammbar. The amount that was authorised to be paid is greater than one-third of the then outstanding amount of fees billed to Mr Gallus.
- The state of the material relevant to whether such an oral agreement was made in relation to these legal fees is most unsatisfactory. The discrepancies in the material as to whether the applicant was claiming the sum of $53,590 represented legal fees of Mr Gallus which the applicant had paid on the respondent’s behalf or dealt with on some other basis are not able to be reconciled.
- On an application of this nature it is not the task of the court to adjudicate on the merits of the dispute, but merely to be satisfied that there is a genuine dispute about the existence of the debt to which the demand relates. As was stated in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452, 464:
“In our view a “genuine” dispute requires that:
- the dispute be bona fide and truly exist in fact;
- the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.”
- It is not possible to be satisfied that there is such a genuine dispute, as to the existence of the debt of $53,590. The applicant has acknowledged that it was liable to pay that amount to the respondent, but the agreement that the applicant relies on to allege that the amount is no longer outstanding fits the description of being “spurious, hypothetical, illusory”.
Offsetting claim in relation to payment for interest in fourth mortgage
- This ground can be disposed of shortly. The offsetting claim was described as being one for moneys had and received. It is common ground that on 13 December 2005 the applicant paid the respondent the sum of $55,281.48 to obtain a one-half share of registered mortgage number 703570735 (“the fourth mortgage”) secured over the Yeppoon land. That gave the applicant an interest in the fourth mortgage and not an entitlement to have the moneys which it had paid to acquire that interest repaid by the respondent. No offsetting claim has been shown to exist by the applicant in relation to this payment for the interest in the fourth mortgage.
Offsetting claim arising from contract proceeding
- It is not irrelevant that the claim for the debt has arisen as a defensive step after the commencement of the contract proceeding by the applicant against the respondent. If the contract proceeding raises a serious question to be tried which could result in relief by the applicant against the respondent in excess of the amount of the debt of $53,590, that would be sufficient ground for the statutory demand to be set aside.
- There are many authorities on what must be shown by a company in order to satisfy the court that it has an offsetting claim. As was stated by the Chief Justice in JJMMR Pty Ltd v LG International Corp [2003] QCA 519 at paragraph [4]:
“But the objective is not to secure adjudication of what if any amount is owing, but to establish a genuine cross or counter or offsetting claim such as would warrant subsequent adjudication.”
- The critical fact raised in the applicant’s material is that the contract for the sale of the land that was settled on 23 December 2005 was for a sale price of $3.4m, but that Zonebar paid the sum at settlement of $1.9m. The respondent relies on the Form 5 under the Property Law Act 1974 which was signed by the respondent on 5 September 2006 as the assignee of Mr Shirlaw exercising power of sale under mortgages numbered 702987988 and 703570735 which was addressed to the other mortgagees and notified that the sale price was $3.4m and that the net proceeds were accounted for to the mortgagee of registered mortgage number 703494840 which was third in priority and was one of the mortgages that the respondent had acquired from BBF. The respondent claims in the affidavit which he swore on 30 November 2006 that was filed at the hearing of the application by leave that the Form 5 demonstrated “that no funds were available from the sale of the property for which a further account would be necessary in relation to that mortgage” (which was a reference to the fourth mortgage) and that the respondent’s rights to the fund of $500,000 that was initially paid into proceeding BS9791 of 2005 was as the holder of the third mortgage. The applicant was successful, however, in convincing the Court on 18 September 2006 to allow it to intervene in that proceeding to raise its claim to that fund.
- The questions that arise on the material about what actually took place at the settlement of the sale of the Yeppoon land are compounded by the fact that there is no disclosure in the material of how the sum of $3.4m was accounted for under each of the mortgages.
- The sum of $1.5m that was not paid by Zonebar at the settlement of its purchase of the Yeppoon land and the fund of $500,000 are sizeable amounts. Because of the role played by the respondent as mortgagee, the applicant has raised a question to be tried about whether it may ultimately show that it has entitlement to some part of these sums, either through the first and second mortgages or the fourth mortgage. Although the respondent relies on a point of law to claim there was no debt owing under the first and second mortgages, that is a matter which will depend upon whether the respondent’s claim as to the characterisation of the payment made by each successive assignee of the mortgagee to acquire the interest in those mortgages is supported by the facts. It is in issue on the pleadings in the contract proceeding and that it remains an issue is supported by the material on this application.
- The pleadings in the contract proceeding do not necessarily reflect the various ways in which the applicant can pursue the shortfall in the purchase price paid by Zonebar for the Yeppoon land which remains to be accounted for properly by the respondent as the holder of the relevant mortgages at the time of the settlement of the sale.
- The applicant has discharged its onus of showing that it has a claim to pursue in relation to its interest under the first and second mortgages and the fourth mortgage which will require an accounting on behalf of the respondent. The quantum of any such claim is unclear, but the possibility of it exceeding the debt of $53,590 has been shown on the material. On the basis of the offsetting claim that is raised by the contract proceeding, the applicant succeeds in having the statutory demand set aside.
Orders
- It follows that the orders which should be made are:
- The statutory demand issued by the respondent to the applicant dated 31 October 2006 be set aside.
- The respondent pay the applicant’s costs of the application to be assessed.