FEDERAL COURT OF AUSTRALIA United Capital Properties Pty Ltd v Handbury Asset Management Pty Ltd [2011] FCA 1075 Citation: United Capital Properties Pty Ltd v Handbury Asset Management Pty Ltd [2011] FCA 1075 Parties: UNITED CAPITAL PROPERTIES PTY LTD (ACN 103 938 361 v HANDBURY ASSET MANAGEMENT PTY LTD (ACN 050 670 945); UNITED CAPITAL AGRICULTURAL HOLDINGS PTY LTD (ACN 102 272 864) ) v HANDBURY ASSET MANAGEMENT PTY LTD (ACN 050 670 945); and UNITED CAPITAL FINANCE PTY LTD (ACN 073 540 744) v HANDBURY ASSET MANAGEMENT PTY LTD (ACN 050 670 945) File numbers: NSD 1075 of 2010 NSD 1076 of 2010 NSD 1083 of 2010 Judge: STONE J Date of judgment: 20 September 2011 Catchwords: CORPORATIONS – application to set aside statutory demands pursuant to s 459G(1) Corporations Act 2001 (Cth) – whether there is a "genuine dispute" – issue of whether debts due and payable – consideration of relevant authorities CONTRACT – interpretation and construction of contracts – extent to which surrounding circumstances can be taken into account – construction of debt agreements having regard to matrix of circumstances – unwritten understanding contended for by debtors inconsistent with express provisions of agreements EVIDENCE – application for leave to cross-examine deponent of affidavit filed in support of application to set aside – whether cross-examination would be relevant to "genuineness" of dispute – consideration of relevant principles – not relevant in the circumstances – leave refused Legislation: Corporations Act 2001 (Cth) s 459E(1), G(1), H(1) Cases cited: AR Pilot Pty Ltd v Gouriotis [2007] NSWSC 396 Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 Edge Technology Pty Ltd v Lite-On Technology Corporation (2000) 156 FLR 181 Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 Franklins Pty Ltd v Metcash Trading Ltd (2009) NSWLR 603 Giacci Holdings Pty Ltd v Giacci [2007] WASC 187 Greenwood Manor Pty Ltd v Woodlock (1994) 48 FCR 229 Hawkins v Bank of China (1992) 26 NSWLR 562 Kirrak Pty Ltd v Compass Scaffolding and Plant Hire Pty Ltd [2007] NSWSC 1002 Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 Roadships Logistics Ltd v Tree [2007] NSW SC 1084 Rohalo Pharmaceutical Pty Ltd v RP Scherer SpA (1994) 15 ACSR 347 Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411 Spencer Constructions Pty Ltd v G&M Aldridge Pty Ltd (1997) 76 FCR 452 Vimblue Pty Ltd v Toweel trading as Carpenters Core Building [2009] NSWSC 494 Date of hearing: 1 and 2 March 2011 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 56 Counsel for the Plaintiffs: J McLeod Solicitor for the Plaintiffs: Harris & Harris Solicitors Counsel for the Defendant: RM Smith SC with CA Moore Solicitor for the Defendant: Corrs Chambers Westgarth IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1075 of 2010 BETWEEN: UNITED CAPITAL PROPERTIES PTY LTD (ACN 103 938 361) Plaintiff AND: HANDBURY ASSET MANAGEMENT PTY LTD (ACN 050 670 945) Defendant JUDGE: STONE J DATE OF ORDER: 20 September 2011 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application be dismissed with costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1076 of 2010 BETWEEN: UNITED CAPITAL AGRICULTURAL HOLDINGS PTY LTD (ACN 102 272 864) Plaintiff AND: HANDBURY ASSET MANAGEMENT PTY LTD (ACN 050 670 945) Defendant JUDGE: STONE J DATE OF ORDER: 20 September 2011 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application be dismissed with costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1083 of 2010 BETWEEN: UNITED CAPITAL FINANCE PTY LTD (ACN 073 540 744) Plaintiff AND: HANDBURY ASSET MANAGEMENT PTY LTD (ACN 050 670 945) Defendant JUDGE: STONE J DATE OF ORDER: 20 september 2011 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application be dismissed with costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1075 of 2010 BETWEEN: UNITED CAPITAL PROPERTIES PTY LTD (ACN 103 938 361) Plaintiff AND: HANDBURY ASSET MANAGEMENT PTY LTD (ACN 050 670 945) Defendant IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1076 of 2010 BETWEEN: UNITED CAPITAL AGRICULTURAL HOLDINGS PTY LTD (ACN 102 272 864) Plaintiff AND: HANDBURY ASSET MANAGEMENT PTY LTD (ACN 050 670 945) Defendant IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1083 of 2010 BETWEEN: UNITED CAPITAL FINANCE PTY LTD (ACN 073 540 744) Plaintiff AND: HANDBURY ASSET MANAGEMENT PTY LTD (ACN 050 670 945) Defendant JUDGE: STONE J DATE: 20 september 2011 PLACE: SYDNEY REASONS FOR JUDGMENT 1 Before the Court are three applications brought respectively by United Capital Properties Pty Ltd (UCP), United Capital Agricultural Holdings Pty Ltd (UCAH) and United Capital Finance Pty Ltd (UCF) (collectively the plaintiffs) against Handbury Asset Management Pty Ltd (HAM). The proceedings were all commenced in 2010 and I shall identify each as follows: 1075/UCP; 1076/UCAH and 1083/UCF. Each plaintiff applies under s 459G(1) of the Corporations Act 2001 (Cth) to set aside a statutory demand served on it by HAM. In each case the ground of the application is that there is a genuine dispute between HAM and the company "about the existence or amount of a debt to which the demand relates"; s 459H(1). 2 The Corporations Act does not define "debt". At common law the term may refer to a present obligation to pay a sum of money which will become payable in the future (debitum in praesenti solvendum in futuro) or which is presently payable: Hawkins v Bank of China (1992) 26 NSWLR 562. Under s 459E(1), however, only a debt that is due and payable can be the subject of a statutory demand: Vimblue Pty Ltd v Toweel trading as Carpenters Core Building [2009] NSWSC 494 at [11]. As Barrett J observed in AR Pilot Pty Ltd v Gouriotis [2007] NSWSC 396 at [5]: It follows that, when s 459H(1)(a) refers to "the existence … of a debt to which the demand relates" it has in contemplation the existence of the debt "that is due and payable" as distinct from a debt that is, for the time being, merely owing. The plaintiffs challenge the defendant's statutory demands on the basis that the debts in question are not due and payable. 3 Three statutory demands are in issue: (a) a demand of $1,375,391.66 million served on UCP on 30 July 2010; (b) a demand of $2,829,383.70 million served on UCAH on 30 July 2010; and (c) a demand of $289,807.09 served on UCF on 2 August 2010. The plaintiffs do not dispute the existence of the debts however they contend that the debts were not due and payable at the time when the statutory demands were served. They claim that, under the agreement between the respective creditor and debtors, the time for payment does not arise until after the sale or realisation of a group of companies referred to as the Olive Group. 4 There was also some suggestion that the obligation to pay was restricted to the amount of any surplus after the sale of the Olive Group however this possibility was mentioned more or less in passing and was not developed in the plaintiffs' submissions. The plaintiffs' claims will stand or fall with the extent to which they can show that there is a genuine dispute about their obligation to pay being contingent on the sale or realisation of the Olive Group. In these proceedings it is not necessary to consider the precise terms of that qualification and whether the obligation to pay is limited in the manner suggested. 5 The defendant denies that there was any agreement postponing the time for payment in the terms alleged by the plaintiffs. It submits that while the denial gives rise to a dispute between the parties it is not a genuine dispute and characterises the dispute as "dishonest" and spurious". A genuine dispute 6 The requirement in s 459H(1)(a) that the dispute be "genuine" has been the subject of extensive judicial commentary. In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, McLelland CJ in Eq, said at 787: In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the "serious question to be tried" criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit "however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be" not having "sufficient prima facie plausibility to merit further investigation as to [its] truth" … or "a patently feeble legal argument or an assertion of facts unsupported by evidence" … But it does mean that, except in such an extreme case, a court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. 7 The authorities all accept the distinction between determining whether a claim is genuine and determining the claim on the merits and that the Corporations Act does not require the court to determine whether the alleged claim will succeed. That, as Northrop J said in Greenwood Manor Pty Ltd v Woodlock (1994) 48 FCR 229 at 233, is quite clear. His Honour elaborated at 234: Although it is true that the Court, on an application under ss 459G and 459H is not entitled to decide a question as to whether a claim will succeed or not, it must be satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt. If it can be shown that the argument in support of the existence of a genuine dispute can have no possible basis whatsoever, in my view, it cannot be said that there is a genuine dispute. This does not involve, in itself, a determination of whether the claim will succeed or not, but it does go to the reality of the dispute, to show that it is real or true and not merely spurious. 8 The criteria for determining if a dispute is genuine have been formulated in many ways, such as: the dispute must be "bona fide and truly exist in fact" and that the grounds for alleging the dispute be "real and not spurious, hypothetical, illusory or misconceived", Spencer Constructions Pty Ltd v G&M Aldridge Pty Ltd (1997) 76 FCR 452 at 464, also Giacci Holdings Pty Ltd v Giacci [2007] WASC 187 at [4] and Kirrak Pty Ltd v Compass Scaffolding and Plant Hire Pty Ltd [2007] NSWSC 1002 at [3]; "not plainly vexatious or frivolous", Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 at 39; the dispute is genuine unless the claim is "so devoid of substance that no further investigation is warranted"; Roadships Logistics Ltd v Tree [2007] NSW SC 1084 at [24]. 9 Although the onus to show that the dispute is genuine falls on the party on whom the statutory demand is served, it is well accepted that the burden is not heavy. In Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411 at [23] Barrett J observed that the task of a company seeking to set aside a statutory demand "is by no means at all a difficult or demanding one". In Rohalo Pharmaceutical Pty Ltd v RP Scherer SpA (1994) 15 ACSR 347, Lindgren J likened the burden of an application to set aside a statutory demand to the burden of a creditor applying for summary judgment. As his Honour expressed it, at 353-4: The creditor would not be entitled to summary judgment if the company raised a defence or cross-claim deserving of a trial, and, concomitantly, a defence or cross-claim would not be struck out or dismissed if it raised an issue deserving of a trial. … The task confronting a company applying to set aside a statutory demand of establishing the "genuineness" of a dispute or claim is, in my opinion, no more onerous than that which would confront it if it were seeking to meet an application by the creditor for summary judgment. The dispute 10 In all three proceedings, the transactions that give rise to the dispute over whether the debts owed by the respective plaintiffs to the defendant are presently due and payable are complex. The main parties to the transactions were Mr Patrick Handbury and Mr Anthony Johnston and their corporate interests. Both Mr Handbury and Mr Johnston swore affidavits which were read at the hearing. 11 In a hearing that extended over two days the parties presented a raft of evidence in support of their respective contentions however the critical elements of the competing claims are comparatively simple. Application for leave to cross-examine Mr Johnston 12 At the outset of the hearing, Mr Smith, senior counsel for the defendant, sought leave to cross-examine Mr Johnston. Before moving to the principal issues before me it is appropriate that I give my reasons for refusing that application. 13 Mr Smith acknowledged that in an application to set aside a statutory demand, where the issue is only as to the genuineness of the dispute, it is unusual for the court to allow witnesses to be cross-examined. He submitted, however, that the authorities indicate that it will be permitted where, inter alia, the factual basis for the dispute is inconsistent with contemporaneous documents. In such cases, for all the reasons given above, the courts are especially concerned not to intrude into the merits of the dispute rather than merely to determine whether the dispute is genuine. 14 This concern was evident in Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290. The Bank sought leave to cross-examine deponents of affidavits filed in support of the companies on whom statutory demands had been served. It claimed that defences filed on behalf of the companies were a recent invention and that at the time the demands were made there was no suggestion that the liability of the companies was in issue. The Bank wanted to explore this issue and also to show that allegations that the dispute had been compromised were untenable. Justice Hayne, then a member of the Victorian Supreme Court, refused leave and explained, at 292-3: In my view neither of the matters which it was sought to explore by cross-examination goes to any issue arising on the companies' applications to set aside the statutory demands. Whether the defences can be described in the sense used in the bank's submissions as "recent inventions" does not in my view bear upon the existence in this matter of a genuine dispute. That is to be judged according to whether there is now a genuine dispute about the alleged debt – not according to how recently that dispute may have arisen. Furthermore, cross-examination on this issue of so-called "recent invention" or on the validity of the companies' contention that the dispute was compromised in June 1993 in the end would be no more than cross-examination about the merits of the dispute not about its existence or whether it is genuine. I do not say that in no case can cross-examination be permitted of a deponent of an affidavit filed in support of an application under s 459G. It may very well be that such cases are rare - perhaps very rare indeed. However it is enough for me to say that the cross-examination which was proposed in this matter did not in my judgment go to any issue falling for decision in the present matters. 15 In this case Mr Smith said that he wished to cross-examine Mr Johnston on the inconsistency between the plaintiffs' claim that the obligation to repay the debts owed to UCP and UCAH was contingent on the sale or realisation of the Olive Group and the documentary evidence. While I accept that there is no rule that precludes a court allowing a witness to be cross-examined in the context of an application such as the present, there are, as Hayne J pointed out, sound reasons why such discretion should rarely be exercised. 16 Mr Smith submitted that cross-examination would be appropriate if the evidence sought to be adduced by cross-examination were relevant to the genuineness of the dispute. He referred to Santow J's comment in Edge Technology Pty Ltd v Lite-On Technology Corporation (2000) 156 FLR 181 at 185 that, in establishing that there is a genuine dispute, "a minimum hurdle must nonetheless be cleared". If, it was submitted, Mr Johnston could not explain the inconsistency then it must be doubtful that the dispute is genuine. 17 I accept that some minimum assessment of the merits may, at times, be necessary to determine if a dispute is genuine. In my opinion, however, Mr Johnston's views as to whether there is an inconsistency or, if there is, how it might be explained is not a matter on which evidence adduced on cross-examination is likely to be of assistance in the present enquiry. It is the genuineness of the dispute that is in issue not the genuineness of Mr Johnston's belief. For these reasons I declined to give the leave sought by the defendant. 1075/UCP and 1076/UCAH 18 The parties accepted that the subject matter of these two proceedings and the contentions advanced in them are substantially the same. The affidavits on which they rely substantially mirror each other. While I shall consider these two proceedings together and deal with 1083/UCF separately, I note that there is considerable overlap in factual bases of all three proceedings. 19 The affidavits for the plaintiffs were made by the following persons: Anthony Charles Johnston, a director of UCP and UCAH; Kerry John Pooley also a director of UCP and UCAH; John McAuley, the accountant for UCP and UCAH and director of Wearne and Co Pty Limited, the tax agents for those companies. The defendant relied on the affidavits sworn by Blake Anthony Ammit 2010 and Patrick Geoffrey Handbury both of whom are directors of HAM. The genesis of the debts 20 As already stated, the dispute between the parties is whether the admitted debts are presently due and payable. The plaintiffs contend that the time for repayment does not arise until triggered by the sale or realisation of the Olive Group. They submit that "this was the position as a matter of fact" and add that the position also accords with "the commercial reality of the transactions the subject of the proceedings". 21 To a large extent there is no dispute between the parties as to how the debts arose. They arose out of the purchase of the Olive Group of companies by UCP (as trustee of the UCP Unit Trust) and UCAH (as trustee of the UCAH Unit Trust). The UCP and UCAH trusts were set up by a group of investors, including Mr Johnston, Mr Pooley, Mr Ammit and Mr Handbury whose corporate interests were the beneficiaries of the trusts and the shareholders of the trustee companies. Among other things the Olive Group was to operate a managed investment scheme in south-east Queensland for the commercial production and sale of olive products. 22 The funds for the purchase were provided in part from capital contributions by unit holders and in part by borrowing from, among others, the vendors and later the ANZ Bank. The two income earning companies in the Olive Group, Australian Olives Limited (AOL) and Australian Olive Holdings Pty Limited (AOHL), made loans to their respective parents, UCAH and UCP in order that the loans made to finance the purchases could be repaid. The loans made by AOL and AOHL were not documented. 23 Subsequently, on advice from their accountants and tax agents as to certain accounting and taxation implications, the AOL and AOHL directors and the directors of UCAH and UCP decided that part of the loans made by AOL and AOHL should be repaid. Accordingly, from about June 2005, AOL and AOHL declared dividends in favour of, UCAH and UCP respectively. The dividends were designed to offset or neutralise the obligations of UCAH and UCP to repay the loans made by AOL and AOHL. A consequence of this arrangement was that the UCP and UCAH unit trusts had dividends, described by the plaintiffs as 'notional', to distribute to their unit holders. The written submissions of the plaintiffs take up the story: Again for accounting and tax reasons (including so that the underlying unit holders could take advantage of franking credits which attached to the original AOL/AOHL dividends), as from June 2005, each year it was agreed between the directors (being the same people behind the beneficiaries in the UCAH and UCP trusts) that a notional distribution would be made to each of the beneficiaries in the UCAH and UCP unit trusts … There was no actual money behind these notional distributions (because the monies had been spent by the operating entities (AOL and/or AOHL) in repaying the vendor financiers and/or the ANZ) – as such, at the end of each financial year, again as an accounting treatment, the amount of these notional distributions was recorded in the books of the respective trusts as a debt owing from UCAH and/or UCP to the relevant beneficiaries in the amount of the notional distributions which had been made to each of the beneficiaries (with those distributions in turn being in proportion to their original respective unitholdings). The debts owed by UCP and UCAH arising from the "notional distributions" are known as the Schedule 3 debts, a reference to their listing in Schedule 3 of the Unit and Share Sale Agreement; see [26] below. Unravelling Johnston and Handbury business interests 24 Mr Johnston and Mr Handbury shared business interests beyond those they had in the Olive Group. In particular, through their respective companies, they both had interests in ReUse Glass UK Limited which, with its related company, Reuse Collections Limited was owned by URM International Pty Limited (URM) as trustee for a unit trust (URM trust). The defendant had made a loan to URM of $5,624,876.79 million for the benefit of ReUse Glass. This debt is referred to as the ReUse debt. 25 In late 2008/early 2009, as a consequence of their different opinions concerning how their various businesses should be run, Mr Handbury and Mr Johnston decided to unwind their business relationship. In pursuit of this goal, a number of agreements were made between Mr Johnston and Mr Handbury and their respective companies, Parridale Pty Ltd (Parridale) and HAM. These agreements included: a Unit and Share Sale Agreement and a Deed of Settlement and Release. The Unit and Share Sale Agreement (USS Agreement) 26 The USS Agreement between HAM, Patrick Handbury, Parridale, Anthony Johnston and URM was made on 11 March 2009. Under this Agreement the parties divided certain business assets between them and provided for payment and adjustment of interests. HAM was to assign the ReUse debt ($5.624,876.79 million) to Parridale. In addition Parridale agreed to purchase HAM's 95 units in the URM trust and Mr Handbury's 35 shares in URM. The consideration for the assignment of the ReUse debt, the 95 units and the 35 shares was $9.7 million. 27 Part of that payment was to be by way of assignment of the benefit of the Schedule 3 debts from the Johnston interests to the Handbury interests. As listed in Schedule 3 those debts amounted to $5,124,876.78 million which, when added to the $500,000 payment to HAM required under clause 4.1.2, was approximately the amount of the ReUse debt. The consideration was to be paid as provided in clause 4.1.2 so that the payment was to be complete by 1 October 2009. 28 As guarantor under the USS Agreement Mr Johnston guaranteed the payment of the Schedule 3 debts by UCP and UCAH and undertook to pay on demand any amounts due to HAM by reason of the guarantee: clause 12.1. Clause 12.4 provided that HAM could not call on the guarantee prior to 1 April 2010. Under clause 15 HAM acknowledged that Parridale and Mr Johnston (as guarantor) had entered into the Agreement on the faith of HAM's promise that, it will not itself and will not permit any assignee from it to demand payment of any of the Debt Balances [that is the Schedule 3 debts] prior to the 1st day of April 2010 whether or not the Debt Balances or any of them may be payable on demand or prior to that date. 29 Clause 16 of the USS Agreement provides for Parridale to pay interest if the Schedule 3 debts were not paid by 1 April 2010. There is no mention in the USS Agreement of repayment being subject to any contingency or condition after that date. Deed of Settlement and Release 30 In late 2009 two statutory demands under s 459E were served on Parridale. The first, dated 23 November 2009, demanded payment to HAM of $11,635,397.91. The second demanded payment to Mr Ammit of $335,000 alleged to be due to him pursuant to an agreement for the sale of five units in the URM Trust. Parridale applied to this Court to have the statutory demand set aside however the parties agreed to settle the proceedings on the terms of the Deed of Settlement and Release dated 21 January 2010 to which, inter alia, Messrs Johnston, Handbury and Ammit, HAM, UCF and Parridale were parties. 31 Clause 7 of the Deed varied the USS Agreement so that the date prior to which HAM had agreed not to demand payment of the Schedule 3 debts was changed to 30 June 2010. The provision for interest in clause 16 was also varied so that interest was payable only from 30 June 2010. 32 Given the allegations that binding, but unwritten, understandings existed between the parties, it is relevant to note the very specific provisions of clause 15 of the Deed which provides: 15.1 This Deed: (1) is the entire agreement and understanding between the Parties on everything connected with the subject matter of this Deed; and (2) supersedes any prior agreement or understanding on anything connected with that subject matter. 15.2 The Parties acknowledge that: (1) no reliance has been placed on any prior agreement, understanding or representation; (2) this Deed should be read together with the [USS Agreement] and the variations of that agreement as are provided for herein. Plaintiffs' contentions 33 The plaintiffs' contentions were not entirely clear however, as best I understand them, they are that when the Schedule 3 debts were created there was a common understanding or agreement, oral or tacit, that they would not have to be paid until the Olive Group was sold or realised. They contend that this understanding is part of the matrix of circumstances in which the written agreements, the USS Agreement and the Deed of Settlement and Release were entered into and that it survives as part of those agreements. Important as it is to understand exactly what the plaintiffs contend it is equally, if not more important, to understand what they do not contend. 34 In his submissions Mr McLeod expressly disavowed that the condition on which the plaintiffs rely arose as a collateral agreement or as a variation to the written agreements. He did not submit that the Court should imply any such condition into the agreements either from their own nature or the nature of the obligations created under the agreements. He did not submit that such a term should be implied in order to give business efficacy to the arrangement between the parties. 35 Mr McLeod contended that the written documents contain the whole of the agreement between the parties. He submitted that on proper construction of the written agreements the condition on which the plaintiffs rely can be seen as embodied in those written agreements. He submitted that this was apparent once the agreements were construed in the matrix of circumstances in which the agreement was made, and in particular, the state of the Olive Group on 11 March 2009 when the USS Agreement was executed. Mr McLeod accepted that his construction was not the only way in which the agreements could be construed but, correctly, submitted that to establish a genuine dispute he only needed to show that the construction for which he contended was "at least a plausible argument to be tested on a final hearing". 36 In brief, the plaintiffs' position is that everyone involved in these transactions was aware at all relevant times that the distributions to the unit holders of the UCP and UCAH Unit Trusts were made for taxation reasons and were not backed by "real money". Those involved understood that no funds were available to pay the dividends until the Olive Group was sold. 37 This much is apparent from the evidence, in particular that of Mr Johnston, Mr Pooley and Mr McAuley. Mr McAuley explained that, in the case of both the UCP and the UCAH Unit Trusts, the dividends and distributions were driven by taxation considerations. He said: Optimum utilisation of the franking credits in AOL was basically a means of minimising tax in the hands of the unit holders … It was the taxable income of the trust and the available franking credits from AOL that drove the level of distributions made to unit holders … However, at the time the AOL dividends were declared, there was never any cash standing behind those dividends, as the money had already been spent. 38 This point is emphasised by the references in the plaintiffs' written submissions to the distributions as "notional". But in what sense were they "notional"? Irrespective of what the parties knew when the distributions were made, neither the fact that no cash to fund the distributions to unit holders flowed from the dividend, nor the fact that unit holders did not call for payment, is inconsistent with real (as opposed to notional) obligations being created. 39 On the advice of the accountants and tax advisers, it was seen to be in the parties' business interests to take advantage of the most favourable of the available taxation options. There may well have been a common understanding that the unit holders would not call for payment until a more propitious time, for example when the Olive Group was sold however, whether, at the time, a demand for payment by a unit holder could have given rise to a genuine dispute about the postponement of payment is not now relevant. The circumstances that must be considered now include the unravelling of the Johnston and Handbury interests, the terms of the USS Agreement and its variation by the Deed of Settlement and Release. 40 The plaintiffs' contention amounts to this: a pre-existing understanding as to the time for repayment of the Schedule 3 debts survived the making of the USS Agreement and its variation by the Deed of Settlement and Release. That understanding formed part of the matrix of circumstances in which these agreements must be construed and thereby became incorporated in the agreements notwithstanding that it appears to be inconsistent with the written terms. Interpretation and construction of contracts – the relevant principles 41 The plaintiffs submit, correctly, that the subjective views of Mr Handbury and Mr Ammit as to the terms of the agreements are not relevant to their proper construction in accordance with the objective theory of contract that forms part of Australian contract law. It is also true that it is not necessary to show ambiguity in a written agreement before resort may be had to the circumstances in which the agreement was made. These and other important questions concerning the interpretation and construction of contracts were reviewed by the New South Wales Court of Appeal in Franklins Pty Ltd v Metcash Trading Ltd (2009) NSWLR 603. At [2] of his reasons Allsop P referred to these questions and others which were raised in that case. They were: [T]he objective theory of contract; the circumstances in which and the extent to which surrounding circumstances can be examined in the process of construction and interpretation of a written contract; the approach to construction and interpretation of a commercial contract; and whether post-contractual conduct can be utilised in aid of the construction and interpretation of a written agreement. 42 The learned President noted that, for an Australian intermediate appellate court, "binding and authoritative decisions provide the answers for all these questions". Relevant to the present enquiry is the extent to which surrounding circumstances can be taken into account in the construction and interpretation of a commercial contract. At [14] of his reasons Allsop P referred to a number of High Court decisions on the influence of surrounding circumstances on construction and said: These cases are clear. The construction and interpretation of written contracts is to be undertaken by an examination of the text of the document in the context of the surrounding circumstances known to the parties, including the purpose and object of the transaction and by assessing how a reasonable person would have understood the language in that context. There is no place in that structure, so expressed, for a requirement to discern textual, or any other, ambiguity in the words of the document before any resort can be made to such evidence of surrounding circumstances. 43 In his reasons Campbell JA linked the question of context to the principle that a contract should be read "in a way which will result in a commercially sensible and business like meaning". At [360] his Honour referred to High Court authority to this effect and added at [361]-[362]: There is a close connection between the requirement to construe commercial agreements in a way that does not flout business commonsense, and the principles by reference to which surrounding circumstances are admissible as an aid to construction. … That there is this close connection must necessarily be so, because the only way the court can come to know what amounts to "business common sense" concerning a particular contract is by taking into account matters extrinsic to the contract capable of affecting its construction. Applying the principles 44 The plaintiffs submitted that the agreements concerning the Schedule 3 debts must be construed taking into account the circumstances in which those agreements were made. These circumstances included that, at all relevant times, and to the knowledge of all concerned, the debtors under the Schedule 3 debts had no money to pay the creditors. They argue that in this context the agreements must be interpreted as being subject to the postponement of payment in the terms described above. They accept that the proper construction of the USS Agreement is a question on which minds may differ but submit that "the fact that there are competing genuine alternative constructions is plain when one applies established principles of construction to it". According to the plaintiffs these competing constructions flow from the following: (a) Johnston and Pooley on the one hand give sworn evidence that an agreement was reached that the "debts" created by the accounting exercise referred to above were contingent upon the happening of an event, and that the trigger for the repayment obligation (namely the sale and/or realisation of the Olive Group) has not yet arisen; (b) Handbury and Ammit denying certain conversations alleged in the plaintiffs' evidence and propounding a construction of the [USS Agreement] which differs to [sic] that of the plaintiffs; and (c) All parties agreeing that the "debts" are undocumented and emanate from the accounting treatment referred to above. 45 The plaintiffs submitted that these factors are sufficient to establish that there is a genuine dispute between the plaintiffs and the defendant as to whether the Schedule 3 debts are now payable. I cannot accept this submission. In my view, for reasons that follow they do not have sufficient prima facie plausibility to warrant further investigation. 46 The plaintiffs' submissions ignore the terms of the USS Agreement and the Deed of Settlement and Release. Even if the plaintiffs are correct that the debts when created were not payable until after sale or realisation of the Olive Group, the express provisions in the USS Agreement concerning repayment by 1 October 2009 and the provisions of clauses 12.4, 15 and 16 (see [28] and [29] above) and the extension of time in clause 7 of the Deed of Settlement and Release leave no room for the construction for which the plaintiffs contend. There is nothing in the authorities concerning the interpretation and construction of written contracts in the context of surrounding circumstances that would require express provisions such as these to be set at naught. On the contrary, to do so would be to allow an implication drawn from the circumstances in which the debts were created to contradict the express terms of the written contracts. UCF/1083 47 Although the facts relevant to this proceeding differ in some respect from those in 1075/UCP and 1076/UCAH, the issues are essentially the same. As mentioned earlier in these reasons the statutory demand served on UCF is for the amount of $289,807.09. The basis for the plaintiffs' assertion that there is a genuine dispute in relation to this debt is an alleged oral agreement to postpone the payment of a debt that is otherwise payable on demand. 48 UCF is a company of which Mr Ammit was managing director from 2000. He ceased to be a director on 25 August 2009. From June 2002 to January 2010 the shares in UCF were held by Mr Johnston as to 80% and Mr Ammit as to 20%. According to Mr Ammit UCF was the "corporate advisory and management services vehicle" for Mr Johnston's business interests. It was also the trustee of the United Capital Finance Holdings Unit Trust (UCF Trust) in which the unit holders were Parridale and himself although he "subsequently" (date unspecified) transferred his units to Parridale. 49 Mr Ammit was heavily involved in negotiating and structuring the purchase of the Olive Group by UCP and UCAH. Mr Ammit gave the following account of the loan made by HAM to UCF (UCF Loan): To secure the purchase of AOL, UCF agreed to pay a deposit of $225,000 on exchange of contracts on behalf of the UCAH Unit Trust. To facilitate the payment of the deposit, the PG & HP Handbury Family Trust (Handbury Trust) agreed to advance funds to UCF with interest payable at 10% per annum compounded quarterly (UCF Loan). Helen Patricia Handbury and Patrick Handbury as trustees of the Handbury Trust entered into a deed with UCF dated 19 September 2002 for the purposes of documenting the terms of the UCF Loan. … HAM is the current corporate trustee of the Handbury Trust. Drawdown of the UCF Loan by UCF was made in two instalments; the first instalment of the UCF Loan in the amount of $112,500, was made on 19 September 2002. The second instalment of the UCF Loan in the amount of $137,500 was made on 23 October 2002. 50 The Deed documenting the terms of the UCF Loan (UCF Loan Deed) provides for the Handbury trustees to advance $112,500 to be repaid "in full on settlement of the [AOL] acquisition contract which is envisaged to occur on or before 18th October 2002". There is no direct evidence as to the terms on which the second instalment of $137,500 was made however a letter dated 18 September 2002 to Mr Handbury and signed by Mr Ammit refers to the $112,500 payment as being the "1st drawdown of our loan facility with you …". Similarly, Mr Ammit referred to the amount as the "second instalment" of the UCF Loan. It is reasonable to assume that the terms of the UCF Loan Deed of 19 September 2002 applied to it. It was submitted for HAM that, on those terms, following the settlement of the AOL acquisition the UCF loan was repayable on demand. 51 According to the evidence of Mr Johnston, "prior to the advance of the loan to UCF" he had a conversation with Mr Handbury in which they agreed that the UCF loan would not be repayable "until we are able to realise a profit from the sale of the group". Mr Johnston also gave evidence that at a meeting in about March 2009 Mr Handbury agreed with him that payment of interest under the UCF Loan should be suspended in view of the group's financial difficulties at that time. 52 As with the UCP and UCAH debts, it is not necessary for me to consider whether the oral terms alleged by the plaintiff are binding on the defendant or even if, as seems unlikely, they can stand with the UCF Loan Deed. For reasons given in relation to those debts, neither oral term can stand with the Deed of Settlement and Release. 53 Clause 8.1 of the Deed of Settlement and Release acknowledges the capital contributions made by Mr Johnston and HAM to the Olive Group including HAM's entitlement to 5 separate payments by URM of the Quarterly Management fee. The clause also notes that the Olive Group "requires the financial support of Johnston and Handbury and their respective interests until the Olives Finalisation Date", being 30 June 2010. Among other things, clause 8.2(2) provides that, in the circumstances neither HAM nor Handbury would "call or seek to enforce in any manner the UCF Loan until the Olives Finalisation Date". 54 Given that the parties to the Deed of Settlement and Release include the parties to the UCF Loan (UCF and HAM), which was by that time the trustee of the PG and HP Family Trust) and in the light of the provisions of clause 15 of the Deed (see [32] above), there is no room for the operation of an understanding between the parties that would directly conflict with the terms of the Deed. 55 In my view UCF's contention that the UCF debt is not due and payable does not warrant further investigation. There can be no genuine dispute between the parties on this point. 56 For the reasons given above in each of the proceedings, the orders of the Court must be that each application is dismissed with costs. I certify that the preceding fifty-six (56) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone. Associate: Dated: 20 September 2011