Supreme Court New South Wales Medium Neutral Citation: In the matter of Ulan Stone Pty Limited [2020] NSWSC 937 Hearing dates: 29 May 2020 Date of orders: 29 May 2020 Decision date: 29 May 2020 Jurisdiction: Equity - Corporations List Before: Black J Decision: Applicant granted leave under s 237 to bring proceedings on behalf of the Plaintiff. Creditor's statutory demand dated 11 June 2019 set aside. First and Second Defendants to pay costs of Interlocutory Process and Originating Process as agreed or as assessed. Third Defendant to pay costs of Interlocutory Process from date joined as party. Catchwords: CORPORATIONS — Statutory derivative action — Application to bring proceedings on behalf of company — Where leave was not obtained within the 21 day period for setting aside demand specified in s 459G of the Corporations Act 2001 (Cth) — Whether requirements for granting leave under s 237 of the Corporations Act 2001 (Cth) are met. CORPORATIONS — Winding up — Application to set aside creditor's statutory demand under ss 459H and 459J of the Corporations Act 2001 (Cth) – Where there is genuine dispute as to construction of loan documentation. Legislation Cited: - Corporations Act 2001 (Cth), ss 236, 237, 459G, 459H, 459J Supreme Court (Corporations) Rules 1999 (NSW), r 2.13 Cases Cited: - Gladstone Pacific Nickel Ltd (2011) 86 ACSR 432 - Grandview Australia Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60 - Maylord Equity Management Pty Limited as Trustee of the Batterham Retirement Fund v Nauer [2017], NSWSC 634 - Nece Pty Limited v Ritek Incorporation (1997) 24 ACSR 38 - Re Linton Developments (Qld) Pty Ltd [2017] NSWSC 336 - Re Universal Property Group Pty Ltd [2019] NSWSC 796 - Rinfort Pty Limited v Arianna Holdings Pty Limited [2016] NSWSC 251; (2016) 306 FLR 413 - Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 - Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSR 313 Category: Principal judgment Parties: Ulan Stone Pty Ltd (Plaintiff) Christopher John Thomas Rose and Heather June Rose as Trustees for the Heaven Sent Superannuation Fund (First and Second Defendants) Danny John Hardy (Third Defendant) Representation: Counsel: E Ball (Plaintiff) M R Cairns/A Reid (First and Second Defendants) L E Hulmes (Third Defendant) Solicitors: Levitt Robinson (Plaintiff) Fazzini Lawyers & Consultants (First and Second Defendants) Buchanan Rees Dispute Lawyers (Third Defendant) File Number(s): 2019/205800 Judgment – EX TEMPORE (REVISED 3 JUNE 2020) Application for leave to bring derivative proceedings 1. By Originating Process filed on 3 July 2019, Ulan Stone Pty Limited ("Company" applied under ss 459G, 459H and 459J of the Corporations Act 2001 (Cth) to set aside a creditor's statutory demand dated 11 June 2019 ("Demand") issued by Mr and Mrs Rose as trustees for the Heaven Sent Superannuation Fund. It appears to be common ground that that application was filed within the twenty-one day period required by s 459G of the Corporations Act, but it was not authorised by resolution of the Company's directors at the time it was filed. Subsequently, outside that twenty-one day period, Mr Robert Hardy (to whom I will refer, without any disrespect, as "Robert"), who was a director and is now at least a former director of the Company, filed an Interlocutory Application seeking leave under ss 236-237 of the Corporations Act to bring the proceedings to set aside the Demand on behalf of the Company. The application for leave has been opposed and the hearing in respect of that application has involved voluminous submissions and voluminous affidavit evidence. The application to set aside the Demand, which will be addressed after I have delivered this judgment, by contrast is likely to take a relatively short period. 2. It is, regrettably, by no means apparent that any commercial objectives that the parties might seek to achieve will be promoted by the determination of the proceedings, or that the costs of the proceedings could be justified by what is in dispute in them. The application is also unfortunate because there appears to be a degree of consensus among at least some of the parties that the Company should be wound up, although there is a difference between them as to the manner of that winding up. It is also doubtful that the difference would warrant the costs that have now been expended in this application. Affidavit evidence 1. Robert relies on his affidavit dated 3 July 2019 which identifies the basis on which he contends there is a genuine dispute in respect of the Demand or that there is a basis to set aside the Demand for some other reason under s 459J of the Corporations Act. By a second affidavit of Mr Hardy dated 29 October 2019, he leads evidence in support of his application for leave to bring the proceedings, under ss 236 and 237 of the Corporations Act. He explains why he considers that there is a serious question to be tried and why he considers it is in the best interests of the Company to bring the proceedings, including the risk that, if the Demand is not set aside, the Company would face a presumption of insolvency in any winding up proceedings brought by Mr and Mrs Rose. He identifies the purpose of the application, in seeking to establish good faith, as to prevent the Company from being wound up or having to defend winding up proceedings; to permit an orderly sale of the Company's business without a threat of winding up proceedings; and to ensure that a mining lease held by the Company is not cancelled by reason of the appointment of a liquidator. 2. I pause to note that events have since qualified that evidence. It appears that a medical condition affecting Mr Hardy has developed to the point where he now lacks mental capacity, and he is represented in these proceedings by Ms Hardy as his tutor. Mr Ball, who appeared for Robert Hardy, fairly accepted that it would no longer be possible for him, in those circumstances, to bring about an orderly sale of the Company's business, although it would, on one view, be open to the Third Defendant on the Interlocutory Process, Mr Danny Hardy (to whom I will refer, without any disrespect, as "Danny") to do so. The solicitors for Robert have in correspondence, also identified the desirability of winding up the Company on the just and equitable ground, while that in turn has the same risks as recognised by Robert in his affidavit evidence in respect of the cancellation of the Company's mining lease in a liquidation. 3. The First and Second Defendants in turn rely on the affidavit of Mr Rose dated 31 August 2019, which primarily goes to the debt alleged to be owed to them by the Company and is relevant to the application to set aside the Demand. Danny relies on his affidavit dated 31 August 2019 which deals with his relationship with Robert and with the position in respect of the Company's board. In another of the unfortunate ironies of the proceedings, Danny, while opposing the grant of leave for Robert to bring the proceedings to set aside the Demand, nonetheless recognises in his affidavit evidence that a winding up order may not be necessary, where he will, on one view, now have a degree of control of the Company as its sole director. Whether the Court has jurisdiction to grant leave to bring the proceedings 1. Several issues have been in dispute in respect of the application for leave. The first is whether the Court has jurisdiction to entertain an application for leave under s 237 of the Corporations Act, to bring proceedings to set aside a creditor's statutory demand, where those proceedings were commenced (or purportedly commenced) within the twenty-one day period specified in s 459G of the Act, but the application for leave under s 237 was brought outside the twenty-one day period required to bring an application to set aside a creditor's statutory demand. Here, the application to set aside the Demand was brought in the Company's name, but with the authority of only one of its directors, within that twenty-one day period. 2. As I noted above, the parties made lengthy written submissions as to this question, which have been expanded by detailed oral submissions. I will, without discourtesy to Counsel, not summarise those submissions at length, because the approach to be adopted in these proceedings was that the application for leave to bring derivative proceedings would be determined first, with a determination of the application to set aside the Demand to follow. If I did not deliver judgment relatively briefly, focusing on the major issues, then the application to set aside the Demand could not be determined today and the existing difficulties in respect of potentially disproportionate costs of the proceedings would be exacerbated if they continued into a second day. 3. At the risk of some oversimplification, Robert relies on the approach adopted by the Court in Rinfort Pty Limited v Arianna Holdings Pty Limited [2016] NSWSC 251; (2016) 306 FLR 413 ("Rinfort") where I held that the jurisdiction under s 236-237 of the Corporations Act could be exercised retrospectively, in a way that validated an application brought under s 459G of the Act within the twenty-one day period. It is necessary to refer briefly to the facts of Rinfort, because Ms Cairns, who appears with Ms Reid for Mr and Mrs Rose, submits that it can be distinguished from the present case. In that case, a company's application to set aside a creditor's statutory demand was filed by Rinfort within the twenty-one day period, authorised by one director only, Mr Mekler. That application sought leave under s 237 of the Corporations Act for Mr Mekler, to bring proceedings on its behalf, but Mr Mekler had not been joined as party to the proceedings. In the result, within the twenty-one day period specified in s 459G of the Act, an application had been brought by Rinfort to set aside the creditor's statutory demand that had not been authorised by its board, and an application had also been brought by Rinfort, which did not have standing to bring it, for Mr Mekler to have leave to bring a derivative action, but Mr Mekler had not himself applied for leave to bring that action. Mr Mekler was subsequently joined as a party to the proceedings, and was successful in an application for leave outside the twenty-one day period. 4. In Rinfort, I addressed a contention that the proceedings did not satisfy the requirements of s 459G of the Act to set aside a creditor's statutory demand where leave to bring them had not been given (under ss 236-237 of the Act) within the twenty-one day period. I considered, in particular, the judgment of Lehane J in Nece Pty Limited v Ritek Incorporation (1997) 24 ACSR 38, where his Honour declined to authorise a derivative action under the general law as it stood prior to the enactment of s 236-237 of the Act, after the twenty-one day period specified in s 459G of the then Corporations Law had expired. I there (at [28]) distinguished Nece on the basis that an application had been brought in Rinfort's name within the twenty-one day period, although its commencement had not been authorised at the time it was commenced, and, I should add, Rinfort did not have standing to bring an application for leave to bring the derivative proceedings for itself. I also observed that Lehane J's reasoning may have assumed that proceedings that were commenced within the twenty-one day period were a nullity, if commenced without authority or irregularly, and the case law was to the contrary. It was implicit in that observation that, had it been necessary to reach a final view in Rinfort, I would not have followed the decision in Nece. 5. I also observed (at [38]-[39]) that: "The case law to which I have referred establishes that the application filed in this case was not a nullity, although the Court could stay or strike out the proceedings in a proper case. Once it is accepted that the proceedings, when commenced, were not a nullity and were merely irregular, their commencement was capable of satisfying the time limit in s 459G of the Act, although they could later be stayed or struck out if that irregularity was not rectified. It seems to me that the exercise of a retrospective power to make an order under ss 236 and 237 of the Corporations Act can bring about the result that the company is bound by the proceedings taken on its behalf as if the person authorised under that section had had the authority to bring them at the earlier time, and neither the terms nor the policy underlying s 459G of the Corporations Act exclude that result. As a matter of the construction of s 459G of the Corporations Act, an application to set aside the Demand was here filed within the 21 day period specified in the Act, albeit it was irregularly filed. It does not seem to me that the policy of s 459G of the Corporations Act, to which I have referred above, would be promoted by the position for which Arianna Holdings contends. A policy that any issue in respect of a creditor's statutory demand should be identified and determined promptly is satisfied where an application to set it aside is filed within the 21 day period, so as to place the creditor on notice of the dispute, even if there is an issue as to whether that application was properly authorised, which is subsequently resolved by ratification, or by the grant of leave under ss 236 and 237 of the Corporations Act, or by the dismissal of the proceedings if neither ratification nor the grant of such leave occurs. I can also see no reason in the terms of ss 236 and 237 of the Corporations Act or in its policy to take a narrower approach where the Court grants retrospective leave to a shareholder to bring proceedings in the name of a company, because a board and shareholders are deadlocked and the company cannot ratify the commencement of the proceedings, than where an action is subsequently ratified by a company in general meeting … or, to put it another way, why a company should be less able to bring a meritorious application to set aside a creditor's statutory demand where its directors are deadlocked than where they are not." 1. In Maylord Equity Management Pty Limited as Trustee of the Batterham Retirement Fund v Nauer [2017] NSWSC 634, Ward CJ in Eq referred to Rinfort above and to Counsel's submissions in the case before her that proceedings commenced without authority are not a nullity nor are they void ab initio and that commencing proceedings without authority is an irregularity which makes proceedings liable to be dismissed or set aside. 2. Here, Ms Cairns developed very detailed submissions as to why the decision in Rinfort was distinguishable although not, I think, submitting that decision was incorrect on its particular facts. She submits, correctly, that an application for leave to bring the derivative proceedings had been brought within the twenty-one day period in that case, by Rinfort, although I have noted above that Rinfort did not have standing to bring that application. She also submits that that was a merely procedural issue, adopting the language of s 1322 of the Act, a provision on which none of the parties had sought to rely in Rinfort. It seems to me, with the greatest respect to the subtlety of Ms Cairns' submissions, that that is a distinction without a difference. In Rinfort, an application for leave to bring the derivative proceedings had not been brought by Mr Mekler who had standing to bring it within the twenty-one day period, and was only brought by him when he was joined as a party to the proceedings after that twenty-one day period. While it was clear that Mr Mekler sought to bring that application, because that had been highlighted in the Originating Process filed by Rinfort without authority, the question here is whether a proceeding brought within the twenty-one day period under s 459G of the Act, without authority, can continue outside the twenty-one day period when the Court retrospectively grants leave under ss 236 and 237 of the Act. It seems to me that the decision in Rinfort answers that question in the affirmative, and the distinction between its facts and the facts in this case is not material for present purposes. 3. As I noted above, it does not seem to me that Ms Cairns directly challenged the correctness of Rinfort, as distinct from distinguishing it. If she implicitly did so, I am still inclined to the view that Rinfort is correct, and I would not follow the decision in Nece to the extent that it took the contrary view. It seems to me there is nothing in s 459G of the Act, or in the time limit in that section on which Ms Cairns rightly put considerable emphasis, that prevents the continuance of proceedings that were in fact commenced within the twenty-one day period, by filing appropriate process in the Court, notwithstanding that the authority to bring them was absent, and is only later retrospectively provided by ratification or by an order under ss 236-237 of the Act. 4. For these reasons, I am satisfied that, applying the reasoning in Rinfort, the Court has jurisdiction to determine the application under ss 236-237 of the Act. I am reinforced in that view by the fact that those sections themselves have no time limit attached to them and, as Mr Ball points out, there are many occasions in which the Court has made retrospective orders under those sections. Here, the making of that retrospective order under ss 236-237 has an implication, for the status of the proceedings previously commenced within the twenty-one day period under s 459G of the Act, but that is a straightforward application of the well-established principle that proceedings which are commenced without authority can continue, when such authority is conferred, and that the conferral of that authority then displaces any risk that they would otherwise be dismissed or set aside. Whether leave should be granted 1. I now turn to the question whether leave should be granted under s 237 of the Act, which I can deal with relatively briefly, with the benefit of the parties' detailed evidence and submissions. The relevant principles are well established. Section 237 specifies five factors which, if satisfied, have the result that the Court must give leave to bring the derivative proceedings. The first requirement under that section is that it is probable that the company will not itself bring the proceedings or properly take responsibility for them or for the steps in them. It is common ground that that requirement is satisfied in this case. 2. The second requirement is that the person seeking leave, relevantly, Robert, is acting in good faith. As I noted in Rinfort above at [44], factors relevant to that requirement include whether Robert has an honest belief that a good cause of action exists and has reasonable prospects of success, although that belief will be tested against whether a reasonable person in the circumstances would hold that belief and whether he is seeking to bring the action for a collateral purpose. Robert gives evidence that he has that relevant belief, and identifies the basis of that belief that, on the proper construction of the relevant loan and mortgage documentation, the debt was a joint debt and Mr and Mrs Rose, who are two of the lenders, could not unilaterally cause that debt to be repayable without the consent of the other lenders. It seems to me, at the risk of anticipating an issue that will arise in respect of the Demand, that Robert could plainly form an honest belief that a good cause of action existed in that regard, having regard to the questions of construction which exist in respect of the relevant loan documentation. The argument to the contrary, which was ably put by Ms Reid on behalf of Mr and Mrs Rose, seems to have the difficulty that it seeks to determine the ultimate issue, namely the proper construction of the relevant loan documents, rather than the question which is properly determined in an application to set aside a creditor's statutory demand, whether the construction for which Robert contends is genuinely arguable. 3. Robert also gives evidence, in respect of the good faith requirement, that he seeks to prevent the Company from being wound up or having to defend winding-up proceedings, to which I have referred above, and to permit an orderly sale of the Company's business without winding up and ensure that its mining lease is not cancelled by reason of the appointment of a liquidator. Two of these purposes have been qualified by the adverse developments in respect of Robert's capacity, and the recognition by Robert's legal representatives that a winding up on the just and equitable grounds may now be appropriate. However, it seems to me the third purpose, namely, to avoid the Company from being wound up on the grounds of insolvency, or having to defend winding-up proceedings on those grounds, remains available to Robert. He refers to a concern that the Company may be disadvantaged by a winding up on the basis of insolvency, as distinct from a winding up on other grounds, and it seems to me that one could, in good faith, form the view that the Company should not properly be wound up on insolvency, if it is not, in fact, insolvent by reason of a debt that is not due and payable when claimed only by one of several joint creditors. 4. The next issue in respect of s 237 of the Act is whether it is in the best interests of the Company that Robert be granted leave. In Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSR 313, Palmer J noted that that requirement was directed to whether the Court was satisfied that the proposed action actually is, on the balance of probabilities, in the company's best interests. In Gladstone Pacific Nickel Ltd (2011) 86 ACSR 432, Ball J identified relevant matters including the prospects of success of the action, its likely costs, the benefit to be gained by the action, and the likely consequences to the Company if the action is unsuccessful and I followed the same approach in Rinfort above at [46]. It seems to me that Robert's concern that a winding up in insolvency will depress any value that could be achieved on a sale of its business and place its mining lease at risk supports a finding that it is in the Company's best interests that Robert be granted such leave. I recognise that the latter matter is of less weight, if the Company may be wound up on the just and equitable ground in any event and that lease lost on that basis. It also seems to me there is a real distinction between a winding up on insolvency, which infers that the Company is, in fact, unable to pay its debts as and when they fell due, and a winding up on the just and equitable ground which reflects the breakdown of the relationships between the parties. It seems to me that Robert has established that it is in the Company's best interests not to be wound up on the ground of insolvency, if it is, in fact, not insolvent. 5. I note that courts in this State have often had regard to whether an applicant for leave under ss 236-237 of the Act gives an undertaking as to the Company's costs of the application, as a matter relevant to whether it is in the Company's best interests to bring the application. Here, such an undertaking is offered by Robert, and to the extent that there may be any question as to his legal capacity, by Ms Hardy as his tutor. I am satisfied that that undertaking supports the view that the commencement of the proceedings is in the Company's best interests. It is also easier to form that conclusion where, in any event, the application to set aside the Demand will be much more straightforward and determined in a much shorter period than the issue of whether leave to bring it should be granted. 6. The next question is whether there is a serious question to be tried, and I have referred to some of the relevant issues above. This requires the application of the same test as required by the Court in determining whether to grant an interlocutory injunction; and I referred to the authorities in Rinfort above at [49]. Here, the question is whether there is a serious question to be tried in the application to set aside the Demand, as to whether there is a genuine dispute as to the debt which would warrant setting aside the Demand, or some other reason to set aside the Demand. To that extent, there is a double qualification to the threshold that must be reached. I am satisfied that a serious question to be tried is established as to the issues arising in the application to set aside the Demand, where there is plainly an open question of construction as to the loan documentation, so far as it treats the relevant parties as joint parties, and there is an open question of law as to whether the joint character of their relationship has the consequence that two of them cannot, without the involvement of the others, give notice requiring payment of the debt, or their proportion of it, within the 60 day period contemplated by the loan documentation. The fifth question as to notice was not contested. 7. I note that Danny also relied on s 237(3) of the Act which creates a rebuttable presumption that granting leave is not in the best interests of a company where the proceedings are (as here) by a third party against a company; that company has decided not to bring the proceedings; and all directors who participated in the decision met the requirements specified in s 237(3)(c), including that they informed themselves about the subject matter of the decision and rationally believed it is in the company's best interests. There is here no evidence of a formal decision by the Company not to bring proceedings, albeit that decision could arguably have been made by Danny as its sole remaining director, if that would satisfy quorum requirements under the Company's constitution; and no evidence of his informing himself of relevant matters, including the extent of any impact of a winding up in insolvency on the value of the Company's assets. That presumption therefore does not apply. 8. For these reasons, I am satisfied that the Court has jurisdiction to grant leave under s 237 of the Act and that it should do so retrospectively. Once such leave is granted retrospectively, then the issue as to the commencement of the proceedings without authority is addressed, and there is no further question that those proceedings would be liable to be dismissed or set aside. They were, as I noted above, at all relevant times commenced within the 21 day period required by s 459G of the Act. I should note, however, that this result should not be cause for any particular celebration on the part of any of the parties. Substantial legal costs will have been incurred in addressing essentially a formal issue, with a considerable degree of complexity, which has taken much longer to resolve than the application to set aside the Demand would have done. This is hardly a cause for celebration. Costs 1. It seems to me that in these circumstances, costs of this interlocutory application must follow the event, and Mr and Mrs Rose and Danny must pay Robert's costs of the Interlocutory Application as agreed or as assessed. I will offer the parties a brief opportunity to be heard in that respect. 2. Ms Cairns did not seek to be heard in that respect. Although Mr and Mrs Rose were heard under r 2.13 of the Supreme Court (Corporations) Rules, it seems to me that their role in respect of this aspect of the application has been so substantial that they should be treated as in substance parties to the application, and an exception to the usual approach under r 2.13 of the Corporations Rules should be made such that an order for costs should be made against them as I have previously foreshadowed. 3. Ms Hulme did seek to be heard, and argued that there should be no order as to costs. She pointed, rightly, to something of a narrowing, or at least a shift, in Robert's position, so far as he appears to have accepted in the course of the hearing that he should be treated as only a former director and not a director of the Company. It seems to me that that shift is not of particular materiality to the issues which I had to decide in respect of the leave to bring the application to set aside the Demand, which turned on a series of complex legal issues, and on a relatively narrow range of factual matters, and as to which Robert has been substantially successful. Ms Hulme also referred to the fact that Robert and Ms Hardy had given clearer undertakings as to costs in the course of the hearing today. I give little weight to that matter, because it seems to me to have been predictable that that would occur, since it occurs in many applications for leave to bring derivative actions before this Court. For these reasons, I am satisfied that there is no reason to depart from the usual rule that costs follow the event, and to order the costs of and incidental to the Interlocutory Process against the Defendants. I should emphasise that that does not extend to the costs of the proceedings generally, where Danny was joined to the proceedings at a later stage, and so far as he will now be excused from the proceedings, having been heard only in respect of the Interlocutory Process, and will not be heard as to the winding-up application. 4. For these reasons, I make the following orders: 1. Pursuant to s 237 of the Corporations Act 2001 (Cth) leave be granted to Mr Robert Hardy, nunc pro tunc, to bring proceedings 2019/205800 on behalf of the Plaintiff, Ulan Stone Pty Limited. 2. Mr and Mrs Rose and Mr Danny Hardy pay Mr Robert Hardy's costs of and incidental to Mr Robert Hardy's Interlocutory Application filed on 22 October 2019, in the case of Mr Danny Hardy from the date at which he was joined to the proceedings, as agreed or as assessed. 3. Liberty to apply within 14 days seeking any order as to costs on a special basis. Application to set aside the Demand 1. The manner in which the application for leave that I have addressed above was conducted meant that it inevitably canvassed, at some length, issues as to whether there was a serious question to be tried in respect of the issues relied on to set aside the Demand. In these circumstances, it has not been necessary to hear Mr Ball, who appears for Robert, representing the Company in the application to set aside the Demand. Ms Cairns, who appears for Mr Rose and Mrs Rose, has sensibly not sought to be heard beyond the matters addressed in her written submissions. That was, with respect, an appropriate course which has the advantage of saving Mr and Mrs Rose such costs as can now be saved, given the point which the proceedings have reached. 2. The Originating Process filed by the Company sought an order that the Demand dated 11 June 2019 be set aside. The Demand referred, in paragraph 1, to a claim that the Company owed Mr Rose and Ms Rose as trustees for the Heaven Sent Superannuation Fund, the amount of $410,568 being the amount of a debt described in the Schedule. The Schedule in turn described the debt as follows: "Debt arising pursuant to Deed of Charge dated 12 September 2007 between the Creditors as joint mortgagees and the Debtor Company as Mortgagor, and as calculated and specified in Letter of Demand dated 19 March 2018 issued to the Company." 1. The reference in the schedule is in turn to a letter of demand dated 19 March 2018 by which Mr Rose and Ms Rose as trustees for the superannuation fund stated that the Company was indebted to the fund at the end of February 2018 in the sum of $410,568. It referred to references to the amount of the loan in annual financial statements of the Company and stated that: "The Deed of Charge dated 12 September 2007 stipulates that the loan is repayable within 60 days of written demand. The Fund hereby formally makes the demand and requires payment of the said sum within 60 days." 1. Both the demand and that letter, in turn refer to a Deed of Charge which is also in evidence. That Deed of Charge was executed at the same time as a Shareholders' Agreement dated 12 September 2007, which referred to the fact that the parties would contribute initial share capital and contributions to working capital in specified proportions and stated that: "All loans to the Company from Shareholders pursuant to this clause will be secured and repayable on the terms set out in the Deed of Charge dated 12 September 2007 and annexed hereto." 1. The Deed of Charge in turn had several parties, including two coorporate trustees, Robert and Danny as trustee for the Hardy Investment Trust, and Mr Rose and Mrs Rose as trustees for the Heaven Sent Superannuation Fund. It defined those parties, on the title page, as "Joint Mortgagees" and, where the parties were listed on the first page of the Deed, described them as "jointly referred to as Mortgagee". A paragraph headed "Introduction", which appears to be analogous to a recital, noted that the "Mortgagee" has granted or agreed to grant, during the pleasure of the Mortgagee, certain loans to, for or on account of the Company. Clause 1 in turn provided that the Company covenants that it will repay to the Mortgagee on 60 days written notice, all money now or in the future due and owing by the Company to the Mortgagee, with certain additions. Here, the reference to "Mortgagee" must be read as a reference to the parties, which, as I have noted, are described as "jointly referred to as Mortgagee". 2. With this background, the question then arises whether a genuine dispute is established as to whether Mr and Mrs Rose, as trustees for the fund, can together, but without participation of the other Mortgagees, take steps to make the loan due and payable, whether in total, or in respect of that portion that applies to them alone. The applicable principles to establish a genuine dispute for the purposes of s 459H(1)(a) of the Act are well established. Mr Ball, who appears for Robert, refers to Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464F for the proposition that a genuine dispute requires that "the dispute be bona fide and truly exist in fact" and that the "grounds for alleging the existence of a dispute are real and not spurious, hypothetical illusory or misconceived". 3. Mr Ball also refers to Gleeson JA's observations, in Re Linton Developments (Qld) Pty Ltd [2017] NSWSC 336 at [44]-[46] as to the reluctance of the Court to determine construction questions in an application to set aside a creditor's statutory demand, at least where any question of construction is genuinely arguable. In Grandview Australia Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60 at [90], White JA in turn observed that: "It is usually inappropriate on an application to set aside a statutory demand that the court attempt to decide competing contentions as to contractual interpretation, partly because to do so might embarrass a judge before whom that issue arises and fundamentally because if the disputed question of contractual interpretation is arguable there will be a genuine dispute as to the existence of the debt, albeit one that does not depend upon a disputed matter of fact. But where the legal argument propounded in support of a particular construction is "patently feeble" … or where it is "as plain as a pikestaff" that it has no basis … then there will be no genuine dispute …" [citations omitted] 1. In Re Universal Property Group Pty Ltd [2019] NSWSC 796 at [17], Rees J similarly observed that: "[W]here there are genuinely arguable alternatives as to the meaning of the term and related questions of construction, this of itself gives rise to a genuine dispute within s 459H(1)(a) and no attempt should be made to determine the question in an application to set aside a creditor's statutory demand." 1. Mr Ball submits that there is an arguable question whether Mr Rose and Ms Rose as trustees of the fund are joint creditors who are unable to require payment of the debt owed by the Company on their own account and without the authorisation and action of the other "Mortgagees" or "Joint Mortgagees", in each case defined as the persons referred to on the cover page as the "Joint Mortgagees". It seems to me that that question is plainly arguable, given the reference to "Joint Mortgagees", the several persons as "Mortgagee", and the statement in clause 1 that the "Mortgagee" comprising on one view the several persons acting together and not one or two of them, may make the loan due on written notice. I recognise that Mr and Mrs Rose draw attention to evidence, led by themselves, and also by Danny, which may be consistent with a view that, in its context, or by reference to the later conduct of the parties, their intention was that one or more of the parties should be entitled to recover their loans separately. I recognise that there is also evidence that the Messrs Hardy may have received a payment in part repayment of the loan, which is hardly a matter that is particularly fair to Mr and Mrs Rose. Having said that, it seems to me that there is plainly a seriously arguable question of construction as to the operation of the term "Mortgagee" in clause 1 of the Deed of Charge, and the evidence to which I have referred, on which Mr and Mrs Rose rely, simply emphasises that that question is genuinely arguable. The result is not that they should not, or might not, succeed at a hearing on the merits, but that that is a question which needs to be determined on a hearing on the merits and not in the summary procedure which arises on the service of a creditor's statutory demand. 2. For these reasons, I am satisfied that a genuine dispute is established as to the debt claimed in the Demand, and the Demand must be set aside. As Mr Ball fairly accepted, it is therefore not necessary to determine whether a further basis to set aside the Demand arises, under s 459J of the Act because only Mr and Mrs Rose and not all of the mortgagees had signed the Demand. Costs will follow the event, and Mr and Mrs Rose must pay the costs of and incidental to the application to set aside the Demand. Orders 1. For these reasons, I make the following orders: 1. The creditor's statutory demand dated 11 June 2019 served by Christopher Rose and Heather Rose as trustees for the Heaven Sent Superannuation Fund on Ulan Stone Pty Ltd be set aside. 2. The First and Second Defendants pay costs of and incidental to the application to set aside creditor's statutory demand. 3. Liberty to apply, within 14 days, seeking any order for costs on a special basis. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 July 2020