Royal Capital Pty Limited v ACN 060 296 175 Pty Limited [1999] NSWSC 294

New South Wales Supreme Court CITATION : Royal Capital Pty Limited v ACN 060 296 175 Pty Limited [1999] NSWSC 294 CURRENT JURISDICTION : Equity Division FILE NUMBER(S) : 4552 of 1998 HEARING DATE(S) : 16 March 1999 (written submissions to 29 March 1999) JUDGMENT DATE : 6 April 1999

PARTIES : Royal Capital Pty Limited (P) ACN 060 296 175 Pty Limited (D) JUDGMENT OF : Master McLaughlin

COUNSEL : Mr. G. Segal (P) Mr. M. R. Aldridge (D) SOLICITORS : Pope & Spinks (P) Robinson & Creais (D) CATCHWORDS : Corporations Law; Application to set aside statutory demand; Agreement between plaintiff and defendant for purchase of office furniture and equipment; Payment by instalments; Plaintiff and defendant had a director in common and shared the same premises and shared office furniture and equipment.; Purpose of agreement was to provide a fund from which the fees of a proposed voluntary administrator might be paid; Administration terminated by appointment of provisional liquidator; Desire of plaintiff to cancel agreement, since the totality of the funds would no longer be needed to pay the fees of the administrator ACTS CITED : Corporations Law DECISION : See paragraph 41

- 22 - SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

MASTER McLAUGHLIN

Tuesday, 6 April 1999

4552 of 1998 ROYAL CAPITAL PTY LIMITED -v- ACN 060 296 175 PTY LIMITED

1 MASTER: By summons filed on 6 November 1998 the plaintiff, Royal Capital Pty Limited, seeks substantively an order that the statutory demand dated 20 October 1998 claiming payment of the amount of $15,000, served upon it by the defendant, ACN 060 296 175 Pty Limited, be set a side. 2 By that statutory demand (exhibit A) the defendant (described therein as "ACN 060 296 175 Pty Limited (in liquidation)(formerly Royal Group Pty Limited) ACN 060 296 175") seeks payment to it by the plaintiff of the sum of $15,000, that sum being described in the schedule to the demand as follows, Purchase of office furniture and equipment on 14 September 1998 with instalments due 21 September 1998 $5,000 28 September 1998 $5,000 5 October 1998 $5,000 $15,000 3 The ground upon which the plaintiff seeks to have the statutory demand set aside is that under section 459G (1) of the Corporations Law, in that there is a genuine dispute as to the existence or the amount of the alleged debt. 4 It should here be interpolated that the defendant was formerly called Royal Group Pty Limited, and changed its name to ACN 060 296 175 Pty Limited some time in 1998. The plaintiff and the defendant had directors in common and shared the same premises. It should also be noted that there is now in existence another company called Royal Group Pty Limited --- not the defendant --- which appears to be associated with the plaintiff, and to have at least one director in common with it. 5 In September 1998 the defendant, through its director, Dr. Adrian Ong, was desirous of appointing an administrator, in the person of Mr Geoffrey David McDonald, who is an official liquidator and is a member of the firm Hall Chadwick, chartered accountants. 6 According to Dr. Ong, he had a conversation with Mr McDonald on or about 14 September 1998 concerning the appointment of Mr McDonald as administrator of the defendant, and concerning Mr McDonald's fees for acting in that capacity and the manner in which those fees should be paid. There appears to be no dispute that Mr McDonald estimated that his fees for the administration would be about $20,000. He was agreeable to the request of Dr. Ong that those fees might be paid by instalments of $5,000. However, Mr McDonald was, understandably, concerned that there should be a fund available to meet his fees if he were to be appointed administrator. 7 It would appear that the defendant did not at that time have available, or at least did not have readily available to it, the sum of $20,000. Accordingly, Mr McDonald suggested that the plaintiff, a company associated with the defendant, having at least one director in common (Dr. Ong), and sharing office premises in Melbourne with the defendant, should purchase from the defendant for the sum of $20,000 the office equipment owned by the defendant. 8 Mr McDonald was appointed administrator of the defendant by resolution of its directors passed on 14 September 1998 and he thereupon entered upon that administration. By letter dated 17 September 1998 addressed to the plaintiff (exhibit 4) Mr McDonald confirmed the purchase by the plaintiff from the defendant of the office furniture and equipment and the fact that the plaintiff had taken possession of that office furniture and equipment before 14 September 1998. In that letter Mr McDonald referred to the agreement entered into by the plaintiff with the defendant for the payment of the purchase price by instalments, and acknowledged receipt of the first instalment of $5,000 on 14 September 1998. 9 Subsequently there was prepared a document, entitled "Confirmation of Agreement for Sale of Goods", the parties to which were "ACN 060 296 175 Pty Limited (Administrator Appointed)" (referred to therein as "ACN") and Royal Capital Pty Limited (referred to therein as "Royal"). That agreement was dated 18 September 1998 and was signed on behalf of the defendant by Dr. Ong as "the director of Royal". That document is annexure A to the affidavit of Mr McDonald sworn 27 October 1998. 10 Clauses 1 and 2 of that document are as follows, 1. ACN agreed to sell to Royal all it's [sic] office furniture and equipment in consideration for twenty thousand dollars ($20,000). 2. Royal agreed to pay the sum of twenty thousand dollars ($20,000) as consideration for the purchase of the office furniture and equipment. 11 The remaining clauses evidence an agreement made between the parties to pay the sum of $20,000 in four weekly instalments of $5,000 each (clause 3); the dates upon which the instalments are due (clause 4); and the agreement by the defendant to give possession of the office equipment and furniture to the plaintiff on or before 14 September 1998 (clause 5). 12 The first of the dates upon which an instalment was to be due under clause 4 was 14 September 1998, that date being, it will be appreciated, some four days before the date of the document, "Confirmation of Agreement for Sale of Goods". Clause 4 acknowledges that that instalment due on 14 September 1998 had already been paid. There is no dispute between the parties that that sum of $5,000 had, in fact, been paid by the plaintiff to the defendant pursuant to the agreement the confirmation of which was evidenced by the foregoing document. 13 Subsequently, on 21 September 1998, a provisional liquidator of the defendant was appointed. 14 The defendant was later wound up, on 9 October 1998. The liquidator of the defendant now seeks payment of the balance of $15,000 asserted by the defendant to be owing to it by the plaintiff under the agreement entered into by the defendant with the plaintiff in the terms which were confirmed by the written document of 18 September 1998. 15 On about 21 September 1998 Dr. Ong telephoned the offices of Hall Chadwick, the firm of chartered accountants of which Mr McDonald was a partner. Mr McDonald being unavailable, Dr. Ong spoke with one of his assistants, Miss Katherine Nguyen. Although there is a dispute between Dr. Ong and Miss Nguyen concerning parts of that conversation, there is no dispute that Dr. Ong said words to the following effect, "I have heard that a provisional liquidator has been appointed. I understand that Mr McDonald's appointment is at an end. This means that he does not need to do any more work as voluntary administrator. Is that right?" to which Miss Nguyen responded in the affirmative. 16 According to Dr. Ong, he then said, "Could you tear up the document I signed about the office equipment then?", and Miss Nguyen said, "Yes, I will." 17 However, according to Miss Nguyen, Dr. Ong said, "Well, if he is not doing any more work I don't want to pay any more money for the furniture. Can you just tear up that agreement please?" to which Miss Nguyen said, "I don't think so. But I will have to speak to Mr McDonald. I can't make those decisions, and it is best to speak to Mr McDonald directly." 18 According to Dr. Ong there was never an agreement with the defendant that the plaintiff would pay $20,000 for the defendant's office equipment. Indeed, Dr, Ong said that the office equipment owned by the defendant was essentially one old filing cabinet, the value of which was negligible. Dr. Ong also said that in the period September - October 1998 the plaintiff and the defendant had the same address and shared the same offices, and the office equipment was used by both companies. 19 It would appear that the present complaint of the plaintiff is that the appointment of a provisional liquidator of the defendant peremptorily (and, in the view of the plaintiff, prematurely) put to an end the administration of the defendant by Mr McDonald. Thus, so it is asserted by the plaintiff, there was no entitlement in Mr McDonald to receive payment of fees amounting to $20,000 for his administration. 20 That complaint, however, confuses the apparent purpose behind the agreement into which the plaintiff and the defendant had entered with the terms of that agreement. 21 It must be appreciated that Mr McDonald was not a party the agreement. The agreement was made before Mr McDonald was prepared to accept appointment as administrator of the defendant. It was fully understandable that he was prepared to accept such an appointment only if he should be satisfied that there was a fund available to meet his fees for the administration of the defendant. An agreement was thereupon entered into, not by Mr McDonald personally with the either the plaintiff or the defendant, not by Mr McDonald in his capacity as administrator of the defendant --- since he had not at that time been so appointed, and he was not prepared to accept such an appointment until after the agreement had been entered into by the defendant, making available to it a fund from which Mr McDonald's fees could ultimately be paid --- but an agreement between two related companies, which shared a common director, which occupied the same premises and used the same office equipment, and one of which companies, the present plaintiff, clearly expected to benefit from the appointment of an administrator to the other company, the present defendant. 22 Not only did the two companies on about 14 September 1998 enter into that agreement, which was an oral agreement, but the two companies acted upon that agreement to the extent that the plaintiff paid to the defendant on 14 September 1998 the sum of $5,000, being the first of the four weekly instalments, by which, in accordance with the terms of the agreement, the plaintiff was to pay to the defendant the total sum of $20,000. 23 It will be appreciated that the written document which was executed by Dr. Ong on behalf of the plaintiff on 18 September 1998 did not constitute the agreement between the parties --- that agreement had been made about four days previously --- but evidenced and confirmed that agreement. By the time that that document was signed on 18 September 1998 Mr McDonald had already entered upon his duties as administrator of the defendant, and thus the defendant was properly described in that document as "ACN 060 296 175 (Administrator Appointed)". 24 In essence, the complaint of the plaintiff appears to be that it entered into an agreement to pay to the defendant $20,000, in the expectation that that amount would be used in its totality to meet Mr McDonald's fees, and that, in consequence of the abbreviated period in which Mr McDonald actually held the office of administrator of the defendant, his fees did not amount to $20,000. 25 Any apparent disappointment by the plaintiff that the administration of the defendant by Mr McDonald was unexpectedly brought to an end after about a week does not seem to me to be relevant to the enforcability and efficacy of the agreement entered into by the plaintiff, not with Mr McDonald, but with the defendant. 26 The arguments which have been advanced by the plaintiff against the entitlement of the defendant to recover from the plaintiff the outstanding amount of $15,000 agreed upon between the plaintiff and the defendant, seem to me to proceed upon some form of misconception on the part of the plaintiff that the agreement that it was entering into was an agreement between the plaintiff and Mr McDonald. It was no such thing. Although Mr McDonald suggested the manner in which funds might be made available to the defendant for the payment of his fees as administrator, it is abundantly clear that there was no agreement between the plaintiff and Mr McDonald or between the defendant and Mr McDonald concerning the sale of the office equipment. 27 It does not assist the plaintiff's case, in asserting the existence of a genuine dispute as to its indebtedness to the defendant, for it now to say that the office equipment which was the subject of agreement which it chose to enter into with its associated company was of negligible value, and consisted of one old filing cabinet. The two companies entered into an agreement for what they expected to be a benefit to each of them --- that is, the appointment of an administrator of the defendant. 28 That appointment required either the defendant itself or some other entity to arrange for the payment of the fees of the proposed administrator. At the time when that agreement was made the defendant did not have the financial capacity to pay those fees, and thus it was not open to it to enter into an agreement with the proposed administrator for the payment of those fees. Accordingly various courses were open to the proposed administrator and other interested parties. Either the proposed administrator could enter into an agreement with a third party who might offer to pay his fees --- that is, Mr McDonald and the plaintiff could have entered into an agreement --- or the administrator, having embarked upon his administration, would be entitled to realise assets of the company in order to meet his fees. That latter course was the course which the parties intended should be followed. But, of course, Mr McDonald, quite understandably, wished to be satisfied, before accepting appointment as administrator, that the defendant had available such assets. That was the purpose for which he suggested to the defendant that it should sell its office equipment to its associated company, with which it shared the office, so that there would thereby become available funds in the defendant to which Mr McDonald could look for the payment of his fees. 29 In proceedings such as the present, it is not appropriate that the Court should attempt to resolve any disputed questions of fact. In deciding whether or not there is a genuine dispute as to the indebtedness of the plaintiff to the defendant in the amount claimed, or at all, it is appropriate that in the present application I should proceed upon the basis of the evidence given on behalf of the plaintiff. Dr. Ong gave evidence by way of affidavit and was also cross-examined. Mr McDonald also gave evidence by way of affidavit and was also cross-examined. 30 Accepting for the purpose of the present proceedings the evidence of Dr. Ong concerning his conversation with Miss Nguyen (a conversation significant parts of which Miss Nguyen disputes), it is clear that the request of Dr. Ong that Miss Nguyen should "tear up the document I signed about the office equipment" was tantamount to an acknowledgment that an agreement was in existence, but that Dr. Ong did not wish to be bound by that agreement because of the changed circumstances (those changed circumstances being the appointment of a provisional liquidator, with the consequent termination of Mr McDonald's appointment). 31 It was submitted on behalf of the plaintiff that the agreement entered into was an agreement to which there were three parties, namely, the plaintiff, the defendant and the accounting firm of Hall Chadwick. It was submitted that the agreement was entered into on behalf of the plaintiff by Dr. Ong, on behalf of the defendant by Mr McDonald and on behalf of the accounting firm by Mr McDonald. In the alternative, it was suggested on behalf of the plaintiff that there were in fact, two agreements, being firstly an agreement for the engagement of Mr McDonald's services, and then an agreement for the purchase of the office furniture, and that it was intended by all the parties to those two agreements that those agreements be regarded as interdependent, in that, so it was submitted, it was obvious that Dr. Ong never intended to purchase furniture worth virtually nothing for $20,000, unless Mr McDonald's services as administrator were to a value of $20,000. 32 There is no evidence whatsoever to support either of the foregoing contentions. It is abundantly clear (even from Dr. Ong's evidence) firstly that there was only one agreement, that being an agreement between the two companies. Secondly, that Mr McDonald was not a party to that agreement, and, indeed, could not have been a party to that agreement, since until such an agreement had been entered into, the defendant did not have any funds to which Mr McDonald, when appointed administrator, could have resort for the payment of his fees. There was no suggestion made by the plaintiff, and indeed it would not be possible in the circumstances of this case for the plaintiff to make such a suggestion, that Mr McDonald either was prepared to accept appointment as administrator without arrangements having been made for the payment of his fees, or, that he was appointed administrator before the agreement between the parties took effect and the first instalment of the purchase price had been paid by the plaintiff to the defendants. 33 It was then submitted on behalf of the plaintiff, that the effect of the agreement was to confer upon the defendant the benefit of an entitlement to the sum of $20,000 and to confer upon the plaintiff the benefit of a single filing cabinet of little or no commercial value. The plaintiff asserts that in consequence the defendant has received a benefit at the expense of the plaintiff which was unjust, and that the plaintiff is somehow entitled to a claim in restitution based upon the concept of unjust enrichment. It was submitted that the unjust element of the transaction is to be found in the grossly disproportionate benefits conferred upon the parties to what was described, quite inaccurately, as "the written agreement" (I have already accurately categorised that document, which describes itself as a confirmation of an agreement already made, as evidencing and confirming the earlier oral agreement) and in the failure of the contemplated and significant event which might otherwise have justified the transaction, being the continuation of Mr McDonald's appointment as administrator. 34 It will be appreciated that the first time when the plaintiff, through its director Dr. Ong, suggested, at least by implication, that the sale of the office equipment was somehow to be treated as conditional upon the administrator performing work to the value of $20,000 was in the telephone call of Dr. Ong to the offices of Hall Chadwick on or about 21 September 1998, when he had the conversation with Miss Nguyen to which I have already referred. That suggestion was made not only after the original agreement between the parties had been entered into on about 14 September 1998, not only after the written confirmation of the agreement had been signed on 18 September 1998, but only after the appointment of the provisional liquidator of the defendant and the termination of Mr McDonald's appointment. It would not have been then open to Mr McDonald, even if he had been willing to do so, to have terminated or otherwise cancelled the effect of the agreement made between the two companies, since any authority which he might have had to act on behalf of the defendant in his capacity as its administrator was brought to an end by the appointment of the provisional liquidator on or about 21 September 1998. 35 There was no suggestion in any of the evidence adduced on behalf of the plaintiff, being the evidence of Dr. Ong, or the evidence given by Mr McDonald under cross-examination, that there was any discussion either between the two companies at the time when they entered the agreement, or between the plaintiff and Mr McDonald, either before his appointment as administrator of the defendant or after that appointment, that the outstanding instalments need be paid only if the administrator had performed work to the value of those instalments. 36 The substance of the agreement between the two companies was for payment of $20,000 for the purchase of certain office equipment, with provision for that payment to be made by four instalments each of $5,000 upon certain specified dates. Whilst the purpose of the agreement was to enable the plaintiff to have an asset available to which Mr McDonald as administrator could have recourse to meet his fees, and whilst both Mr McDonald and each of the two companies might have contemplated that the entirety of that asset would probably be spent in meeting those fees, those facts do not alter the liability of the plaintiff to make the payments which it had agreed with the defendant to make in the terms of the oral agreement, subsequently evidenced and confirmed by the written document dated 18 September 1998. 37 The submissions of the plaintiff grounded upon the alleged inherent injustice of the terms of the agreement and the asserted entitlement of the plaintiff to restitution in accordance with the principles relating to unjust enrichment totally disregard the context in which the agreement was made, including the close relationship between the companies (having at least one director in common, sharing premises, office furnishings and equipment, and the fact that Dr. Ong was able, apparently acting on behalf of each of the two companies, to effect the agreement between the companies), and the expectation, at least implicit in the transaction, of some benefit to the plaintiff as a consequence of the appointment of Mr McDonald as administrator of the defendant. Further, it will be appreciated that Dr. Ong at the time when he made the agreement on behalf of the defendant and signed the document confirming and evidencing that agreement on 18 September, read and understood what that document meant. He did not suggest that in entering into the agreement the defendant placed reliance upon anything that Mr McDonald said. There is certainly no suggestion in Dr. Ong's evidence that at the time he made the agreement either he understood or Mr McDonald ever said to him that the agreement would be enforced only to the extent that the administrator incurred fees. I have already referred to the fact that such a suggestion appears to have arisen only after the appointment of the provisional liquidator, and in the context that Dr. Ong, at least implicitly, accepted that the effect of the agreement was to obligate the plaintiff to pay the outstanding balance of $15,000 to the defendant. 38 It must also be appreciated that the agreement is between two companies. The defendant is in liquidation and it is now, through its liquidator, attempting to enforce the agreement. There is no unconscionable conduct which can be asserted against the liquidator. In those circumstances, it does not seem to me that the plaintiff has even laid the basis for an argument that, in effect, there should be restitutio in integrum. 39 It should also be appreciated that if the companies and Mr McDonald had contemplated an arrangement of the nature which the plaintiff now asserts, --- that the plaintiff should be liable to pay Mr McDonald's fees only to the extent that those fees were incurred, and that any liability of the plaintiff should be limited, in effect, to the $5,000 already paid --- there was no reason at all why an agreement along those lines should have not been made between the plaintiff and Mr McDonald, or why there should not have been an arrangement whereby the plaintiff, or some other entity, could have lodged the sum of $20,000 with Mr McDonald's firm, subject to the condition that any funds in excess of his actual fees would be returned to the entity effecting such lodgment. 40 I am not satisfied that the plaintiff has established that there is a genuine dispute as to the existence or the amount of the debt claimed in the statutory demand. Accordingly, I propose to dismiss the summons. 41 I make the following orders: 1. I order that the summons be dismissed. 2. I order that the plaintiff pay the costs of the defendant. 3. The exhibits may be returned.