New South Wales Supreme Court CITATION : Woh Step Back Pty Ltd v Kings Developments (NSW) Pty Ltd [2003] NSWSC 1249 HEARING DATE(S) : 18, 19 December 2003 JUDGMENT DATE : 19 December 2003 JURISDICTION: Equity Division JUDGMENT OF : Young CJ in Eq DECISION : Specific performance granted of contract as varied. CATCHWORDS : CORPORATIONS [248]- Winding up- Effect on transactions- Uncommercial transaction- What is- Order made varying price. LEGISLATION CITED : Corporations Act 2001, ss 588FB, 588FE, 588FF Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535 CASES CITED : Lewis v Cook (2000) 18 ACLC 490 McDonald v Hanselmann (1998) 28 ACSR 49 Woh Step Back Pty Ltd (P) PARTIES : Kings Developments (NSW) Pty Ltd (D1) Ozem Kassem (D2) Deryk Andrew (D3) FILE NUMBER(S) : SC 5624/03 COUNSEL : L J Aitken (P) M Pesman (D) SOLICITORS : Stoikovich Macri (P) Sage (D) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG CJ in EQ Friday 19 December 2003 5624/03 – WOH STEP BACK PTY LTD v KINGS DEVELOPMENTS (NSW) PTY LTD JUDGMENT 1 This is a purchaser's suit for specific performance to which the principal defence is that the transaction is an uncommercial transaction within the meaning of Part 5.7B of the Corporations Act 2001, and that the court should declare any contract to be void, or at least vary it. 2 The facts and circumstances are rather bizarre. The proprietor of the shares in the defendant company was a Mr Holden, a builder. The subject property had been acquired by the defendant company for the purpose of development. Mr Holden says that the financial problems of the defendant company came about because a person, whom he called in the witness box "a con man", had defrauded the company. That gentleman's conduct was placed in the hands of the police. I am not told what is the present situation. 3 As a result of those financial problems, the defendant company made contact with Mr Sam Cassaniti, who is an accountant practising in the Liverpool area. The relationship became fairly close. Mr Cassaniti in due course became the accountant for the company. He also, through some corporate vehicle, lent it a lot of money. With respect to some of the money Mr Cassaniti lent the interest rates were extremely high, and Mr Pesman, who appeared for the defendant company, now in liquidation, made considerable play in cross examination of a 50 per cent interest rate and interest payments of $10,000 a week from a small company. 4 I do not have to concern myself overmuch with those mortgage transactions because they are not before me at the moment, and the liquidators have indicated they may well be taking action to have those transactions declared as uncommercial and void. 5 However, by 22 April 2003 the position of the defendant company was very precarious indeed. Mr Cassaniti, or one of his companies, had been paying the mortgage so that there would be no action by the first mortgagee. The company itself had no money, and on 22 April 2003 the defendant and the plaintiff, acting respectively by Mr Holden and Mr Cassaniti, entered into two contracts, the purchase price being $300,000 in each case, to sell the relevant land at 68 and 70 Brisbane Street, Oxley Park to the plaintiff company, a company of which Mr Cassaniti is the sole shareholder and director. 6 The deposit in the contract is shown as $30,000 in each case. That was not actually paid, but the accounting records were adjusted later so that $90,000, which Mr Cassaniti says he advanced to cover the first mortgage, was taken to include the deposit of $60,000 in total. 7 The evidence as to the "exchange" of the counterparts of the contract was very strange. All four copies of the contract ended up in Mr Cassaniti's possession. Mr Cassaniti was not a very impressive witness, and I thought Mr Pesman got the better of him on many occasions. However, as Mr Pesman acknowledged in his submissions that whilst the liquidators were very suspicious about the matter, there was just insufficient material to put a submission that the contracts were forged. I thus need to accept the evidence of Messrs Cassaniti and Holden that the contracts were exchanged on 22 April 2003. 8 The next day Mr Holden wrote a letter to Mr Cassaniti confirming their agreement that settlement would be postponed for 12 months. This is again a rather odd document, especially one to be generated one day after the alleged exchange. However, although it is, to use Mr Pesman's word "murky", it does not seem to me that the material is sufficiently strong, other than to find that there was a contract. 9 There is also no reason, other than the counterclaim for a declaration that the contract is void under Pt 5.7B of the Corporations Act, to deny specific performance, except that if the liquidators are unavailable to complete the contract, by discharging all the mortgages and charges which are held against the property, then specific performance should be denied because it is impossible to complete the contract. 10 Realising that an order for damages for a company in liquidation may not be of much value, Mr Aitken, who appears for the plaintiff, has indicated that if the only matter holding up the settlement of the conveyancing transaction is the presence of a caveat on the title protecting his client's second mortgage, then that caveat will be withdrawn so that settlement can proceed. 11 On that basis, at least at this point in time, it would seem that it is possible to complete the contract. If, when the time comes, it proves impossible, then the court can revise the matter, rescind the decree and order damages in lieu. 12 This then takes me to the cross-claim, that the transaction was an uncommercial transaction. The starting point is s 588FF of the Corporations Act which gives the court, on application of the liquidator, if it is satisfied that a transaction is voidable under s 588FE of the Corporations Act, the power to make one of the orders set out in paras (a) to (j) of s 588FF(1). One of those options is to make an order varying the agreement, and another is to declare the agreement void. 13 Sections 588FE and 588FB set out why a transaction may be considered to be uncommercial. Learning on the sections shows that the key test is whether the undervalue, if it is a case of undervalue, in a transaction shows that there is a bargain of such magnitude that it cannot be explained by normal commercial practice: See Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535, 548; McDonald v Hanselmann (1998) 28 ACSR 49, 53 and Lewis v Cook (2000) 18 ACLC 490. 14 In the instant case, there are three matters which show that the transaction might fall within the concept of an uncommercial transaction; namely, (a) the price; (b) the problem with the deposit; and (c) the variation to give a twelve month settlement period. 15 So far as (a) is concerned, the plaintiff itself put forward a valuation made on 1 May 2003, that is nine days after the contract was made, valuing the two lots together at $700,000, that is $100,000 more than the price in the contracts. Moreover, the price was about $70,000 less than that for which the defendant company had purchased the land only about a year previously. 16 However, it is difficult to say whether that price did or did not include GST, so that it may not be a particularly significant figure, but it would seem to indicate at least a $15,000 discrepancy. 17 However, the best evidence of value is a valuation which the plaintiff itself obtained about the same time, and this would seem to indicate the difference in value of $100,000. Mr Aitken points out that there may have been some countervailing factors, and I accept there might be, so that one would allow, perhaps, a 25 percent leeway, but there would still be an undervalue of about $75,000, looking at the two lots together. In my view, the contract should be considered as an uncommercial transaction and varied to increase the purchase price by $75,000. 18 So as far as (b) is concerned, the position is, to use that word again, murky. It is true that the deposit has not been paid in cash. It also appears true that it has been advanced to the company, and that settlement of the transaction can take place within the next six weeks. I do not think anything is to be gained by making an order that the deposit be paid in the meantime, especially as there may be a decree of specific performance, which will be as good a guarantee that the contract will be performed as any deposit. 19 So far as (c) is concerned, Mr Aitken has agreed that the variation will not be insisted upon. Mr Pesman truly pointed out that one looks at the contract, when considering whether it is uncommerical, as it was made, or made and varied, not as how a party later may concede it is to be performed. However, having found that it is an uncommercial contract and making the variation, the factor thereafter, I think, loses its significance. 20 I should add that when the case began it was thought that s 468 of the Corporations Act may be a barrier, but on closer examination the relationship backdates to the commencement of the winding up, 28 April 2003, and this transaction took place on 22 April 2003. 21 It may well be that the matter will have to come back to the court on settlement, or if there are problems with the mortgage, and it is always possible for this decree to be vacated, if circumstances show that that is proper. 22 However, I make the following orders: 1. Give leave to the plaintiff to bring these proceedings, notwithstanding that the first defendant is in liquidation. 2. Declare that unless varied the contracts for the sale of numbers 68 and 70 Brisbane Street, Oxley Park, made between the plaintiff and the first defendant on 22 April 2003 are uncommercial contracts within the meaning of the Corporations Act 2001. 3. Order that the said contracts be varied by increasing the purchase price in each case by $37,500. 4. Declare that as varied the said contracts ought to be specifically performed. 5. Refer the implementation of order 4 to be decided by a Master, if necessary. 6. Note that the plaintiff waives the variation that the contract not be settled until April 2004. 7. Order that each party pay their own costs to date. 8. The exhibits may be returned. 9. Further consideration is reserved. ******************* Last Modified: 12/23/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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