Reale v Reale [2003] NSWSC 293

New South Wales Supreme Court

CITATION : Reale v Reale [2003] NSWSC 293 HEARING DATE(S) : 21/03/03 JUDGMENT DATE : 14 April 2003 JURISDICTION: Equity Division JUDGMENT OF : Master Macready at 1 DECISION : Paragraph 34

CATCHWORDS : Corporations Law. Application to set aside statutory demand under s 459G of the Corporations Act. Demand set aside. No matter of principle. PARTIES : Reale Bros Pty Ltd v Ludmilla Marika Reale FILE NUMBER(S) : SC 6004/2002 COUNSEL : R. Wilson for plaintiff V, Gray for defendant SOLICITORS : N.J. Papallo & Co for plaintiff Lang Gellbert & Noonan for defendant

- 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

Master Macready

Monday 14 April 2003

6004/2002 Reale Bros Pty Limited v Ludmilla Marika Reale JUDGMENT 1 MASTER: This is the hearing of an application to set aside a statutory demand dated 28 November 2002 served by the defendant on the plaintiff. The demand was for a sum of $252,820.89. The plaintiff company has two equal shareholders. They are Rocco Reale and Nicola Reale who are brothers. The company has for some years carried on business through a trading Trust as a shoe repairer and a seller of shoes. 2 Both brothers were directors of the plaintiff until Rocco Reale resigned as a director on 24 December 2001 as a result of falling out between them. The defendant was the wife of Rocco Reale. The background facts 3 In January 2000 the plaintiff company borrowed from the Commonwealth bank through two different facilities a sum of $300,000. The bank took security by way of a first registered mortgage over the home owned by Rocco Reale and Ludmilla Reale at 11 Fairholm Street Strathfield. They owned the home as joint tenants. There was also a joint and several unlimited guarantee given by the plaintiff and Nicola Reale. 4 On 7 April 2000, Rocco Reale and his wife Ludmilla Reale separated and on 10 December 2001 the Family Court of Australia made consent orders in relation to their property. The consent orders provided for a transfer of the property at 11 Fairholm Street Strathfield to the wife Ludmilla Reale. She was to take their property subject to the mortgage to the Commonwealth bank and within 12 months payout that liability. The husband Rocco Reale retained under the consent orders the share which he owned in the plaintiff and also received other benefits. 5 The transfer of the Strathfield property by Rocco Reale to Ludmilla Reale did not occur and the property was sold on 18 February 2002 under a contract signed by Rocco Reale and Ludmilla Reale. On settlement of the sale the bank was paid out $252,820 and the bank's mortgage was discharged. This is the sum which is referred to in the statutory demand and the claim in that demand is based upon the defendant's contention that she is entitled as surety for the plaintiff to recover the amount paid by her pursuant to the indemnity which he had given to the bank when she and her husband executed the mortgage over their home at Strathfield. Defect in the demand 6 Apart from raising various alleged genuine disputes, the plaintiff submitted that there was a formal defect in the demand in that it had only been signed by the defendant. The plaintiff submitted that the right to indemnity would result as a consequence of a debt owed by the plaintiff to the defendant and Rocco Reale. The plaintiff relied on Manzo v 555/255 Pitt Street (1991) 21 NSW LR 1. In particular the plaintiff referred to conclusions of Hogdson J. in these terms: "In my view, whatever may be the position if a joint debt is a joint debt at law and in equity, and nothing more, where the joint debt is one in respect of which, for some reason or other, equitable principles are applicable, a s364 notice must be executed by all the joint creditors. Otherwise, the debtor would face the possibility, if he complied with a notice, of a subsequent claim by creditor who did not sign the notice ... In this case, equitable principles of contribution may be involved; but in any event, it seems to me that by reason of the orders made by Powell J, to which I have referred, this debt can no longer be regarded as no more than a joint debt in law and in equity. For those reasons, in my view, the s364 notice in this case is invalid". 7 It is clear that under the terms of the mortgage which was signed by both Rocco and Ludmilla Reale that they were jointly and each of them severally liable to the mortgagee in respect of the debt owed by the plaintiff the bank. It is also clear that although the sale of the Strathfield property was made by both of them that Rocco Reale had no beneficial interest in the proceeds as a result of the terms of the consent orders which were entered into on 10 December 2001. The relevant terms were as follows: "Orders and declarations; 1. The husband shall, within 28 days after the date of making of the within orders, do all acts and things necessary to transfer to the wife the whole of his right, title and interest in the former matrimonial home known as 11 Fairholm Street, Strathfield being the whole of the property contained in certificate of title, Folio identifier 12/7489. 2. The wife shall accept the transfer of the former matrimonial home subject to all secured monies outstanding to the Commonwealth bank of Australia as at the date hereof and the wife shall, within 12 months of the date of making of the within orders, do all acts and things necessary to discharge such liabilities. ……………………………… 4. The husband is restrained from doing any act or thing to increase the amount due to the Commonwealth bank pursuant to the business loan and overdraft loan over and above the balances of such loans as at the date hereof and the husband shall further make all interest payments and other repayments required in respect of such loans until the date they are discharged and the husband shall indemnify and save harmless the wife in respect of any increased liability pursuant to such financial arrangements. 5. The husband's indemnity pursuant to the preceding order is hereby secured by charge over the husband's shareholding in Reale Brothers Pty Ltd ACN 001 663 841 and, subject to such charge, the husband is declared to be the sole beneficial owner of all such shares. 8 The legal foundation of the right of indemnity depends upon the circumstances in which the guarantee was given. In the circumstances of this case where there was a request by the plaintiff there is an implied contract of indemnity or an implied term of the contract of guarantee to a similar effect. A guarantor, in the absence of any agreement to the contrary, is not entitled to claim indemnity until he or she pays the principal debt or some part of it. It would thus be a fundamental right to claim on the indemnity that the guarantor made the payment. In the present case, on the terms of the documentation both guarantors are entitled to the indemnity but only one has in effect made a payment. In these circumstances it seems to me that there is no basis for suggesting that both the defendant and her husband Rocco Reale should have signed the statutory demand. 9 There was also a submission by the plaintiff that in some way the defendant held her indemnity in equity on behalf of her husband Rocco Reale. This is said to be based upon the fact that under the Family Court settlement the husband retained his interest in the plaintiff and accordingly was to obtain the benefit of the payment to the bank. I myself do not see how that can arise. The various genuine disputes alleged by the plaintiff. 10 The plaintiff submitted that the following areas of general dispute were made out: