New South Wales Supreme Court CITATION : Lumina (South Yarra) Pty Ltd v MK River Pty Ltd [2006] NSWSC 784 HEARING DATE(S) : 01/08/06 JUDGMENT DATE : 8 August 2006 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Statutory demand set aside CATCHWORDS : CORPORATIONS - winding up - statutory demand - application for order setting aside - whether genuine dispute - no matter of principle LEGISLATION CITED : Corporations Act 2001 (Cth), ss.459G, 459H(1)(a), (b), 459E(3), Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 CASES CITED : Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411 PARTIES : Lumina (South Yarra) Pty Ltd - Plaintiff MK River Pty Ltd - Defendant FILE NUMBER(S) : SC 4494/05 COUNSEL : Mr M.A. Ashhurst - Plaintiff Mr F.G. Kalyk - Defendant SOLICITORS : Levitt Robinson - Plaintiff KQ Lawyers - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J TUESDAY, 8 AUGUST 2006 4494/05 LUMINA (SOUTH YARRA) PTY LTD v MK RIVER PTY LIMITED JUDGMENT 1 The plaintiff, Lumina (South Yarra) Pty Ltd, makes application under s.459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand served on it by the defendant, MK River Pty Ltd. In doing so, it relies on the ground specified in s.459H(1)(a), namely, that there is a genuine dispute about the existence of the debt to which the demand relates. There is subsidiary reliance on s.459H(1)(b) and the contention that the plaintiff has an offsetting claim. 2 The statutory demand is dated 7 December 2005. It refers to a debt of $252,000 described as follows: "Monies advanced pursuant to an agreement to loan the sum of $200,000.00 by way of bank transfer on or about 15 March 2005. Less repayment of $20,000 on 31 March 2005. plus default interest at the rate of 5% per month." 3 As required by s.459E(3), the statutory demand was accompanied by an affidavit. That affidavit is the affidavit of Mr Edwards, the sole director of the defendant, sworn on 7 December 2005. That affidavit is relied on by the plaintiff in support of the present application. 4 Mr Edwards deposed in the affidavit of 7 December 2005, among other things: "3. On or about 5 March 2005 Adam Huxley and Robert Huxley, directors of the Plaintiffs, attended at my office at suite 721, 1 Queens Road, Melbourne to discuss their potential purchase of property located at 2 – 6 Murphy Street, South Melbourne in the State of Victoria ('the Property'). Present at the meeting were the Huxleys, myself, Brian Culley (of Matarol Pty Ltd, then the registered proprietor of the property). 4. Discussion took place between myself, Adam Huxley and Robert Huxley in which they informed me in words to the effect, 'We would like to purchase the property, but we need a short term loan of $200,000.00 to do so.' 5. I said words to the effect, 'MK River could lend the shortfall of $200,000.00 for a period of one week only.' To which they replied, 'That's all we need. That will be fine.' 6. Annexed hereto and marked 'A' is a copy of a memorandum of agreement made on 5 March 2005. … 8. On about 7 March 2005 the company entered a contract for the purchase of the property pursuant to the agreement recorded in Annexure 'A'. Annexed hereto and marked 'C' is a copy of the Contract for Sale of the property. 9. Pursuant to that agreement the creditor advanced the said amount of $200,000.00 on or about 8 March 2005 by paying same to Mr Con Nichols of Real Corp Victoria, the agent on the sale of the property to the company. Annexed hereto and marked 'D' is a copy of the creditor's bank statement for that date. 10. On 31 March 2005 the company paid to the creditor the amount of $20,000, but the balance of the advance remains due and owing." 5 The memorandum of agreement annexed to the s.459E(3) affidavit is dated 5 March 2005 and is expressed to be made between Adam Huxley "representing an entity (the New Entity) to be advised" and Mr Edwards "as Trustee for Matarol Pty Ltd (Matarol) … and Lumina Developments Pty Ltd (Lumina) …". The document goes on to recite that a property at 2-6 Murphy Street, South Yarra has been sold "to the New Entity" and that "Matarol has plans and contracts for the development and reconstruction of the Property with Lumina, which plans and developments are copyright and are being adopted by the New Entity and are assigned to the Second Party [that is, Mr Edwards] as Trustee". Then follow these operative provisions: "1. In consideration of the New Entity providing the deposit funds for the purchase of the Property from Owenlaw (subject to a short term bridge for the deposit funds of $200,000 Two Hundred Thousand Dollars from MK River Pty. Ltd.) which funding is acknowledged by Adam Huxley as the consideration for the joint venture in the development of the Property. 2. And on the basis that construction funds are in place and obtainable through MK River Pty. Ltd. for the development of the Property. 3. And in consideration of Matarol and Lumina appointing the Second Party as Trustee for Matarol and Lumina for the purpose of the development of the Property. 4. The First Party will sign the Contract for Sale of the Property from Owenlaw to the New Entity and that the parties agree to joint venture the development of the Property. 5. That the parties agree to do all things necessary and sign a formal document to give effect to this Memorandum of Agreement." 6 The document of 5 March 2005 was signed by Adam Huxley "for and on behalf of ICA Group Pty Limited" and by Mr Edwards "as Trustee". It was also signed by a Mr Culley "for and on behalf of Matarol Pty Ltd and Lumina Developments Pty Ltd". 7 Mr Edwards has more to say about the meeting of 5 March 2005 in an affidavit sworn by him on 26 October 2005. The plaintiff also relies on that affidavit. Mr Edwards says that Adam Huxley and Robert Huxley, "directors of the plaintiffs", came to his office in Melbourne on 5 March 2005 to discuss the potential purchase of the property in Murphy Street. He attributes to Adam Huxley and Robert Huxley words to the following effect: "We would like to purchase the property, but we need a short term loan of $200,000 to do so." 8 Mr Edwards says that he then said: "MK River could lend the shortfall of $200,000 for a period of one week only." 9 According to Mr Edwards, Adam Huxley and Robert Huxley (apparently in unison) replied: "That's all we need. That will be fine." 10 Adam Huxley and Robert Huxley were not, as at 5 March 2005, directors of the plaintiff. This is because the plaintiff did not then exist. It was registered under the Corporations Act and came into existence on 7 March 2005. The words spoken by Adam Huxley and Robert Huxley on 5 March 2005 were accordingly not words spoken by directors or agents of the plaintiff. Indeed, those words, in the form related by Mr Edwards, indicate that it was Adam Huxley and Robert Huxley who wished to borrow money. 11 Mr Edwards gives further information about the meeting of 5 March 2005 in his affidavit of 27 March 2006. He refers to discussions involving himself, Adam Huxley and Greg Huxley and Mr Culley during which Adam Huxley and Greg Huxley had reviewed material with Mr Culley. He then deposes to conversation as follows: "Michael [that is Mr Kyriackou, a colleague of Mr Edwards] said, 'Are you interested?' Adam Huxley said, 'We are interested and want to proceed. But we have a problem. We are short $200,000 for the deposit. We can repay it in a week or two. We have some settlements due.' I said: 'If it is only for a week or thereabouts, then I don't have a problem with that. But if it is for more than a week we will have difficulties because we have our own projects.' Adam Huxley said, 'It will only be a week. We've got a settlement happening and it won't be any more than a week.'" 12 In the same affidavit Mr Edwards referred to his colleague, Mr Kyriackou, having said: "ICA will be putting in the whole deposit. We will lend you $200,000 for the immediate shortfall. …" 13 On 3 April 2005, Mr Edwards wrote to Greg Huxley saying among other things: "MK River has personally advanced ICA and Adam Huxley and [sic] an amount of $200,000 for a short term Bridging infact [sic] for a period not exceeding 7 days from the 7th of March 2005. ICA has returned to MK River Pty Ltd the sum of $20,000 Banked [sic] on the 25th March 2005 and received by our office on the 31st March 2005. There is still a balance outstanding of $180,000 I require these funds by no later than the 5th April 2005 could you pleas [sic] advise by no later than the 4th of April if this achievable if not then I will be forced to obtain funds from solicitors in which MK River will be forced to pay 5% per Month on the borrowing." 14 The plaintiffs next refer to a letter of 25 May 2005 from Mr Kyriackou to Mr Greg Huxley. That letter reads in part as follows: "Further as you are aware Adam & Bob have taken a Loan from MK Rivers [sic] Pty Ltd on or about the 8th March of $200,000 for the purposes for a week. The Money was not payed [sic] back when promised by both Adam & Bob and as stated when yourself and Adam had attended my offices for the purpose to meet with Bank of Queensland you Both were advised of the situation and that we had to borrow money at 5% per Month Interest. We have no alternative but to incorporate this rate on the funds that we have lent Adam & Bob. The amount that is still outstanding is $200,000.000 [sic] + 5% interest till 8th of June 2005 will be an amount of $260,000 less $20,000 already paid in which was the interest payment for April in which the amount that is still outstanding to MK River is $240,000.000 [sic]." 15 The plaintiff also refers to a quite separate statutory demand dated 26 July 2005 by which MK River Pty Ltd, the present defendant, made demand upon two companies. One is ICA Group Pty Limited. The other is Lumina (South Yarra) Pty Limited, the present plaintiff. This demand relates to an alleged debt of more than $2 million which is obviously separate from the alleged debt with which I am presently concerned. However, in the s.459E(3) affidavit accompanying that statutory demand (again, an affidavit of Mr Edwards), there appears an allegation that it was for the benefit of ICA Group, rather than the present plaintiff, that the defendant applied $200,000. This appears from the following passage: "2. On or about 8 March 2005 the creditor company [that is, MK River Pty Limited, the present defendant] provided to the Estate Agents for the vendor of the property situate and known as 2-6 Murphy Street, South Yarra – the South Yarra property – the amount of $200,000 being part deposit funds for the First Debtor Company's [that is, ICA Group Pty Limited's] purchase of property at 2-6 Murphy Street, South Yarra – the South Yarra property. Annexed hereto and marked with the letter 'A' is a copy of the Creditor Company's Bank Statement evidencing the payment of $195,000 debited from the account on 8 March 2005. The other amount of $5,000.00 was paid by bank cheque to the Estate Agents. 3. The loan to the First Debtor Company was due and repayable on or before settlement of the purchase of the South Yarra property and interest was agreed upon between the Creditor Company and the First Debtor Company, making a total payable of $286,000." 16 All the material to which I have referred emanates from the defendant. None of that material, including documents created in early March 2005 and succeeding weeks (that is, the documents which might be regarded as contemporary documents), would support any finding that the defendant had made a loan of $200,000 to the plaintiff or that the plaintiff had either promised to repay $200,000 or to pay interest at the rate of 5% per month or at all on any such principal sum. 17 It is the defendant's case, however, that none of this matters. The defendant says (and the plaintiff does not deny) that the defendant in fact paid $200,000 to the selling agents of the Murphy Street property, which sum represented part of the deposit payable by the plaintiff which, on the day immediately after its incorporation on 7 March 2005, became the purchaser under a contract for the purchase of that property. That payment, the defendant says, was made by the defendant in fulfilment of its promise (to persons other than the plaintiff) contained in the memorandum of agreement dated 5 March 2005. The defendant accepts that the plaintiff never came to be bound by that agreement. The defendant's contention is that, by making the payment of $200,000 to the selling agents, it conferred a benefit on the plaintiff which thereby came under an obligation to pay $200,000 to the defendant. Furthermore, the obligation was an obligation to pay on demand. As far as the interest element is concerned, the defendant points to the letter of 25 May 2005 but does not contend that there was ever any explicit promise by the plaintiff to pay interest as there demanded. 18 The plaintiff says that, even accepting that the defendant paid $200,000 to the selling agents towards the deposit on the plaintiff's purchase of the Murphy Street property, it does not follow that the plaintiff thereby became indebted to the defendant in the way the defendant alleges. While that is a possible inference, there are, in the plaintiff's view, at least three other possibilities consistent with those facts. 19 The first possibility is that the payment was referable to a joint venture to which the plaintiff and the defendant became parties in relation to the property. There is a dispute as to whether a joint venture agreement exists. But it is clear that there were negotiations for a joint venture and that they were in progress in early March 2005. A payment not in the nature of a loan may have been made by the defendant in anticipation of the creation of a joint venture. Indeed, an extant cross-claim raises that issue. 20 Second (and consistently with the documents I have described as emanating from the defendant), the sum of $200,000 may have been lent by the defendant to ICA Group Pty Limited or the Messrs Huxley or both. 21 Third, it may be that the defendant paid the sum of $200,000 towards the purchase of the Murphy Street property by the plaintiff in the absence of any relevant agreement and in circumstances giving rise to an implied trust in favour of the defendant as to an undivided interest in the property commensurate with the contribution. 22 The principles upon which the present application is to be determined are not in doubt. In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, McLelland CJ in Eq considered the expression "genuine dispute" where it occurs in s 459H. His Honour said at p.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." 23 See also Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605 per Thomas J: 24 In Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411, I said at [23] that: "… the task faced by a company challenging a statutory demand on the 'genuine dispute' ground is by no means at all a difficult or demanding one. The company will fail in that task only if it is found upon the hearing of its s 459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow." 25 In the present case, the situation with respect to the alleged indebtedness is not so clearcut as to make further investigation unnecessary. Nor are the contentions of the plaintiff so devoid of substance as to mean that there is no need for such investigation. On the contrary, even on the material adduced by or emanating from the defendant, the position regarding the legal consequences of the defendant's payment of $200,000 to the selling agents is very clouded indeed. 26 It follows that the plaintiff has made out its case of genuine dispute based on s.459H(1)(a). There is no need to address the alternative claim under s.459H(1)(b). 27 I make the following orders: 1. Order that the statutory demand in the sum of $252,000 dated 7 December 2005 served by the defendant on the plaintiff be set aside. 2. Order that the defendant pay the plaintiff's costs of the application under s.459G in respect of that statutory demand. ********** 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.