A R Pilot Pty Ltd v Gouriotis [2007] NSWSC 396

New South Wales Supreme Court

CITATION : A R Pilot Pty Ltd v Gouriotis [2007] NSWSC 396

HEARING DATE(S) : 19/04/07

JUDGMENT DATE : 19 April 2007

JURISDICTION : Equity Division Corporations List

JUDGMENT OF : Barrett J

EX TEMPORE JUDGMENT DATE : 19 April 2007

DECISION : Statutory demands set aside

CATCHWORDS : CORPORATIONS - winding up - statutory demands - application for order setting aside statutory demand relating to debt which is acknowledged but said not to be due and payable until a future date - application for order setting aside statutory demand containing conflicting statements as to amount demanded

LEGISLATION CITED : Corporations Act 2001 (Cth), Part 5.4, ss.9, 459E, 459G, 459H(1)(a), 459J(1)(a), 459J(2),

Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229 CASES CITED : Spencer Constructions Pty Ltd v D & M Aldridge Pty Ltd (1997) 76 FCR 452 Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226

PARTIES : A R Pilot Pty Limited - Plaintiff Andrew Gouriotis

FILE NUMBER(S) : SC 6240/06

COUNSEL : Mr E.A. White - Plaintiff Mr M.R. Gracie - Defendant

SOLICITORS : Benjafield & Associates - Plaintiff A.R. Walmsley & Co - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

BARRETT J

THURSDAY 19 APRIL 2007

6240/06 A R PILOT PTY LIMITED v ANDREW GOURIOTIS

JUDGMENT ON APPLICATION TO SET ASIDE STATUTORY DEMANDS

1 The plaintiff applies under s.459G of the Corporations Act 2001 (Cth) for two substantive orders. They are an order setting aside a statutory demand dated 17 November 2006 in respect of an alleged debt of $108,522, and an order setting aside a separate statutory demand of the same date, in respect of an alleged debt which, according to the body of the demand, is in the sum of $6,486.29, but is described in the demand's schedule as being in the sum of $8,646.29. Both demands were served on the plaintiff by the defendant on 21 November 2006. 2 The first demand, that is, the demand related to the sum of $108,522, describes the debt in its schedule, which refers to "Loan payable at call on 26 October 2004: $105,522; Loan payable at call in June 2005: $3,000; Total payable $108,522". 3 The affidavit accompanying that demand was sworn by the defendant on 17 November 2006. The defendant there said: "I am the creditor in respect of a debt of $108,522 owed by A R Pilot Pty Limited to myself relating to loans payable at call pursuant to an agreement between us dated 18 October 2004". 4 A combination of the schedule to the demand and the quoted passage in the accompanying affidavit indicates the position of the defendant to be that a loan agreement had been concluded on 18 October 2004, that advances were made on 26 October 2004 and in June 2005 such that the total advance was $108,522 and that the loans were made on an at call basis. 5 This statutory demand is challenged by the plaintiff on the basis that there exists a genuine dispute as to the existence or amount of the debt or, more particularly, that there is a genuine dispute as to the characteristic of the debt that makes it a debt due and payable, that, of course, being an essential characteristic in the context of Part 5.4 of the Corporations Act. Section 459E(1), permitting service of a statutory demand in respect of a debt, contemplates only a debt "that is due and payable". It follows that, when s.459H(1)(a) refers to "the existence … of a debt to which the demand relates" it has in contemplation the existence of the debt as a debt "that is due and payable" as distinct from a debt that is, for the time being, merely owing. 6 The plaintiff accepts that a loan of or about the sum demanded was made to the plaintiff by the defendant. The plaintiff contends, however, that the loan was for a term of three years, commencing some time after 22 July 2004. If that contention is correct, the principal lent will not be due and payable until some date after 22 July 2007. 7 Mr Mumby, a director of the plaintiff, refers in his affidavit to a meeting with Mr Vasilios Gouriotis, the son of the defendant, and a discussion about the formation by them of a new company, which in due course became the plaintiff. Mr Mumby says that on 22 July 2004 he had a conversation with Mr Vasilios Gouriotis in which Mr Vasilios Gouriotis said words to the following effect: "My father will loan the company up to, say, $100,00 for three years. The company will only pay the interest monthly at 1 percent - that's how we will get this company up and running." 8 Mr Mumby further deposes that he had a meeting with Mr Andrew Gouriotis, the defendant (and the father of Mr Vasilios Gouriotis), in or about August 2004, in which Mr Andrew Gouriotis said words to this effect: "I will loan the company the $100,000 and you won't have to pay it back until the end of the three years, just pay the interest monthly. The idea is to build the business." 9 Mr Mumby further deposes that there was no written agreement relating to the loan, but as I have said, he accepts that it was advanced. 10 There was a third person present when Mr Vasilios Gouriotis and Mr Mumby had their conversation on 22 July 2004, namely, Mr Mark Holman, an accountant. The conversation deposed to by Mr Mumby took place at a meeting at which he and Mr Vasilios Gouriotis were discussing with Mr Holman their proposal to establish a new company. 11 There has been filed and read an affidavit of Mr Holman to which is annexed his contemporary note of the meeting. After introductory words stating that "the basic terms of the deal were as follows", Mr Holman set out a number of points, including the following as point 2: "Bill's dad Andy would provide loan funds of up to $100,000. He would be paid interest at 1 percent per month paid monthly. Term of loan three years. No capital repayments until loan has expired. Security by way of fixed and floating charge on assets of A R Pilot." 12 I should say that Mr Vasilios Gouriotis is known as "Bill", and was referred to in Mr Holman's file note as "Vasilios (Bill) Gouriotis". 13 The plaintiff does not dispute the matters to which I have just referred concerning conversations, but relies upon an agreement in writing entitled or headed "Bailment agreement", the parties to which are the defendant and the plaintiff. It is accepted by the plaintiff that this agreement does not in terms refer to any loan. Its nature is suggested by clause 2: "The bailor hereby agrees to let on hire to the bailee and the bailee hereby agrees to take on hire from the bailor the equipment more particularly described in the schedule hereto, and such further equipment as the parties may from time to time agree . . . ". 14 Clause 22 of the agreement says: "The bailee shall pay to the bailor on demand any moneys which the bailor may have seen fit to pay, and any expense which the bailor may have seen fit to incur, in making good any failure by the bailee to comply with any obligation hereunder, or any other obligation by the bailee in respect of the equipment and in enforcing or protecting its rights hereunder, or in or to the equipment . . . ". 15 Clause 27 says: "The bailee shall pay on demand interest at the rate of 12 percent per annum on any moneys payable hereunder which may at any time be overdue, calculated from the date when such moneys became payable to the date of receipt thereof by the bailor." 16 It is the contention of the defendant that this written agreement has some bearing on the question of rights and liabilities with respect to the acknowledged loan. The connection between the two is at best very unclear and may be non-existent. As I have said, the agreement does not refer to a loan, it only refers to a bailment arrangement. The only direct evidence there is about a loan at this point is that relating to the conversations, including the evidence of Mr Holman, which is of particular weight, given his lack of interest in the matter and the fact that he made a contemporaneous note which has been annexed to his affidavit. 17 The situation is clearly one in which there exists a genuine dispute as to the terms on which the loan was made. There is ample room for an inference that the loan was for a fixed term of three years, commencing at some point after 22 July 2004. The capacity of the written agreement to ground some other inference is, at best, extremely limited. There is, in short, a highly plausible possibility that, as alleged by the plaintiff, the sum of $108,522 will not be due and payable until some time after 22 July 2007. 18 The position is by no means the clear cut position that should prevail in order to allow a statutory demand to stand and to become, by virtue of non compliance with it, the source of a presumption of insolvency for the purposes of winding up proceedings. The plaintiff has made out its case of genuine dispute as to the existence of the debt (as a debt "that is due and payable") in relation to the statutory demand in the sum of $108,522. 19 I should add that if, contrary to what I have said, s.459H(1)(a) is concerned only with the existence of an obligation to pay (that is, the question whether the debt is owing) and pays no attention to the essential feature recognised in s.459E(1) (that is, that the debt is not only owing but also both due and payable), reliance on the statutory demand procedure in respect of a debt not satisfying the s.459E(1) specification – in other words, a debt incapable, under the legislation, of grounding a statutory demand – would represent, in terms of s.459J(2), "some other reason why the demand should be set aside". That provision is intended to underwrite the legislative intent of Part 5.4: Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229. Reliance on a debt that is not due and payable is inconsistent with that legislative intent. 20 I refer next to the statutory demand for the smaller sum. When I say the smaller sum, I may be referring to the sum of $6,486.29 referred to in paragraph 1 of the statutory demand, or I may be referring to the sum of $8,646.29, referred to in the schedule to the demand. 21 Paragraph 1 reads: "The company owes Andrew Gouriotis the amount of $6,486.29, being the amount of the debt described in the Schedule." 22 The schedule refers to five monthly payments at $1,055 from May to September 2005 (totalling $5,275), seven monthly payments at $1,080 from October 2005 to April 2006 (totalling $7,560) and nine further payments also of $1,080 each for the period May 2006 to November 2006 totalling $9,720). The aggregate of the three totals is then shown as $22,555. From that is deducted $13,908.71, against the heading "Less total paid". The sum of $8,646.29 is then shown in the schedule as "Balance now owing". 23 The affidavit which accompanied this statutory demand refers to a sum of $8,646.29 "relating to arrears of payments due by it to me pursuant to an agreement between us dated 18 October 2004". It thus refers to the sum shown in the schedule to the statutory demand, not the sum actually demanded by paragraph 1 of the demand. 24 The statutory demand is, as I have mentioned, dated 17 November 2006. Exactly one month earlier, on 17 October 2006, the solicitors for the defendant wrote to the solicitors for the plaintiff attaching what was described as "a summary of the present position as we see it", and referring to "a balance of $5,406.29 now owing and accruing at the rate of $1,080 per month . . . ". 25 The attachment to the letter contained detailed calculations, producing on the last line a "balance now owing" of $5,406.29, consistently with the statement in the letter. 26 The sum appearing in paragraph 1 of the statutory demand, that is, $6,486.29, might well be regarded as consistent with the message conveyed by the solicitor's letter of 17 October 2006 and its attachment since $6,486.29 is the aggregate of $5,406.29 (being, according to the letter the "balance of $5,406.29 now owing") and one month's interest of $1,080. The fact that one month had passed between the solicitors' letter and the issue of the statutory demand would make it logical for the outstanding balance referred to in the letter to be augmented by one month's interest. To that extent, the sum in paragraph 1 of the statutory demand has some coherence to it, when viewed in the context with which the parties had been dealing with one another. 27 When it comes to the schedule, however, that element of coherence is destroyed, and there is resort to monthly calculations without explanation. These appear to be quite at odds with the message conveyed by the letter of 17 October 2006, and its attachment. 28 I should mention that, after service of the statutory demand, the plaintiff in fact made two payments. It paid $5,000 on 28 November 2006 and a further $1,500 on 11 December 2006, that is a total of $6,500 compared with the clause 1 sum of $6,486.29. On one view, the statutory demand therefore has been satisfied. On another view, however, it has not, in that the $6,500 paid is less than the $8,646.29 referred to in the schedule. 29 It has been said more than once that the purpose of a statutory demand is to put the relevant company fairly and squarely on notice of what it must pay in order to satisfy the debt of the party serving the demand. The demand must be unambiguous; it must leave the recipient in no doubt as to the course that should be taken. Where ambiguity exists within a statutory demand, such as to produce doubt in the mind of any reasonable reader as to the course that must be taken in order to avoid a situation where the statutory presumption of insolvency is created, the demand is defective as contemplated by s.459J(1)(a). These matters are made clear in, among other cases, Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226 and Spencer Constructions Pty Ltd v D & M Aldridge Pty Ltd (1997) 76 FCR 452. 30 Section 459J(1)(a) contemplates that a demand may be set aside if the court is satisfied that there is "a defect in the demand" and that, because of the defect, "substantial injustice will be caused unless the demand is set aside". It is on this ground that the plaintiff relies in relation to this demand. The term "defect" is defined for this purpose in s.9 as including "a misstatement of an amount or total" and "a misdescription of a debt or other matter". 31 Given the conflicting figures in this statutory demand (and the fact that paragraph 1 wrongly asserts that an amount of $6,486 is described in the schedule), it is, to my mind, clear that it contains a defect within one or both of the descriptions in the definition. 32 As to the question of substantial injustice, the position is that the plaintiff has paid the smaller of the two amounts referred to in the demand, being the amount that is consistent with the prior correspondence and the understanding of the position that was engendered on the part of the plaintiff by the defendant's solicitors. For a company that has taken that course in the particular context to be exposed to the possibility of an adverse presumption for the purposes of winding up proceedings, unless it pays some unexplained balance not dealt with the prior correspondence, would clearly be a source of substantial injustice. 33 I am satisfied that because of the defect in the demand, substantial injustice will be caused unless the demand is set aside. 34 The plaintiff has made out a case for relief in relation to both statutory demands. I therefore make both order 1 and order 2 in the originating process.