New South Wales Supreme Court CITATION : Patonga Beach Holdings Pty Ltd v Lyons [2009] NSWSC 1257 HEARING DATE(S) : 19 November 2009 JUDGMENT DATE : 20 November 2009 JURISDICTION : Equity JUDGMENT OF : Austin J DECISION : Statutory demand set aside under s 459J(1)(a) CATCHWORDS : CORPORATIONS - winding up in insolvency - creditor's statutory demand - whether defect in the demand - whether substantial injustice would be caused unless demand set aside LEGISLATION CITED : Corporations Act 2001 (Cth), s 459G, 459J CASES CITED : LSI Australia Pty Ltd v LSI Holdings Pty Ltd (2007) 25 ACLC 1602; [2007] NSWSC 1406 Topfelt Pty Ltd v State Bank of NSW Ltd (1993) 12 ACSR 389 PARTIES : Patonga Beach Holdings Pty Ltd (Plaintiff) John Howard Lyons, Rosebanner Pty Ltd and Australian Hotels Ltd (Defendants) FILE NUMBER(S) : SC 2769/09 COUNSEL : R M Lovas (Plaintiff) J B Simpkins SC (Defendants) SOLICITORS : Angela M Frost (Plaintiff) Legal Ease Lawyers (Defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST AUSTIN J FRIDAY 20 NOVEMBER 2009 2769/09 PATONGA BEACH HOLDINGS PTY LTD V JOHN HOWARD LYONS & ORS JUDGMENT 1 HIS HONOUR: This is an application under s 459G of the Corporations Act 2001 (Cth). The schedule to statutory demand describes the debt, said to be $400,000, as follows: "Balance of settlement sum due on or about 9 April 2008 as per subclause 5(c) of clause 7 of the deed dated 20 December 2007 between Ray Armstrong, the company, Robert Osbourne, Colo Investments Ltd, Karuah Ltd and Goldstar Gaming Pty Ltd (ACN 095 092 416), the rights and obligations of Ray Armstrong under such Deed having been assigned to John Howard Lyons, Rosebanner Pty limited ACN 003 916 309 and Australian Hotels Limited ACN 010 869 655 by way of Deed of Assignment dated 24 January 2008 and Notice of Assignment dated 4 September 2008." 2 The deed dated 20 December 2007 was a deed of settlement of disputes between Raymond Armstrong and Robert Osborne, and interests associated with each of them. Clause 5 provided that in consideration of the transfer of Mr Armstrong's interests in Colo Investments to Mr Osborne, Mr Osborne was to pay to Mr Armstrong the amount of $550,000 on the following terms: "(a) $25,000 upon the date of this Deed and (b) $125,000 within 90 days of the date of the Deed; and (c) the balance of $400,000 either: (i) within 4 years from the date of this Deed; or (ii) upon the disposal of the Property; or (iii) upon the disposal of any part of Osborne's interest or the interest of a related entity of Osborne, in Colo Investments; or (iv) upon the disposal of any part of Osborne's beneficial interest or the beneficial interest of a related entity of Osborne, in Colo Investments or (v) upon the disposal of any beneficial interest in the Property [Leasehold title No 11/0D22/069] whichever is the earlier." 3 By clause 7, any unpaid part of the settlement sum was secured by the "unlimited personal guarantee" of Mr Osborne and Patonga Beach Holdings Pty Ltd, the plaintiff. 4 The Property was a leasehold title located at Rue de Paris, Port Vila, Vanuatu. According to the recitals to the Deed: Colo Investments became the proprietor of the leasehold title on 19 December 2005, but the transfer in its favour was not registered and so at the date of the deed it was "the unregistered owner of the leasehold to the Property"; Colo Investments subleased the Property to Club Vanuatu Ltd on the same day. 5 The evidence includes a form of transfer of lease made under the Land Leases Act of the Republic of Vanuatu and dated 7 May 2007, by which Club Vanuatu Ltd transferred some leasehold property to a company called Lakehouse Investments Ltd. The hearing proceeded on the basis that this was a transfer of the Property, that is, the leasehold interest held by Colo Investments. But now that I have had the opportunity to review the evidence, I am not sure that this is so. The transfer of lease document leaves blank the clause that would specify the property transferred, and on the face of it, if Club Vanuatu Ltd had only a sublease, only a sublease (if anything) was transferred by that instrument. It is also odd that the instrument bears a date earlier than the date of the Deed, but the recitals to the Deed do not mention it. 6 The plaintiff seeks an order setting aside the statutory demand on several grounds. Some of them raise some difficult questions about the form and content of a statutory demand made by an assignee, and a statutory demand made against a guarantor. When I indicated at the hearing that, having read the papers, I was inclined to find in favour of the plaintiff under s 459J(1)(a), submissions focused on that ground. Although the submissions made by senior counsel for the defendant were clearly and articulately put, I have decided that the statutory demand should be set aside under that provision. In the circumstances I shall not deal with the other grounds that were advanced. 7 Section 459J(1)(a) says that on an application under s 459G, the court may by order set aside the demand if it is satisfied that: "(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside". Section 459J(2) says that except as provided in subsection (1), the court must not set aside a statutory demand merely because of a defect. 8 The concept of a "defect" was explained by Lockhart J in Topfelt Pty Ltd v State Bank of NSW Ltd (1993) 12 ACSR 389, at 392: "The definition of 'defect' is an inclusive definition, so one must construe the term initially according to its ordinary meaning and then introduce into it, if it is otherwise not included, the deemed statutory connotations. According to its ordinary usage a 'defect' means a lack or absence of something necessary or essential for completeness; a shortcoming or deficiency; an imperfection." 9 The parties placed emphasis on some observations of mine in LSI Australia Pty Ltd v LSI Holdings Pty Ltd (2007) 25 ACLC 1602; [2007] NSWSC 1406 at [54]: "If the demand is so vague or ambiguous that it fails to identify, to a reasonable person in the shoes of a director of the debtor company, the general nature of the debt to a sufficient degree that the director can assess whether there is a genuine dispute as to the existence or amount of the debt or an offsetting claim, then there is a lack of something necessary for completeness, and therefore a defect in the demand." 10 I was not asked to depart from those observations and I will not do so. In my opinion the standard there articulated, was not met by the statutory demand in the present case. 11 The description of the debt in the statutory demand identifies clause 5(c) and clause 7 of the Deed. But under clause 5(c) the sum claimed is to become payable only upon the happening of one of five events. The particular event that, according to the defendant, has triggered the obligation of Mr Osborne, and the guarantee obligation of the plaintiff, is not identified. The only hint to the way the defendant puts its claim is that the balance was said to have become due "on or about 9 April 2008". But nothing is said to explain what happened, according to the defendant, on that day. Obviously clause 5(c)(i) did not become applicable at that time, because the four years will not expire until 20 December 2011. On its face, the description of the debt in the statutory demand does not inform the plaintiff just why it is that the defendants says the debt has become due, and therefore it does not permit the plaintiff to assess whether there is a genuine dispute about the defendant's claim. 12 The defendant's response is to argue that all the facts concerning the matters listed in clause 5(c) are within the knowledge of Mr Osborne and therefore the plaintiff, which is a related entity of Mr Osborne. It argues that, because of the knowledge that Mr Osborne has, it is enough for the statutory demand simply to identify clause 5(c) and leave it to Mr Osborne to work out what the defendant claims to have happened that has triggered the obligation to pay. 13 In my view that is incorrect, given the precise wording of clause 5(c). Mr Osborne, reading the statutory demand, would presumably have wanted to know, being aware of all the facts relating to ownership interests, just how the defendant put its claim that there had been an event triggering the payment obligation. Only when he knew that, would he be able to decide whether the claim was properly disputed. It is one thing to believe, on the basis of the facts that you know, that there is no payment obligation, but it is another thing to hear how the claimant puts its case, for only then can you focus on whether the ingredients of the claim are properly made out. 14 Additionally, the inclusion in the statutory demand of the day, 9 April 2008, without any explanation at all (and the date was not explained by any evidence tendered at the hearing) creates a dimension for confusion that needed to be clarified by the text of the document, but was not. 15 According to his affidavit, Mr Osborne believed at the time that the deed was entered into, the intention of the parties was that the obligation to pay $400,000 should only be accelerated in time if he disposed of his beneficial interest in the lease. He said that the transfer of the lease to Colo Investments had never been registered but instead, the lease was eventually transferred from Club Vanuatu Ltd to Lakehouse Investments Ltd (presumably by an instrument other than the one dated 7 May 2007, for according to Mr Osborne's evidence it was later than the Deed and it was a transfer of the lease rather than any sublease). Mr Osborne claimed to be the sole beneficial interest holder of Lakehouse Investments. Therefore his claim was, apparently, that clause 5(c) had not been triggered by any of those events because he had retained sole beneficial ownership. On the other hand, clause 5(c)(ii) refers to "disposal of the Property". If the statutory demand had specified that provision, then at least Mr Osborne and the plaintiff would know that the issue upon which they needed to concentrate was whether that provision had been triggered in any way. But they were not told. 16 On 7 May 2009 a solicitor acting for Mr Osborne and the plaintiff wrote to the defendants' solicitors saying that her clients denied that the debt was due and payable. The letter asserted that there had been no disposal of any part of Mr Osborne's interest or the interest of a related entity in Colo Investments, or of any beneficial interest in the Property. The letter requested further particulars of the claim, but no particulars were provided. 17 The defendant relied on the letter to show that Mr Osborne and the plaintiff were in possession of all relevant facts at the time. It seems to me, however, that the letter reinforces the point made by Mr Osborne in his affidavit, namely that the omission to identify which sub-paragraph of clause 5(c) was material, and the factual basis for alleging that materiality, meant that the statutory demand was insufficiently meaningful to permit him to assess the true content of the allegation, and hence his solicitor requested further particulars. 18 I am satisfied that, in the circumstances, the failure of the defendant to specify in the statutory demand which subparagraph of clause 5(c) had been attracted and on what basis, meant that the plaintiff and Mr Osborne were not placed in a position of being able to assess whether there was a genuine dispute as to whether the money had become payable. The statutory demand was therefore defective. Because of the nature of the defect, substantial injustice will be caused unless the demand is set aside. This is because the lack of information in the statutory demand put the plaintiff in the unacceptable position of having to decide whether to make an application to set the demand aside without knowing precisely how the claim was made and therefore whether it could rely on a genuine dispute; further, when the matter was raised by the plaintiff's solicitor in correspondence, there was no response within the statutory period. 19 I shall make an order under s 459J(1)(a) that the statutory demand dated 17 April 2009 and served on 22 April 2009 be set aside. ********** 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. 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