Supreme Court New South Wales Medium Neutral Citation: In the matter of Hobash Holdings Pty Ltd [2012] NSWSC 1501 Hearing dates: 30 November 2012 Decision date: 07 December 2012 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Defendant's statutory demand dated 20 March 2012 set aside. Defendant to pay Plaintiff's costs as agreed or as assessed. Catchwords: CORPORATIONS - Winding up - Statutory demand - Affidavit in support of application - Whether grounds relied upon in application to set aside statutory demand were properly raised in affidavit in support of application - Genuine dispute ground - Whether genuine dispute established. Legislation Cited: Corporations Act 2001 (Cth) ss 459G(3)(a), 459H, 459H(1)(a), 459J Cases Cited: - Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 - Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 - Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 - Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; (2002) 26 WAR 306; 167 FLR 106 - Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452; 21 ACSR 581 - Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd [2007] NSWSC 103; (2007) 61 ACSR 321; 25 ACLC 282 - Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; (2011) 87 ACSR 1 - Infratel Networks Pty Ltd v Gundry's Telco and Rigging Pty Ltd [2012] NSWCA 365 - Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290; (1993) 11 ACSR 362 - NA Investment Holdings Pty Ltd v Perpetual Nominees Ltd [2010] NSWCA 210; (2010) 79 ACSR 544 - Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 - POS Media Online Ltd v B Family Pty Ltd [2003] NSWSC 147; (2003) 21 ACLC 533 - Re 2 Roslyn Street Pty Ltd [2011] NSWSC 512 - Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 25 ACLC 1392 Category: Principal judgment Parties: Hobash Holdings Pty Limited (Plaintiff) William McNamara Real Estate Pty Limited (Defendant) Representation: Counsel: M.A. Bradford (Plaintiff) G.A. Rich (Defendant) Solicitors: Carroll & O'Dea (Plaintiff) Stacks/The Law Firm (Defendant) File Number(s): 12/113719 Judgment 1By Originating Process filed on 11 April 2012, the Plaintiff, Hobash Holdings Pty Limited ("Hobash") seeks an order setting aside a creditor's statutory demand dated 20 March 2012 ("Demand") served on it by the Defendant, William McNamara Real Estate Pty Limited ("WMRE"). 2The Demand claims payment of the amount of $239,000 being the debt described in a schedule to the Demand. That debt is there described as: "Amount due and payable to the creditor pursuant to a deed of loan entered into between the creditor and the debtor company dated 30 June 2009." 3The Demand is verified by an affidavit of Mr William McNamara dated 20 March 2012 which states that WMRE entered into a deed of loan with Hobash as borrower on 30 June 2009 ("Loan Deed") and that, pursuant to the Loan Deed, an amount of $324,000 was "deemed to have been advanced" by WMRE to Hobash to enable Hobash to complete the purchase of a real estate business owned by WMRE. Mr McNamara's affidavit also states that, pursuant to clause 5 of the Loan Deed, Hobash was required to make monthly payments of $2,500 to WMRE, payable monthly in arrears, with the first payment due on 13 April 2009. Mr McNamara's affidavit records monthly payments made to 18 January 2012 totalling $85,000 and states that the principal amount still owing is $239,000. Mr McNamara's affidavit also refers to clause 4 of the Loan Deed which, as I will note below, provided that the loan would become due and payable if Hobash defaulted in any monthly payments by more than 7 days and states that Hobash had failed to pay the monthly payments due on 13 February and 13 March 2012, and that the monthly payment due on 13 February 2012 had been due for more than 7 days. Mr McNamara swears to his belief that the amount of $239,000, being the debt specified in the Demand is due and payable by Hobash to WMRE. I will address the terms of the Loan Deed further below. Factual background 4By way of background, it appears that the sole director of Hobash, Ms Asha Kerr, was approached by Mr McNamara in February 2009 in respect of a possible purchase of a real estate business owned and operated by WMRE at Port Macquarie, the primary business of which was a rent roll relating to property leasing, in circumstances that Mr McNamara was no longer able to hold a licence to act as a real estate agent. It appears that Hobash took possession of the business on or about 24 February 2009. 5A contract for sale of the business was exchanged on 13 March 2009 ("Sale Contract"). The Sale Contract is annexed to an affidavit sworn 10 April 2012 by Ms Kerr, in support of the application to set aside the Demand. In particular, Ms Kerr refers in her affidavit to special condition 16 of the annexure to the Sale Contract which relevantly provides that: "This contract is subject to and conditional upon [Hobash] obtaining finance within 42 days from the date of exchange however if despite [Hobash's] best intentions finance has not been approved for settlement by that date, the completion shall take place on the following terms:- (a) [WMRE] shall lend to [Hobash] up to $330,000.00 for a term not exceeding 36 months and [Hobash] shall:- (i) endeavour to obtain alternate finance. (ii) pay [WMRE] monthly payments of $2,500.00 in reduction of the principal sum. (iii) execute such securities on the rent roll as may be required by [WMRE] at [Hobash's] expense and to give [WMRE] a caveatable interest in any property owned by Asha Kerr and Louise Budnick. If at the expiration of the 36 month period [Hobash] are unable to repay to [WMRE] the principal then outstanding [Hobash] shall ensure that the business being transferred shall be returned to [WMRE] or its nominees." The words "and interest" are contained in the typed clause but crossed out, although not initialled, in the copy of the Sale Contract in evidence. 6The Loan Deed was executed by WMRE as lender, Hobash as borrower and Ms Kerr and Ms Budnick (purportedly as guarantors, although the Loan Deed itself contained no guarantee provision) on 30 June 2009. Ms Kerr's affidavit in support of the application to set aside the Demand raised a question as to the status of the Loan Deed, indicating that she had no recollection of having seen that document or having it explained to her. WMRE relied on evidence of Ms Kerr's former solicitor that the Loan Deed had been explained to her and signed by her. Mr Bradford, who appeared for Hobash, indicated that the legal effect of the Loan Deed was not contested, at least for the purposes of this application. 7The Loan Deed in turn relevantly recited that WMRE had agreed to advance the sum of $324,000 to enable Hobash to complete the purchase of the real estate business and the parties had entered into the Sale Contract. The operative terms of the Loan Deed relevantly provided that: "1. [WMRE] will at the request of the guarantor, be deemed to have advanced the sum of three hundred and twenty-four thousand dollars ($324,000) to the borrower. ... 3. [Hobash] acknowledges that the amount advanced will be repayable on [Hobash] obtaining bank or other suitable finance and if not at the expiration of three (3) years from the date hereof. 4. The parties agree that the loan shall become due and payable if [Hobash] defaults any monthly payments [sic] by more than seven (7) days. 6. [Hobash] hereby creates a charge over the rent roll the subject of the Contract for sale and upon default by [Hobash] [WMRE] shall be entitled to recover the rent roll from [Hobash]." 8By email dated 21 February 2011 to Ms Kerr, Mr McNamara noted that a payment due by Hobash was now 8 days over the required payment date of the 13th of each month and requested payment or otherwise WMRE would proceed with repossession of the rent roll. 9By a further letter dated 15 March 2011 from Mr McNamara to Ms Kerr, Mr McNamara refers to the Sale Contract and then states that: "THIS DEED WITNESSES: 1. The lender William McNamara be deemed to have advanced the sum of three hundred and thirty thousand dollars ($330,000) to the borrower. 2. The borrower and guarantor acknowledges that such loan will create a caveatable interest on any property it or she has any interest in hereinafter called the property. 3. The borrower acknowledges that the amount advanced minus loan payments made will be repayable on the borrower obtaining bank or other suitable finance and if not at the expiration of three (3) years from the date of this contract the 13th March 2009." The letter also states that its purpose is to remind Ms Kerr that the loan will become due for final payment on 13 March 2012 in accordance with the Sale Contract; that no extension of the loan period would be granted; and the caveatable interest would be duly exercised by Mr McNamara if the loan was not paid on the due date. That letter is, at best, confusing, since it appears to seek to impose obligations as a deed when it was neither executed as a deed nor signed by Hobash or Ms Kerr on whom those obligations were to be imposed; it appears to refer to a loan made by Mr McNamara personally rather than by WMRE; it does not identify the borrower and the guarantor to which it refers; the loan amount referred to is $330,000 rather than the $324,000 referred to in the Loan Deed; and paragraph 3 contemplates a deduction for loan payments whereas the Loan Deed did not refer to such a deduction. 10By email dated 22 December 2011, Ms Kerr advised Mr McNamara that: "We are not in a position to repay the balance without returning the business to you in accordance with the special condition [of the Sale Contract] or disposing of the rent roll. Obviously, the latter is an easier alternative as we note that you would not be able to take on the franchise nor, we expect, would you like to take on the lease." The letter also advanced a proposal of payment of a lesser amount upon a satisfactory sale of the rent roll. 11As noted above, the Demand was dated 20 March 2012. By letter dated 4 April 2012, Hobash's solicitors referred to the earlier suggestion by Hobash of return of the business to WMRE under special condition 16 of the Sale Contract, and requested advice as to WMRE's nominee if it was not able to accept a return of the business so that Hobash could arrange for preparation of documents of transfer. That letter also noted: "That the enforceability of such [loan] deed if it is found to be legitimately executed by Hobash Holdings is questionable having regard to Hobash Holdings Pty Limited's rights under the Contract for Sale of Business dated 13 March 2009." 12On 5 April 2012, Hobash paid WMRE the amount of $5,000 referable to the outstanding repayments under the Loan Deed for February and March 2012. Application of Graywinter principle 13With this background, Hobash seeks to set aside the Demand under s 459H(1)(a) of the Corporations Act 2001 (Cth) on the basis that the debt claimed to be due by Hobash to WMRE is genuinely disputed. 14A preliminary issue arises, since WMRE relies on the principle set out in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FLR 452; 21 ACSR 581 to contend that the grounds now relied upon by Hobash, and particularly questions of construction of the Loan Deed, are not properly raised by Ms Kerr's affidavit in support of the application to set aside the Demand. In Graywinter above, Sundberg J observed at 587 that: "In order to be a 'supporting affidavit', an affidavit must say something that promotes the company's case ... [T]he affidavit need not detail, in admissible form, all the evidence that supports the contention of a genuine dispute ... [T]he affidavit must ... disclose facts showing there is a genuine dispute between the parties. A mere assertion that there is a genuine dispute is not enough. Nor is a bare claim that the debt is disputed sufficient." In Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51; (2002) 26 WAR 306; 167 FLR 106, Parker J (with whom Anderson and Scott JJ agreed) observed (at 115) that the statutory requirement under s 459G(3)(a), which underpins the Graywinter principle, was that the affidavit "should support the application" and the nature of the application may influence what was required. 15WMRE relies on the view expressed by Barrett J in Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 at [7] that the Graywinter principle requires that the affidavit in support of the application "must fairly alert the claimant to the nature of the case the company will seek to make in seeking to have the statutory demand set aside" and must provide a clear delineation of the area of controversy so that it is identifiable with one or more of the grounds made available by ss 459H and 459J of the Corporations Act for setting aside statutory demands. However, the balance of the case law takes a less strict view of the scope of the Graywinter principle, and accepts that the requirement in s 459G(3)(a) of the Corporations Act is satisfied if the ground is raised expressly, by necessary inference, or by a reasonably available inference: POS Media Online Ltd v B Family Pty Ltd [2003] NSWSC 147; (2003) 21 ACLC 533; Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd [2007] NSWSC 103; (2007) 61 ACSR 321; 25 ACLC 282; Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 25 ACLC 1392. In NA Investment Holdings Pty Ltd v Perpetual Nominees Ltd [2010] NSWCA 210; (2010) 79 ACSR 544, Lindgren AJA noted that it is not necessary that the party seeking to set aside a statutory demand specifically draw attention in the affidavit in support to the particular issue on which reliance will be placed. In Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343; (2011) 87 ACSR 1 at [36], quoted with apparent approval by Young AJA (with whom Hoeben JA and Ward J agreed) in Infratel Networks Pty Ltd v Gundry's Telco and Rigging Pty Ltd [2012] NSWCA 365 at [32], Ward J noted that the question was whether "expressly or by reasonably available inference, the grounds of challenge of the statutory demand were sufficiently identified in the affidavit". 16In my view, Ms Kerr's affidavit is sufficient to identify both the issues as to construction of the Sale Contract and the Loan Deed on which Hobash now relies, notwithstanding that (as WMRE points out) that affidavit also appeared to raise a dispute as to the authenticity of the Loan Deed. That affidavit expressly referred to the apparent right of return of the business under special condition 16 to the Sale Contract and annexed the letter by which Hobash's solicitors confirmed the exercise of the right of return and questioned the enforceability of the Loan Deed by reference to Hobash's rights under the Sale Contract. In my view, these matters were sufficient to raise the questions of construction, at least by necessary implication. Whether a genuine dispute is established 17The next question is whether a genuine dispute as to the debt claimed in the demand has been established, for the purposes of s 459H of the Corporations Act. The test for a "genuine dispute" used in that section has been variously formulated as that the dispute is not "plainly vexatious or frivolous" or "may have some substance" or involves "a plausible contention requiring investigation" and is similar to that which would apply in an application for an interlocutory injunction or a summary judgment: Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290; (1993) 11 ACSR 362; Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787. 18In Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [17], Barrett J noted that the test for a genuine dispute involved a "plausible contention requiring investigation" which was "real and not spurious, hypothetical, illusory or misconceived" and a "perception of genuineness (or lack of it)". His Honour also noted that the tests for a genuine dispute, applied in the context of a summary procedure where it is not expected that the Court will embark on any extended enquiry, mean 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, and that the company will fail in that test only if it is found, upon the hearing of its 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. 19In Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 at [9], Murphy JA (with whom Buss JA agreed) observed that: "The expression 'genuine dispute' within the meaning of s 459H(1)(a) of the [Corporations] Act, connotes a plausible contention requiring investigation: Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 at [44]. The demand will be set aside if there is a bona fide disputed issue of fact or law, which is not based on spurious, hypothetical, illusory or misconceived grounds: Createc v Design Signs; Asian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59 at [35]. Once such a dispute is raised, it is not necessary for a company to satisfy the court as to where the merits of the dispute lie: Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294 at [30]. The court will not attempt to weigh or examine the merits of any dispute: Createc v Design Signs; Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 at 295." 20In Re 2 Roslyn Street Pty Ltd [2011] NSWSC 512 at [70], Ward J noted that: "A genuine dispute is therefore one which is bona fide and truly exists in fact and is not spurious, hypothetical, illusory or misconceived. It exists where there is a plausible contention which places the debt in dispute and which requires further investigation." 21Hobash contends that special condition 16 of the Sale Contract gives rise to a genuine dispute and that the conduct of the parties, revealed in their correspondence, reinforces the proposition that both of them were working on the basis that condition governed their respective rights and obligations and that there was: "A genuine dispute as to whether [WMRE] is entitled to require Hobash to require the balance of the alleged loan in circumstances where the contract for sale provides that Hobash is entitled, on the expiration of the 36 month period, to return the business to [WMRE]." 22In my view, a genuine dispute as to the obligation of repayment under the Loan Deed is established, and it is not a dispute that the Court should seek to determine without the evidence that would be admissible in a substantive hearing. The Court will not generally determine questions of construction of a contract in an application to set aside a statutory demand, although it may do so rarely and in an appropriate case: see the authorities referred to by the Court of Appeal in Infratel Networks Pty Ltd v Gundry's Telco and Rigging Pty Ltd above at [45]-[46]. 23It seems to me that special condition 16 of the Sale Contract is open to the construction that it gave Hobash the right, and possibly the obligation, to return the business to WMRE if it was unable to repay the principal advanced by WMRE at the expiration of the 36 month period, or at least that construction is sufficiently viable to warrant further investigation. There also seem to me to be several possible constructions of clauses 3 and 4 of the Loan Deed, and a genuine dispute is therefore established as to whether the construction on which the Demand is based is correct. In particular: * The first possible construction, for which no party contends, is that clause 3 of the Loan Deed required payment of the "amount advanced", determined at the time of the initial advance, rather than the amount due at the time the loan was to be repaid. * The second possible construction, on which the Demand appears to proceed, is that clause 3 of the Loan Deed was to be read as requiring repayment of the amount then outstanding, being the amount advanced less the instalments repaid, without regard to the fact that Hobash had purported to exercise its right to return the business to WMRE. That construction would have the result that WMRE would potentially obtain, not only repayment of the full amount then outstanding, but also the value of the business. If that construction of that clause is adopted, it may be open, as Hobash points out, to attack as a penalty, and possibly also under the statutory unconscionability provisions. * The third possible construction, which was not reflected in the Demand, is that the phrase "amount advanced" should be read as referring, not to that amount, nor to that amount advanced less instalments repaid, but to the amount then due after allowing a credit for the value of the business returned (or sought to be returned, if WMRE did not accept the return of the business). A fourth possibility is that, if clause 3 of the Loan Deed is not to be read in that manner, a separate term is nonetheless to be implied into the Loan Deed, read together with the Sale Contract, to that effect. * A fifth possibility, for which Hobash contends, is that clause 16 of the Sale Contract contemplated that the return of the business would extinguish any amount then due by Hobash, so that WMRE's return for Hobash's occupancy of the business over the 3 year period was, in effect, the amount of the instalments that had been paid in that period. WMRE contends that reading of the clause is "uncommercial" but that is a matter which could only be determined in a contested hearing, in the context of other evidence as to for example, the needs of WMRE in disposing of the business when Mr McNamara was no longer entitled to operate it, and the bargaining process between the parties. 24Once it is accepted, as I do, that the fifth construction of the Loan Deed is genuinely arguable, the entirety of the amount claimed by the Demand, not only part of it, should be treated as genuinely in dispute. In these circumstances, I am satisfied that a genuine dispute is established as to the debt claimed, and the Demand should therefore be set aside under s 459H(1)(a) of the Corporations Act. The consequence of that finding is not that WMRE is unable to recover any amount due to it, but only that it will be necessary for it to bring proceedings in the usual way to seek to establish its claim. 25Section 98(1) of the Civil Procedure Act 2005 (NSW) relevantly provides that: "Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis." Uniform Civil Procedure Rules 2005 (NSW) r 42.1 ("UCPR") provides that, if an order is made as to costs, the Court is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs. UCPR r 42.2 states the general rule that costs payable to a person under an order of the Court or these rules are to be assessed on the ordinary basis. Hobash was successful in its application to set aside the Demand before me and WMRE should be ordered to pay the costs of that application. 26Accordingly, I make orders that: 1. The statutory demand dated 20 March 2012 served by the Defendant on the Plaintiff be set aside. 2. The Defendant pay the Plaintiff's costs as agreed or as assessed. ********** 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. Decision last updated: 18 December 2012