On 13 December 2016 the defendant Defined Property Investment Pty Limited served on the plaintiff company DCL Construction Group Pty Limited a creditor's statutory demand for a claimed debt of $1,798,815.48, described in the schedule to the demand as follows:
Amount payable by the Company to the Creditor
In respect of
1. Deed of Loan, Guarantee and Indemnity dated 26th July 2012
2. General Security Agreement dated 26th July 2012
3. Interim Statement as at 30 November 2016
The debt owed by the 'Debtor Company' to the 'Creditor' under
The 'Debtor Company' Guarantee obligations as the Borrower and Principal and as the Guarantors [pursuant to the Deed of Loan, Guarantee and Indemnity dated 26th July 2012 & as One of the Grantors pursuant to the General Security Agreement dated 26th July 2012
The company agreed to be jointly and severally liable as principal and debtor for all monies owed to the Creditor in the Deed of loan Guarantee and Indemnity dated 26th July 2012, & The company agreed to be jointly and severally liable as one of the grantors General Security Agreement dated 26th July 2012 and as at 30 November 2016 particularised in the Interim statement that is Annexed to this Demand.
TOTAL DEBT OWED AS AT 30 November 2016 $1,798,815.48
So far as appears from the evidence, however, no such "Interim Statement" as is referred to in the demand was in fact attached to it. The demand was accompanied by the requisite affidavit verifying it, in which Defined's director Mr George Dimitriou deposed that the debt was due and payable and that he believed that there was no genuine dispute in respect of it.
By originating process filed on 22 December 2016, DCL applies to have the demand set aside, pursuant to (CTH) Corporations Act 2001, s 459H (on the ground that there is a genuine dispute as to the indebtedness) and s 459J (on the grounds that there is a defect in the demand, and that there is some other reason for setting it aside, namely that it is an abuse of process). For the reasons that follow, I have concluded that the demand must be set aside.
In Ligon 158 Pty Ltd v Huber, [1] Barrett AJA (with whom McColl and Meagher JJA agreed), in the course of allowing an appeal from a decision in which I had found that the dispute propounded by the debtor company was not a genuine one, drew on the judgments of Black J in Re Wollongong Coal Ltd [2] and of the Court of Appeal in Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd, [3] to collect the principles applicable in a case which, like the present one, involved distinguishing a genuine dispute from one that is merely a constructed response to the claim asserted in the statutory demand. For present purposes, those principles - the authorities for which are collected in Ligon 158 and in Wollongong Coal - may be summarised as follows:
1. a dispute is "genuine" if it is not "plainly vexatious or frivolous" or "may have some substance" or "involves a plausible contention requiring investigation". To be genuine, a dispute must be bona fide and premised on sufficiently particularised grounds that are "real and not spurious, hypothetical, illusory or misconceived" and which demonstrate the dispute's "objective existence" and "prima facie plausibility";
2. 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 once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow and the demand will be set aside. A finding to the contrary could only be arrived at if the contentions advanced are so devoid of substance that no further investigation is warranted;
3. the function of the court is merely to determine the existence of a genuine dispute, and while the court will not exceed its legitimate function by having regard to evidence which bears upon whether the asserted dispute is genuine, this neither requires nor invites it to weigh or assess the merits of the dispute;
4. while there must be evidence showing a serious question to be tried or an issue deserving of a hearing, that evidence cannot and need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable;
5. in determining whether there is evidence of a genuine dispute regarding the debt, although the court is not required to accept uncritically every statement in the affidavit that is inconsistent with undisputed contemporary documents, is inherently improbable, does not have sufficient prima facie plausibility to merit further investigation or is an assertion of facts unsupported by evidence, the court is generally not concerned to engage in an enquiry as to the credit of the deponent of the supporting affidavit; and
6. inconsistent contemporaneous documents are not necessarily sufficient to defeat the company's challenge, even though they might pose difficulties for the ultimate proof of the case that it would advance if the dispute were litigated.
On 24 July 2015, Defined (along with other plaintiffs) filed a summons in proceedings 2015/217506 ("the Equity proceedings") claiming (inter alia) declarations that the deed of loan and the general security agreement of 26 July 2012 between Defined as lender and DCL (and DLD (NSW) Pty Ltd) as borrowers, and Corrado and Lepa Sanna as guarantors, are valid and subsisting, and judgment (including against DCL) for $1,123,333.39 pursuant to the deed of loan. By an amended statement of claim filed on 17 November 2016 in the Equity proceedings, it was pleaded:
[49] On or about 26th July 2012 [Defined], as lender, provided [DCL] and others, as the borrowers with a financial facility in the amount of $1.2 M pursuant to a Deed of Loan. …
[51] At that same time on or about 26th of July 2012, the Deed of Loan was further Secured by Lepa Sanna, [Corrado Sanna] and certain the entities and companies associated with them including [DCL] entering into a General Security Agreement Personal Property ("the General Security Agreement") with [Defined]. [Particulars were provided of the deed of loan and the general security agreement of 26 July 2012].
…
[54] On or about 26th July 2012 [Defined] discharged the Australian Executors Trustees Ltd that then encumbered 'The Copacabana Property'. The discharge amount paid to Australian Executors Trustees Ltd on settlement was $913,473.65. From the proceeds of [Defined's] Loan Advance that was pursuant to the executed Direction to pay advice dated 26 July 2012 those payments were made and from the payment to the First Plaintiff about $28,000 that [Defined] also paid to third parties in related discharge expenses as particularized in table "N" …
The defence thereto, filed the day before service of the demand, denies (inter alia) paragraphs 47, 51 and 54 of the amended statement of claim, and further pleads:
a. No documents were executed by [DCL], Lepa Sana and others as borrowers and guarantors;
b. The purported Deed of Loan of 24 July 2012 was not executed by the purported clients and Thelma Gray did not witness the signatures of the client and has falsely purported to have done so, someone else has signed purporting to be her;
c. The purported General Security Agreement of 24 July 2012 was not executed by the purported clients and Thelma Gray did not witness the signatures of the clients and has falsely purported to have done so, someone has signed purporting to be her;
…
Mr Dimitriou, who by leave conducted the case on Defined's behalf, accepted from the outset that if he could not establish that the dispute raised by that defence was not a genuine one, the demand would have to be set aside. While in strict form that concession might have gone too far - as it is DCL that bears the onus of establishing that there is a genuine dispute - it represented a realistic practical assessment of the position in a case where the claimed debt was already being litigated: forensically, Defined had to persuade me that the dispute was not a genuine one. Mr Dimitriou sought to establish that the dispute so raised was "plainly vexatious or frivolous". To that end, much of the evidence that has been served in the Equity proceedings was adduced before me, and DCL's principal Mr Corrado Sanna was cross-examined, not without effect.
Essentially, there are two competing explanations of the facts. Both commence with the starting point that prior to 26 July 2012, Corrado and Lepa Sanna were the registered proprietors of their home at Copacabana, subject to a mortgage to Australian Executor Trustee Limited ("AETL"), in respect of which they were in default and facing eviction. Thereafter, the versions depart. Mr Dimitriou's version is:
1. to avoid eviction, the Sannas (through their company DCL) on 26 July 2012 obtained an advance of $1.2 million from Defined - the proceeds of which were applied, as directed by the Sannas, to discharge the AETL mortgage (for $913,473 plus costs of $10,016) and pay other liabilities - on a short term loan at 20% per annum. This advance is the subject of the deed of loan, and is secured by mortgages on Copacabana and a property at Green Valley and by the general security deed. Upon discharge of the AETL mortgage, Mr Dimitriou received the certificate of title on behalf of Defined as mortgagee;
2. the Sannas made periodic fortnightly repayments of principal by direct deposit into Defined's Westpac Business One account, where they are recorded as "DEPOSIT DCL CONST GROUP RENT UP TO [DATE]";
3. on 9 May 2013, the Sannas obtained a loan from Westpac, the proceeds of which were, to the extent of $820,662.26, applied to reduce the Defined loan; and
4. the balance of the Defined loan and interest remains outstanding, and is the subject both of the claim in the Equity proceedings and the statutory demand.
Mr Sanna's version is:
1. by arrangement with AETL, the Sannas offered Copacabana for sale, first by auction (which was unsuccessful), and then privately to Arcadia Property Holdings Pty Limited, a company said to be associated with Mr Dimitriou;
2. on 26 July 2012, Arcadia purchased Copacabana from AETL as mortgagee for $948,520. Mr Dimitriou received the certificate of title on behalf of Arcadia as purchaser, but (in order to avoid incurring stamp duty) did not register a transfer;
3. in about December 2012, Mr Dimitriou then offered to resell Copacabana to the Sannas, and Mr Sanna, with the assistance of Mr Dimitriou, obtained finance of $1,008,000 from Westpac for that purpose which was applied as directed by Dimitriou/Arcadia (including, as to $820,662, to Defined) in satisfaction of the purchase price;
4. the Sannas did not personally or through DCL ever borrow any funds from Defined, and their apparent signatures on the transaction documents have been forged.
Defined produced a substantial body of documentation consistent with its version. However, that documentation emanates from Defined, and - with the exception of the Westpac loan application in which Mr Sanna appears to have acknowledged an indebtedness to Defined, in the preparation of which Mr Sanna contends that Mr Dimitriou was involved - no undisputed document emanating from DCL confirms the Defined version.
Against that, the DCL version is not without some objective documentary support: Mr Dimitriou was a director of Arcadia, and a letter dated 7 June 2012 from Grays Legal to Lepa Sanna, and a retainer letter dated 13 June 2012 and fee notes dated 26 June and 17 July 2012 from Russo and Partners addressed to Arcadia at Mr Dimitriou's business address, refer to a sale of Copacabana to Arcadia. I appreciate that Defined's explanation is that the Arcadia purchase did not proceed and was never completed, but there is in this material at least some support for DCL's version.
As there will one day be a contested final hearing of the Equity proceedings in which the credit of Mr Sanna and that of Mr Dimitriou will be opposed, it is preferable that on this application I confine my findings to the minimum necessary to resolve it. Mr Dimitriou legitimately pointed to a number of matters that appear to detract from the credibility of Mr Sanna's version, including the implausibility of Mr Sanna's blanket denials of having signed any of the disputed documents; the resemblance of Mr Sanna's purported signatures with signatures which were unquestionably his, and their apparent authenticity; the apparent improbability of two legal practitioners falsely attesting his signature on different occasions; the apparent making of payments to Defined in reduction of the loan; and the reference in the Westpac loan application apparently signed by Mr Sanna to a loan owing to Defined. However, even if those matters tell against the credibility of Mr Sanna's version, as they well might, they do not permit a conclusion that DCL's case is so devoid of substance that no further investigation is warranted. To paraphrase [84] of the judgment of Barrett AJA in Ligon 158, it cannot be said that the proposition that the Sannas sold Copacabana to Arcadia and then repurchased it and took no loan from Defined is so devoid of plausibility as to warrant no further investigation. On the material before me, as an ultimate conclusion it might well be considered less likely than an ultimate conclusion of loan. But given that it is not the function of the Court to weigh the merits of the competing contentions, that is beside the point. DCL's case is not so lacking in substance that it can be dismissed without further examination.
The conclusion that the statutory demand must be set aside is supported by a parallel line of reasoning. It is an abuse of the statutory demand process to engage it while contemporaneously suing for the relevant debt. [4] If anything, that is accentuated in a case where, as here, pleadings and evidence have been exchanged, and no admission of the debt has emerged. If Defined believed that there was no defence, the proper course was to apply for summary judgment in the Equity proceedings - a course which, given the issues and the evidence, would not likely have succeeded.
In the light of those conclusions, it is unnecessary to consider whether the demand is so devoid of clarity that it ought to be set aside, in that it insufficiently articulates whether the liability is said to be as principal or surety, and to what extent it comprises principal and interest.
The circumstances that Defined may have established an arguable case and cast doubt on DCL's case is insufficient to deprive the successful plaintiff of its costs; an arguable case is not enough to sustain a creditor's statutory demand. I assess the plaintiff's costs at $22,000. However, as Defined has at least an arguable case to recover a much larger sum from DCL, and as it is highly desirable to limit further disputation between these parties so far as practicable, I will stay execution of the costs order pending the outcome of the Equity proceedings.
The Court orders that:
1. the creditor's statutory demand dated 13 December 2016 served by the defendant on the plaintiff be set aside;
2. the defendant pay the plaintiff's costs in the sum of $22,000; and
3. execution of order (2) be stayed until judgment in proceedings 2015/217506 or further order.
[3]
Endnotes
[2016] NSWCA 330 at [8]-[9].
[2015] NSWSC 1680; (2015) 110 ACSR 134 at [9]-[22].
(2013) 85 NSWLR 601; [2013] NSWCA 344 at [30]-[31] and [39]-[55].
Re Zarzar Pty Ltd [2017] NSWSC 93 at [22]; Re Modern Wholesale Jewellery Pty Ltd [2017] NSWSC 236 at [30]-[31]; see also Portfolio Projects Pty Ltd v Oakes Building Co Pty Ltd (1987) 5 ACLC 911; Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 39 NSWLR 311; 20 ACSR 108; Mala Pty Ltd v Johnston (1994) 13 ACLC 100; Murphy v Teakbridge Pty Ltd [1999] NSWSC 1231.
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Decision last updated: 23 June 2017