Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd

Graywinter

1. Section 459G(2) of the Corporations Act provides that an application to set aside a statutory demand may only be made within 21 days after the demand is served, and section 459G(3)(a) provides: An application is made in accordance with this section only if, within those 21 days … an affidavit supporting the application is filed with the Court … An applicant may supplement an initial affidavit in support of an application to set aside a statutory demand by leading further evidence relevant to matters raised by the initial affidavit, but cannot rely on any ground for setting aside that demand which was not raised in the affidavit filed within that 21 day limit. This is referred to as the "Graywinter principle", from Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452; (1996) 21 ACSR 581.
2. In The MCF Group Pty Ltd v G.J.B. Legal Pty Ltd trading as Byles Anjos Lawyers [2019] NSWSC 333, I reviewed the authorities on the extent to which affidavits served after the 21 days can expand upon or propound further disputes or offsetting claims which may not have been readily apparent from the "supporting affidavit". In short, the affidavit filed within 21 days must raise the grounds on which the applicant seeks to have the demand set aside either expressly, or by inference from the affidavit or documents annexed to it: Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd (2007) 61 ACSR 321; [2007] NSWSC 103 at [34] per White J. As Ward J explained in Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd (2011) 87 ACSR 1; NSWSC 1343 at [36] (citations omitted): There need not be an explicit articulation in the supporting affidavit of the ground(s) on which the application to set aside is to be raised, provided the ground is raised expressly or by necessary or a reasonably available inference.
3. In Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liquidation) [2015] VSCA 330, the Court noted the following learned observations: 1. In Tuta Health Care Pty Ltd v Nipro Asia Pty Ltd [2005] NSWSC 644 Campbell J rejected an affidavit filed after the 21 day period which founded a submission "which could never been gleaned from the supporting affidavit" (at [10]) and noted that the supporting affidavit must fairly notify the respondent of the evidentiary basis for a submission that the statutory demand should be set aside on the particular ground on which the applicant seeks to rely: at [13]. 2. In Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393; [2007] NSWSC 1143, Barrett J said that the correct approach was to treat a ground as having been raised within the 21 day period "if the ground is evident from the supporting affidavit, even if only because it can be discerned from some annexed document the content of which 'reveals' it": at [25]. 3. In In the matter of UGL Process Solutions Pty Ltd [2012] NSWSC 1256, Black J concluded that the Graywinter principle has been qualified to the extent that the initial affidavit will sufficiently raise a dispute if that ground is raised by a necessary or reasonable inference, including from documents exhibited to the initial affidavit: at [30]. 4. Finally, in In the matter of Australia Zhongfu Oil Gas Resources Pty Ltd [2012] NSWSC 1208, Brereton J concluded that it was sufficient if the material facts on which the applicant intended to rely were discernible from the supporting affidavit and/or annexures and exhibits to it. It was important that the affidavit convey some fair notice to the respondent of the case: at [31].
4. Gabriel objected to Con's evidence in his second affidavit that, when the Deed was executed, the defendants in the 2018 Corporations List proceedings had been focussing attention on attempting to resolve the dispute with Gabriel and the Consortium had not properly reviewed the affidavits of Gabriel, Ms O'Neil or Mr Wilcock or the exhibits. Having now done so, Con said that he did not write or send the emails of 12 November 2009 to his sons in respect of the gifts to them, nor say the words attributed to him by Mr Wilcock. Gabriel objected to the whole of Con's third affidavit where Con deposed that the 11 June 2009 cheque was a loan, as were the payments made to GA Management in October 2009, attaching cheque butts and bank statements. It was submitted by Gabriel that these portions of Con's affidavits amounted to the suggestion of fraud rather than misrepresentation. The plaintiffs disclaimed this, saying what was suggested was fraud in the equitable sense: In the matter of Spartan Sporting Goods Pty Limited [2017] NSWSC 1146 at [10].
5. It seems to me that the nub of the material objected to in Con's second and third affidavits is whether the monies paid to Gabriel in June, October and November 2009 were gifts or loans. Con did not refer to this issue in his first affidavit but did annex the Originating Process in the 2018 Corporations List proceedings, Gabriel's affidavit in those proceedings and the Deed of Settlement. The issue as to whether monies provided to Gabriel were loans or gifts was referred to in the annexed documents and, as emphasised by Gabriel's solicitor in correspondence also exhibited to Con's first affidavit, was a central issue in the 2018 Corporations List proceedings. Thus, whilst Con did not refer to the character of these payments in his first affidavit, the issue was sufficiently raised by necessary or reasonably available inference from the documents annexed to it. But the point does not really arise because the ground relied on by the plaintiffs was whether the loan account recorded monies owed by the Gabriel Apostolakis Family Trust to Gabriel, and this was squarely raised in the first affidavit. The additional matters described in Con's later affidavits were simply supportive of the ground already raised. Accordingly, the objected portions of Con's second and third affidavits can be relied upon by the plaintiffs in their application to set aside the statutory demands, and I have therefore taken them into account in the foregoing chronology.

Genuine dispute

1. As to whether there is "a genuine dispute" within the meaning of section 459H of the Corporations Act, in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 at [31], the Court of Appeal approved McLelland CJ in Eq's consideration of a "genuine dispute" in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 as involving a plausible contention requiring investigation, raising much the same sort of considerations as the "serious question to be tried" criterion that applies in the case of an interlocutory injunction. As McLelland CJ in Eq stated at 787: 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".
2. The characteristics of a "genuine dispute" were described in similar terms by the Victorian Court of Appeal in TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67; [2008] VSCA 70, by Dodds-Streeton JA (with whom Neave and Kellam JJA agreed), at [71]: The dispute … should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. … Something "between mere assertion and the proof that would be necessary in a court of law" may suffice.
3. As to the genuine dispute relied upon in this case, the plaintiffs pointed to two matters.
4. First, the plaintiffs submitted that although clause 26 of the Deed provided that the payment of $950,000 was to be made by 31 March 2019, clause 33 provided that where a party was required to perform an obligation under the Deed then, unless the context required otherwise, the party must use its best endeavours to perform that obligation. The plaintiffs submitted that the obligation on them was to use their best endeavours to make the payment of $950,000 by 31 March 2019, citing Cypjayne Pty Limited v Babcock & Brown International Pty Ltd (2011) 282 ALR 152; [2011] NSWCA 173 at [66] to [67] in support of the proposition that the extent of an obligation to use best endeavours is governed by what is reasonable in the circumstances.
5. In respect of this, Gabriel submitted that, read objectively and in context, the only available construction of the Deed is that the plaintiffs were obliged to pay him $950,000 by 31 March 2019. This construction was supported by the plaintiffs' post-contractual conduct as being inconsistent with the payment coming solely from the sale of the Kogarah Bay Property, and that the plaintiffs did not advance a plausible, alternative construction.
6. The Court should rarely, if ever, be drawn into considering extrinsic evidence such as evidence of post-contractual conduct when considering a dispute as to the meaning of a contract on an application to set aside a statutory demand: In the matter of Acciona Infrastructure Australia Pty Limited [2019] NSWSC 1156 at [11]. In respect of the construction of the Deed of Settlement itself, where the dispute is as to the meaning of a contract then, determination of the meaning of a contract may be appropriate if a "patently feeble legal argument" is put forward: In the matter of Universal Property Group Pty Limited [2019] NSWSC 796 at [15]. However, as Barrett AJA cautioned in Creata (Aust) Pty Limited v Faull (2017) 125 ACSR 212; [2017] NSWCA 300 at [26]: But where the question of construction has any element of rational controversy to it, the Court must exercise particular restraint. His Honour, with whom Gleeson and White JJA agreed, adopted the statement of principle by Gleeson JA in In the matter of Litigation Insurance Pty Limited [2017] NSWSC 334 at [31]: The important points to be derived from the authorities are as follows. First, the court dealing with a s 459G application is not compelled to determine questions of construction of documents. Second, s 459G proceedings are not ordinarily the occasion for the court to construe a contract where there are competing views about its meaning. Third, cases in which it will be appropriate for the court to entertain a construction argument on a s 459G application are likely to be few in number. Fourth, the court's state of mind concerning the existence of a genuine dispute may range from a clear conviction that the debt does not exist to an opinion that the genuine dispute hurdle has only just been cleared. See also Gleeson JA in In the matter of Linton Developments (Qld) Pty Limited [2017] NSWSC 336 at [32].
7. Thus, where there are clearly arguable alternatives as to the meaning of a term and related questions of construction, this of itself gives rise to a genuine dispute within section 459H(1)(a) and no attempt should be made to determine the question in an application to set aside a statutory demand: Drillsearch Energy Limited v Carling Capital Partners Pty Ltd [2009] NSWSC 1192 at [47] per Barrett J. More recently in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 136 ACSR 563; [2019] NSWCA 60, White JA held at [90] (emphasis added): It is usually inappropriate on an application to set aside a statutory demand that the court attempt to decide competing contentions as to contractual interpretation, partly because to do so might embarrass a judge before whom that issue arises and fundamentally because if the disputed question of contractual interpretation is arguable there will be a genuine dispute as to the existence of the debt, albeit one that does not depend upon a disputed matter of fact. But where the legal argument propounded in support of a particular argument is "patently feeble" (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 (McLelland CJ in Eq), or where it is "as plain as a pikestaff" that it has no basis (Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89; 19 ACLC 1270 at [41]) then there will be no genuine dispute (Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; 125 ACSR 212 at [26]-[29].
8. Turning to the Deed itself, the overall scheme of the document is that the monies to be paid from Gabriel would come, at least in part, from the sale of the Kogarah Bay property, although clause 13 gave the Consortium the option, if it made the payments to Gabriel before the property was sold, to withdraw the property from sale. The bulk of the document is directed to the steps to be taken to place the property on the market, setting out the respective responsibilities of Gabriel and the Consortium to attend to the tasks which that involved. Much depended on Gabriel, who was in occupation of the property, attending to the preparation of the property for sale and then co-operating with the Consortium's endeavours to sell it.
9. The question is whether the sunset date provided in clause 26 was subject to, or independent of, the best endeavours obligations in clause 33. Did the phrase in clause 26, "Notwithstanding anything to the contrary in this Deed" satisfy the carve-out in clause 33, being "unless the context requires otherwise"? In determining this, regard might be had by a Court to not only these clauses but the whole document. In determining what the parties may have intended to achieve by their drafting, the Court may have regard to the need for Gabriel to attend to important tasks in preparing the property for sale before the Consortium could begin its efforts to sell it, and the importance of Gabriel's continuing co-operation whilst those efforts were advanced. Failure by Gabriel to either perform his specific obligations or to co-operate generally may make it impossible for the Consortium to sell the property and thus deprive the Consortium of the ability to perform its obligation to pay Gabriel. Beyond this, and mindful of White JA's caution in Grandview Ausbuilder to decide competing contentions as to contractual interpretation, it is sufficient to say that the question of construction has an element of rational controversy; it is arguable; the genuine dispute hurdle has been cleared. I do not think the plaintiffs' contention in respect of the interaction between clause 23, clause 33 and the Deed overall is "patently feeble" or that it is "as plain as a pikestaff" that it has no basis.
10. The plaintiffs submitted that the Consortium had used their best endeavours to make the payments under the Deed by no later than 31 March 2019, and Gabriel accepted that, if the obligation to pay the monies was subject to best endeavours, then there was genuine dispute about whether the plaintiffs had used their best endeavours. That being the case, the statutory demands must be set aside. However, in deference to the parties' extensive submissions on the second matter, I will also deal with it.
11. The plaintiffs relied on two matters that it was submitted constituted misleading and deceptive conduct within the meaning of section 18 of the Australian Consumer Law or alternatively were representations amounting to equitable fraud. This was said to be sufficient for the Deed to be liable to be avoided under section 243 of the Australian Consumer Law or rescinded in equity (Taheri v Vitek (2014) 87 NSWLR 403; [2014] NSWCA 209 at [71]-[76]) such that a genuine dispute arose as to the existence of the debt in the demands.
12. The first such matter was the existence of the loan account. The plaintiffs submitted that, prior to executing the Deed, Gabriel represented that, as at the time of executing the Deed, there was a loan from Gabriel to the Gabriel Apostolakis Family Trust and the amount of $850,000 payable to Gabriel under the Deed was in repayment of that loan. Gabriel's representation arose from Gabriel's pleading in the 2018 proceedings that GA Management was indebted to him for $1,501,663.51; the affidavits served in those proceedings, on their face; and Gabriel pressing for clause 3 to be included in the Deed. Gabriel submitted that this issue was not genuine within the meaning of section 459H but was a late invention, unsupported by contemporaneous documents, protest or complaint. Nor was it pleaded in the defence filed in the 2019 Equity proceedings. Rather, it was one of the main issues in the 2018 Corporations List proceedings and resolved by the Deed.
13. The plaintiffs first raised the issue of Gabriel's loan account on 7 March 2019. Three detailed letters set out the Consortium's concerns as to whether there was in fact a loan by Gabriel to the Gabriel Apostolakis Family Trust, and in what amount. It does not seem to me, from reading those letters or reviewing the general ledgers and financial statements, that the concerns expressed were a recent invention or disingenuous. It is true that the issue was not raised until three weeks before payment was due under the Deed but that does not detract from the fact that the dispute, once raised, was genuine and pre-dated the statutory demands. The issue was not pleaded in the defence in the 2019 Equity proceedings but had already been alluded to in correspondence.
14. The other matter, in the plaintiffs' submissions, was that it was apparent from the terms of the Deed that the Kogarah Bay property was to be sold to meet the obligations of the Consortium under the Deed to pay $950,000. However, at the time of executing the Deed, Gabriel did not inform the Consortium that there was no occupation certificate for the Kogarah Bay property. Gabriel had supervised the demolition and construction of the new house on the property and knew, or ought to have known, that there was no occupation certificate. By not informing the Consortium of this, Gabriel represented that there was an occupation certificate. The Consortium was relying on the funds from the sale of the Kogarah Bay property to make, either in whole or in part, the payments to Gabriel under the Deed and Gabriel knew this.
15. In respect of this, Gabriel again submitted that this issue was not genuine but a late invention, unsupported by contemporaneous documents, protest or complaint and not pleaded in the defence filed in the 2019 Equity proceedings. There was no duty of disclosure in the circumstances: In the matter of Elsmore Resources Ltd (2016) 114 ACSR 297; [2016] NSWSC 856 at [91]-[94]. Gabriel was not the registered proprietor of the property, nor an officer of GA Management, control of which had passed to the plaintiffs. As directors of the registered proprietor, the plaintiffs are taken to have that knowledge in the absence of evidence to the contrary, which was not adduced.
16. The latter arguments have an air of unreality, it seems to me, as Gabriel was a director of GA Management until recent times and, at the time when the dwelling on the Kogarah Property was demolished and another one built, Gabriel appears to have had conduct of that project. It is true that the plaintiffs only raised the issue of an occupation certificate on 28 March 2019 as a result of enquiries from potential purchasers. A review of the letter in question does not suggest that a request for an occupation certificate was made in order to concoct a dispute where there was none, but to make a practical request for a document being sought by those interested in purchasing a property which was proving hard to sell. As already mentioned, the Deed of Settlement apprehended that Gabriel would be paid, at least in part, from the proceeds of sale of the Kogarah Bay property and set out a detailed scheme by which this would be achieved. It might be thought that those working in property development would appreciate that the saleability of a property depends, in part, on whether any buildings on the land comply with the requirements of the Council and any applicable building codes. The absence of an occupation certificate confirming such compliance may impede the sale of the property or reduce its price.
17. After the hearing, Gabriel sought leave to make further submissions on this issue. The plaintiffs did not oppose leaving being granted and I will proceed to consider these further submissions as well as the plaintiffs' reply submissions, and Gabriel's further submissions in reply. In short, Gabriel submitted that there was in fact no requirement for an occupation certificate for the Kogarah Bay property. The relevant date for determining the requirement for an occupation certificate was when the Kogarah Bay property was occupied, being May 2010. At the time, as earlier set out in this judgment section 109M(2)(b) of the Environmental Planning and Assessment Act provided that the requirement to get an occupation certificate did not apply to: the occupation or use of a new building at any time after the expiration of 12 months after the date on which the building was first occupied or used ... Whilst this section was replaced on 1 March 2018 by the Environmental Planning and Assessment Amendment Act 2017 (NSW), the replacement has been deferred from time to time by regulation 18 of Environmental Planning and Assessment (Savings, Transitional and Other Provisions) Regulation 2017, with the current deferment expiring on 1 December 2019. Thus, when the Deed was entered into, section 109M continued to apply (as it does today) and no occupation certificate was required. In the absence of any requirement for such a certificate, no misrepresentation by silence could have arisen.
18. The plaintiffs submitted that section 109M(1) provided that an occupation certificate was required before Gabriel and his wife moved into the Kogarah Bay property. The exception in subsection 109M(2)(b) did not apply as the occupation or use by Gabriel and his wife of the new house on the Kogarah Bay property was not more than 12 months after the date on which the new building was first occupied or used. Further, the issue was not whether an occupation certificate was now required by prospective purchasers of the Kogarah Bay property but whether Gabriel ought to have obtained an occupation certificate in May 2010, of which prospective purchasers of the Kogarah Bay property could now obtain a copy.
19. To this, Gabriel noted the apparent agreement that there was no requirement for an occupation certificate when the Deed of Settlement was executed in July 2018, which was the relevant date of the alleged misleading and deceptive conduct. Whilst the plaintiffs referred to a hypothetical purchaser who may have been interested in the existence of an occupation certificate, the reality was that no hypothetical purchaser on or after July 2018 who would have any cause to be concerned about whether an occupation certificate had been obtained in 2010.
20. I prefer the plaintiffs' submissions in this regard. The saleability of the Kogarah Bay property depended upon the vendor, GA Management, being in possession of the necessary paperwork to satisfy an interested purchaser that the buildings on the property had all relevant approvals. Those approvals, including an occupation certificate, should have been obtained in 2010. The lack of such an occupation certificate would likely have the result that, in 2019, an interested purchaser might be not so interested.
21. The suggestion by the plaintiffs that, by Gabriel representing that the loan account recorded monies owed by the Gabriel Apostolakis Family Trust to him, and by failing to inform the Consortium that there was no occupation certificate for the dwelling, may entitle them to have the Deed avoided under section 243 of the Australian Consumer Law or rescinded in equity seems to me to involve a plausible contention requiring investigation and amounts to a genuine dispute within the meaning of section 459H.
22. The statutory demands must therefore be set aside. It is not necessary for me, therefore, to consider the plaintiffs' alternate arguments in respect of offsetting claims or 'some other reason'.

Orders

1. For these reasons, I make the following orders: 1. Order pursuant to section 459H of the Corporations Act 2001 (Cth) that the statutory demand dated 1 April 2019 served by the defendant on AA Management Co Pty Limited be set aside. 2. Order pursuant to section 459H of the Corporations Act 2001 (Cth) that the statutory demand dated 1 April 2019 served by the defendant on Cabek Pty Limited be set aside. 3. Order pursuant to section 459H of the Corporations Act 2001 (Cth) that the statutory demand dated 1 April 2019 served by the defendant on CG Investment Corporation Pty Limited be set aside. 4. Order pursuant to section 459H of the Corporations Act 2001 (Cth) that the statutory demand dated 1 April 2019 served by the defendant on Creta Constructions Pty Limited be set aside. 5. Order pursuant to section 459H of the Corporations Act 2001 (Cth) that the statutory demand dated 1 April 2019 served by the defendant on EA Management Co Pty Limited be set aside. 6. Order pursuant to section 459H of the Corporations Act 2001 (Cth) that the statutory demand dated 1 April 2019 served by the defendant on GA Management Co Pty Limited be set aside. 7. Order pursuant to section 459H of the Corporations Act 2001 (Cth) that the statutory demand dated 1 April 2019 served by the defendant on Nation-Wide Incorporated Co Pty Limited be set aside. 8. Order pursuant to section 459H of the Corporations Act 2001 (Cth) that the statutory demand dated 1 April 2019 served by the defendant on Sebavo Investment Corporation Co Pty Limited be set aside. 9. Order that the defendant pay the plaintiffs' costs of these proceedings. 10. Grant liberty to the parties, within seven days, to apply for any variation of Order 9.

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: 24 October 2019