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

Affidavit and documentary evidence

1. I will first address the affidavit and documentary evidence led in the application, then the applicable principles, before reaching a determination by applying the applicable principles to the evidence.
2. CDH reads the affidavit dated 26 October 2022 of its director, Ms Lama which addresses ownership of the relevant property and contends the property is held on a trust for three companies, which appear to be associated with, first, Ms Lama and Mr Pinto; second, Mrs Adler; and, third, Mr Fraser. I have noted above that Mr Fraser now denies the existence of that trust in submissions. Ms Lama refers to the relevant arrangements, and there are documents in evidence which relate to those arrangements, which were put in place for the interests associated with Ms Lama, Ms Pinto and Mrs Adler to acquire an interest in a kennel and cattery conducted by CDH on the relevant property. She also refers to a mortgage on the property in favour of the Commonwealth Bank of Australia ("CBA") and to several documents which were executed.
3. She refers to email correspondence, which refers to payment by CDH or by the unitholders in the Trust, of amounts broadly equating to the mortgage payment to CBA of $10,700 per month. She also refers to a conversation in January or February 2022 between Mr Fraser and others, and her evidence is that Mr Fraser said: "The lease will be between CDH and me as the trustee. We will include a commercial rent on the lease in case we sell CDH to a third party as the business will have greater value if we can provide a lease with a market rent. However, whilst we own CDH, the only rent to pay will be the amount necessary to pay the CBA mortgage loan."
4. Ms Lama records that the other parties to that conversation indicated their agreement to that suggestion. Plainly, that conversation contemplates that the lease would record a "commercial rent," and that a lesser amount would be payable while the relevant parties were involved in CDH, at least as unitholders in the Trust. It is not necessary for me to reach a finding as to whether that conversation in fact took place on any final basis, nor is it appropriate for me to do so, where the question here is whether there is a genuine dispute as to the relevant debt, and whether the Demand should be set aside on that basis.
5. An email dated 14 January 2022 from Mr Fraser summarised his understanding of the agreement reached between the parties, recording that: "I agree we have an internal arrangement so structure it as you recommend, but I think we all agreed we need to do it in such a way as to maintain the CBA residential mortgage."
6. That, in turn, appears to provide some context for the later exclusion of the CBA from arrangements relating to the assignment of the loan to Mr Fraser as trustee of the Trust.
7. Ms Lama also refers to the fact, which appears to be supported by contemporaneous correspondence, that payments were subsequently made by the unitholders in the Trust, or CDH, in the order of $10,567 per month, equating to the mortgage payment, rather than the amount of the rent as specified in the lease of $16,500 per month inclusive of GST. Ms Lama's evidence is that no dispute arose in respect of payments of those amounts until August 2022, when Mr Fraser claimed the rent stated in the lease, in the context of disputes as to other matters. Mr Fraser in turn appears to accept that proposition in submissions, at least in part, so far as he refers to his own generosity, as lessor, in accepting lesser payments of the amount due by way of rent in the earlier period.
8. An exhibit to Ms Lama's affidavit in turn exhibits the lease, which commenced on 1 February 2022, between Mr Fraser as trustee for the Trust (which, as I noted above, Mr Fraser now contends does not exist) and CDH as lessee, for a term of 10 years with additional options to renew. The rent recorded in the reference schedule to the lease was $180,000 per annum plus GST, which appears to equate to the amount of $16,500 inclusive of GST per month, by reference to which Mr Fraser has calculated the amount claimed in the Demand. Plainly, that amount was not paid in significant parts of the relevant period.
9. That exhibit also contains a trust deed for the Trust, with a title page which contains an attractive picture of a dog and cat, presumably in reference to the intended operation of CDH. Clause 4 of the trust deed identifies the purpose of the Trust as, inter alia, to transfer ownership of the relevant property including a dormant kennel and cattery business and for two of the unitholders, being the entities associated with participants other than Mr Fraser, to make a payment to the unitholder associated with Mr Fraser.
10. That trust deed also includes, in paragraph 29, provision for the manner in which the beneficial interest of units in the Trust would be held. The Seventh Schedule identifies the unitholders and records Mr Fraser as trustee, and an Eighth Schedule includes a Heads of Agreement, which records, inter alia: "1. A loan was advanced by CBA to Wayne Fraser in the amount of $2,650,000 at an interest rate of 4.65 per cent registered on title to the property [address omitted]." "2. The parties have agreed for the loan to CBA to be re-assigned to Wayne Fraser ATF [Trust] and for the said trust to pay for the loan. The reassignment will be a private arrangement between the parties to the exclusion of CBA." "3. The parties (excluding Wayne Fraser) will pay to Wayne an amount of $500,000 or the equivalent to an asset value of $3 million on or about 8 February 2022."
11. The Heads of Agreement also records the intention to execute the trust deed and the basis on which units would be held, and refers to a second mortgage in respect of the property and the proposed distribution of proceeds of sale of the property, on any subsequent sale of it. It also provides for expenses of the property and CDH to be shared.
12. It appears, in broad terms, that the heads of agreement contemplated the acquisition of the property, for consideration comprising $500,000 paid to Mr Fraser and an assumption of the debt owed to CBA. The provision that the re-assignment of the CBA debt will be a "private arrangement" plainly contemplated that notice of the assignment would not be given to the CBA and, to that extent, the assignment could not take effect as a legal assignment under s 12 of the Conveyancing Act 1919 (NSW). Mr Fraser advances a further contention, which it is not necessary for me to decide, that the assignment also could not take place in equity, so far as it was an assignment of obligations under the lease and not rights, and could only take effect if implemented by a novation. I should add that Mr Fraser also points out that the Heads of Agreement is not signed by him, although it is a schedule to the trust deed which is signed by him and by other unitholders.
13. The exhibit also contained a deed of assignment of debt which also contains provisions which recite the loan to the CBA and the parties' agreement for a "private assignment" of the loan to the exclusion of CBA, to which I have referred above. The deed of assignment of debt appears to be executed by Mr Fraser as vendor and on behalf of the several purchasers, although Mr Fraser contests its efficacy.
14. There is also documentary evidence of contemporaneous financial projections which, significantly, record amounts payable, not in respect of the amount payable under the lease, but in respect of "mortgage/rent" of an amount of $128,400 per annum, which appears to coincide with the mortgage payments payable by Mr Fraser to the CBA, rather than the amounts that would be payable under the lease.
15. Contemporaneous correspondence also records discussions, for example in April 2022, of the payment of amounts referable to the mortgage in each month and, by an email dated 20 April 2022, Mr Fraser recorded that: "In future months I envisage the full $11K will be transferred from [CDH] bank to this mortgage bank account."
16. Plainly, that amount is referable to mortgage payments to the CBA, rather than the amount payable under the lease. An email dated 23 June 2022 from Ms Lama in turn summarised expenses of CDH, again referring to $11,000 payable for the mortgage each month rather than amounts payable in respect of the lease. A subsequent email dated 22 August 2022 from Mr Fraser followed up on the CDH mortgage payment but, notably, raised no complaint as to the fact that the amount payable under the lease had not been paid in that month.
17. CDH also relies on an affidavit of Mr Pinto dated 8 December 2022, which refers to a conversation at early meetings in 2022 in relation to the creation of the lease, qualified by a proposal by Mr Fraser that that would be only an internal arrangement and that the only amount that needed to be paid was the mortgage repayment, and records Mr Pinto saying that he agreed with that. Mr Pinto also refers to mortgage statements which disclosed monthly payments of approximately $10,500 payable by way of the mortgage payments. His evidence is that the first claim by Mr Fraser for the full amount of the rent under the lease was made in about September 2022, after the parties' relationship had broken down. Correspondence also refers to the allocation of expenses between the parties, again including reference to the mortgage payment in each month, there described as the "rent/mortgage," identifying the two. A schedule (Ex P2) in turn refers to mortgage payments in two months, which are allocated in that case to Mr Fraser, as part of his contribution to the expenses of CDH, apparently proceeding on the basis that those expenses were to be allocated between the parties.
18. CDH also reads the affidavit of Mr Adler dated 8 December 2022, who describes himself as the husband and business adviser of Mrs Adler, who is a director and shareholder of a company that is a shareholder in CDH. He also refers to discussions in meetings in January and February 2022 relating to the payment of rent in the amount necessary to pay Mr Fraser's CBA mortgage. His evidence is that, to the best of his recollection, there was never any discussion about paying the full amount recorded in the lease.
19. By his affidavit dated 27 January 2023, in reply, Mr Fraser denied the several conversations set out in the affidavits of Ms Lama, Mr Pinto and Mr Adler where it was alleged, in his words, that: "There was some sort of side agreement or separate agreement whereby the rent payable to [Mr Fraser] was to be less than the amount set out in the Lease."
20. Mr Fraser went on to observe that: "However, for the purposes of this proceeding only and without making any admissions, I am prepared to accept that [CDH] has raised a dispute about whether the amount payable to me by [CDH] for rent is (rather than the amount actually recorded in the Lease) the amount that I was obliged to pay to [CDH] with respect to the loan owing by me in relation to the Property...that is secured by a mortgage over the Property."
21. Mr Fraser went on to indicate that he would address the difference between rental payments made by CDH and loan and mortgage payments made by him.
22. Mr Fraser then performed (in paragraph 19ff of his affidavit) a calculation on that basis, which has the difficulty that it is inconsistent with the basis on which an amount was claimed in the Demand. In paragraph 28 of his affidavit, he set out the basis upon which he had calculated the amount of $103,200 claimed in the Demand, and, in paragraph 29, set out an alternative basis of calculation, if the rent were to be calculated on the basis of mortgage payments. Mr Fernon, who appears for CDH, in turn points out that each of those amounts include rent for October 2022, apparently after the lease was terminated, but I need not address that matter further for the purposes of this judgment. CDH in turn reads affidavits of Ms Lama and Mr Pinto in reply.

Applicable principles and submissions

1. The applicable principles are well known, and both parties have referred to them in submissions. I have recently summarised those principles in Re PSR Refining Services Pty Ltd [2023] NSWSC 243, and I adopt, without repeating, that summary. I proceed on the basis, articulated by Barrett J in Paneltech Industries (Aust) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18] that: "Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even when any case available to be advanced against the company seems strong."
2. I also bear in mind the observation of the Court of Appeal in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 at [47] that the Court's role is, in an application of this kind: "to determine whether there was plausible evidence to establish the existence of a genuine dispute, not whether the evidence was disputed or even likely to be accepted on a final hearing of any such claim."
3. Turning now to the parties' submissions, Mr Fernon draws attention to the relevant legal principles for establishing a genuine dispute, and refers to the evidence led by each of Ms Lama, Mr Pinto and Mr Adler that there existed an agreement not to enforce the lease in accordance with its terms, on the basis that a lesser amount would be paid, namely the amount that was necessary for Mr Fraser to pay his CBA mortgage in each month. He also points to the contemporaneous evidence, to which I have referred above, which records the parties' understanding that CDH would incur expenses on a monthly basis referable to the mortgage payments rather than the amount payable under the lease. It is notable that none of the correspondence to which I have been taken involves any early disagreement by Mr Fraser with that approach, and some of that correspondence records Mr Fraser attending to payments in that amount, not the amount recorded in the lease.
4. I recognise that, in the course of submissions, Mr Fraser contests aspects of the arrangement, including the Trust, as I noted above, and the efficacy of the deed of assignment, so far as it amounted to an assignment of obligations rather than of rights. Mr Fraser also refers, partly by way of evidence from the bar table, to his generosity as lessor in accepting less than the amount which was due under the lease on a monthly basis. I accept that that is a possible characterisation of events, which might or might not be accepted by a Court dealing with this matter on a substantive basis. However, I am here dealing, not with a substantive claim under the lease, but only with an application to set aside the Demand on the basis that the existence or amount of the debt claimed is genuinely disputed.

Determination

1. It seems to me that it is plainly arguable that there was here a collateral agreement or a practice or representations that were capable of giving rise to a conventional, promissory or representational estoppel, so as to prevent reliance on the lease in accordance with its terms. That is sufficient to give rise to a genuine dispute as to the amount claimed in the Demand, so far as it is directed to the rent that is payable under the lease.
2. I have not neglected the fact Mr Fraser, in his affidavit, appeared largely to accept the possibility that there may be a dispute as to that matter, and that that dispute may be genuine, and instead undertook a calculation based on the difference between the payments made by CDH and the loan payments made by him. There is, it seems to me, a fundamental difficulty with that approach. That approach is not authorised by s 459H(4) of the Corporations Act 2001 (Cth) ("Act"), to which Mr Fraser referred, because that section is directed to deducting the amount of any disputed claim from the amount claimed in the Demand, in order to determine the admitted amount. That section does not authorise the Court, in dealing with an application to set aside a creditor's statutory demand, which is directed to a debt described in a particular way, to find that some other debt of a different character is owed and substitute that other debt of a different character for the debt claimed in the Demand.
3. That approach would also have the result that the Demand did not properly describe the debt which was claimed, and that is a basis on which the Demand would be set aside under s 459J of the Act: Re Mark Attard and others trading under the partnership name of Colin Biggers & Paisley (2013) 96 ACSR 581; [2013] NSWSC 1579. Without expressing any view as to the accuracy of Mr Fraser's calculation as to a different debt which may have been claimed, being the difference in repayments due under the CBA loan and the amount that was actually paid to him by CDH or its unitholders, it seems to me that that amount cannot support the Demand, where it was not the basis on which a claim for debt was made in the Demand.
4. I am satisfied that the Demand must be set aside, and costs should follow the event in the ordinary way.

Orders

1. For these reasons, I make the following orders:
2. The statutory demand dated 5 October 2022 served on Cat and Dog Hotel Pty Ltd by Mr Fraser be set aside.
3. Mr Fraser pay the costs of the proceedings 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: 09 June 2023