Elm Financial Services Pty Limited v MacDougal

Judgment (Ex Tempore) 1HIS HONOUR: By summons filed on 20 February 2013, the Plaintiff CC Medical Offices Pty Limited applies, pursuant to (Cth) Corporations Act 2001, s 459G, for an order setting aside a creditors statutory demand dated 30 January 2013 and served on it that day by the Defendant Roselyn Singh claiming a debt of $200,000 described in the schedule to the demand as follows: Schedule: Debt pursuant to the agreement between the company and the creditor titled loan agreement and dated 12 April 2012, $200,000. 2These proceedings were instituted by summons signed by Mr Robinson as a director of the Plaintiff. As I have previously pointed out [In the Matter of DB Mahaffy & Co Pty Limited [2012] NSWSC 1286], it is not open to a company to commence proceedings in the Supreme Court by a director. A company can commence proceedings only by a solicitor, unless the director is also properly joined as a Plaintiff in the proceedings [see UCPR r 7.1(2)(a)(iii)]. Moreover, no affidavit complying with UCPR r 7.2 was filed. The purpose of these rules is probably to ensure that there is a responsible person before the Court, unshielded by limited liability, who can be personally amenable to a costs order in an appropriate case. As in D B Mahaffy, ordinarily the appropriate course is to stay the proceedings until a notice of solicitor acting is filed. In this case, given the state that the proceedings had reached without apparent prior objection being raised, I accepted an undertaking from Mr Robinson to make himself personally liable for any costs order that might be made against the Plaintiff. 3Prior to April 2012, the Plaintiff and the Defendant were exploring a potential merger of their businesses. On 12 April 2012, the Plaintiff's director, Mr Robinson, sent to Ms Singh a draft loan agreement. That loan agreement was apparently executed by Ms Singh on 13 April and by Ms Abbate in the presence of Mr Robinson on behalf of the company, also on 13 April 2012. It describes the loan as "interest only"; the principal amount as $150,000; and the term as "3 months or until valuation can be completed and option to convert loan to equity completes, whichever comes first". It provides for the first payment to be due on 16 April with subsequent payments of interest due on the sixteenth of each month until valuation or equity conversion is completed or lender's discretion. The lender's discretion is described as "Conversion to equity or continuation of loan at expiry date is at lender's sole discretion". 4On 17 April 2012, Ms Singh deposited $150,000 into CC Medical's bank account. Further discussions about the proposed merger of their businesses continued. Between 16 May and 11 July 2012, CC Medical paid the monthly payments of interest of $1,250 stipulated for by the 12 April agreement to Ms Singh. 5By email of 5 July 2012 to Ms Singh, Mr Robinson wrote: We will need to top up our account to meet aged creditors, rent, etc, as per our original discussions ($350k) ... The second tranche ($200k) will clear our aged debt. I'll update the loan document to reflect the second tranche and increase our monthly payment requirement to you leaving it open to you to discuss equity when things started running operationally for all three centres ... 6Ms Singh replied, on 6 July 2012: "I don't have funds readily available but will speak to my accountant and look at options". This was followed up by an email from Ms Abbate to Ms Singh on the morning of 6 July in which, amongst other things, she wrote: I'm afraid things are very desperate and whilst we sincerely appreciate your help to date our situation two months ago required us to find about $350,000, as was reflected in our original numbers The primary areas of concern are rent, practitioner payments and some aged payables. ... 7Ms Singh replied later that day that she had committed her available funds to another investment "but will speak to a few investors today and see how we can help/support". Ms Abbate responded: "We would need funds urgently as we have already reached a critical stage with rent delays and practitioner pays". 8On 14 July 2012, Ms Singh sent an email to Mr Robinson and Ms Abbate which commenced: At high level our agreements and changes and operating model effective 16 July 12 - this is a starting point and we will refine as we go: appreciate your thoughts and suggestions. 9The document proceeded to propose a merger and integration of their respective businesses. Under the heading "Funding and Business Operations", it included: UTSG Consortium [an entity I infer to be affiliated with Ms Singh] will provide a rescue loan to upper limit of $350k ($150k was released in April 12), next $200k to be released in two stages - dates to be agreed at meeting 16/7) to CC Medical Services (Loan Agreement to be revised). 10Under the heading "Loan Agreement", it provided: Revised current loan agreement to $350, between UTSG Consortium Pty Limited and City Clinic - CC Medical Services Pty Limited. 11Under the heading "Priority Actions", it provided: Draft a revised loan agreement for CC Medical Services - Brad if you can revise this please - thanks. 12On 17 July, Mr Robinson sent to Ms Singh, with a copy to Ms Abbate, an email which attached a revised loan agreement, provided bank details for a funds transfer, and included: If we transfer $50,000 to cover health professional pays (due last week) and some of our more urgent suppliers that will really help our immediate situation ... 13The attached revised loan agreement relevantly bore the date 17 July 2012, described the principal as "$350,000 One hundred and fifty thousand dollars", described the term as "3 years or until valuation ..." and otherwise did not differ from the April agreement. In his affidavit, Mr Robinson describes it as "a further draft of a loan agreement". There is nothing to suggest that any party has ever executed the draft 17 July loan agreement. 14On 19 July, Ms Singh sent an email to Mr Robinson as follows: Just a few things on CC issues: 1. Access to attachment; let me know when the restriction is removed so I can call Matthew & let him know 2. Brendon will release the $50k loan to CC medical services this morning so we can finalise payments to 30/6 for each practitioner CC owes - I will call each of them this afternoon confirming payments to 30/6 will be paid in their bank accounts tomorrow - let me know if you see any issues in processing their payments 15Although it was suggested that the reference to "access to attachment" might be to releasing some confidentiality restriction, there is nothing in the surrounding communications that would indicate that to be so, and it is more probably than not a reference to the ability to access and read the attachment. This is confirmed by the circumstance that the email otherwise contains no comment on the draft agreement. It follows that Ms Singh was not then able to access and read it. 16On 19 July, Ms Singh advanced $50,000 to the Plaintiff. On 23 July, Mr Robinson sent a further email to Ms Singh attaching "the revised loan agreement I sent through on July the 17th. Please let me know if the agreement needs any changes". This is an important indication on the part of the Plaintiff that it did not at that stage regard the agreement as having been concluded. On 6 August, Ms Singh responded with an email which included the following: Hi Brad, we need to correct please - loan agreement term is for 3 months only and loan for $200k - can you send me the word version please by COB today. 17On 10 August an email was sent by Ms Singh to Mr Robinson which included: The terms of our investor loan agreement of $150k expired on 16 July 2012. A further investment of $50k was provided by UTSG Consortium as an emergency loan in order to rescue the City Clinic Operations of King & Jamison Streets including the City Clinic brand. 18On 13 August, Ms Singh sent CC Medical an email which described, as a key outcome of a meeting on that day: The loan agreement for $200k will expire on 15 August 12; you have option to continue the terms on monthly basis (at discretion of lender) or arrange payment expiry 15 August 2012. 19In a response to Ms Singh's email of 13 August, Ms Abbate on behalf of the Plaintiff wrote: We are speaking to other investors. However, this option may take a little more time. Can we continue the loan on a month to month basis as suggested? 20On 24 August, Ms Singh sent an email which included: Please let me know where we're at with the $200k loan and how you are proposing to manage this forward - I would like to execute the payout option as you now have alternative investors - please let me know. 21On 27 August, Ms Abbate, on behalf of the Plaintiff, replied: We realise that this loan needs to be repaid, unfortunately we are not in a financial position to pay it out completely now. ... On this basis, would you consider for a term of 2 to 3 months having an agreement based on the one which has just expired i.e. interest payment only? After expiry we can revisit option of payout (although I don't think this is likely) or payment plan. 22Subsequent negotiations for a proposed new loan agreement were not successful. It is notable that, prior to the institution of these proceedings, there has never, in the course of the correspondence since July 2012, been an assertion that a three year term had been substituted for any previous arrangement. To the contrary, in the email of 27 August 2012 to which I have referred, there was an apparent concession that the previous agreement "has just expired". 23The basis upon which the Plaintiff contends that there is a genuine dispute boils down to a contention that it is arguable that by making the advance of $50,000 on 19 July 2012 the Defendant accepted the "offer" contained in the draft 17 July agreement and thereby the terms of that agreement were substituted for those of the earlier agreement. I accept that if it were arguable that the 17 July "offer" had been accepted it would then be arguable that those terms had replaced those of the earlier agreement so that there had been an extension of the term to a three year term. But there is simply nothing to support, as a tenable contention, that the 17 July "offer" was accepted. The agreement has not been executed by either party. So far as the evidence goes, the preferable view is that when the advance was made on 19 July Ms Singh had been unable to access the terms of the agreement. A payment of $50,000, where the agreement stipulated for an advance of a further $200,000 is not readily, if at all, referable to an acceptance of such an offer. 24Moreover, the surrounding communications, in particular the surrounding communications emanating from both parties, but in particular those from the Plaintiff, indicate an absence of any subjective view on the part of either party, let alone any objective consensus, that the 17 July agreement had become binding. The circumstance that no such suggestion was advanced by the Plaintiff prior to the institution of these proceedings is very telling when it comes to judging whether there is a "genuine" dispute in that respect. 25Even in Mr Robinson's s 459G affidavit, while there is reference to the draft loan agreement of 17 July 2012, there is no suggestion that it had become binding and, read as a whole, the dispute that the affidavit sought to raise related to whether there had been some agreement to suspend the repayment of the loan in subsequent negotiations between Mr Koza and Ms Singh. 26In my view, for those reasons, there is no genuine dispute in respect of the debt claimed in the creditors statutory demand. 27The Plaintiff also contended that it had an offsetting claim being, within the definition of s 459H(5): A genuine claim that the company has against the respondent by way of counterclaim, setoff or cross-demand (even if it does not arise out of the same transactions or circumstances as to the debt to which the demand relates). 28In Macleay Nominees Pty Limited v Belle Property East Pty Limited [2001] NSWSC 743, Palmer J described the requirements of a genuine offsetting claim as follows: In my opinion, a genuine offsetting claim for the purposes of [Corporations Act] s 459H(1) and (2) means a claim on a cause of action advanced in good faith, for an amount claimed in good faith. "Good faith" means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful. In a claim for unliquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the Plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of section 459H(1) and (2). See also No 96 Factory Bargains Pty Limited v Kershel Pty Limited [2003] NSWSC 146. 29I readily accept that it is not necessary that a party seeking to have a statutory demand set aside must particularise the offsetting claim to the last dollar and cent, and there may be various ways of showing a plausible and coherent basis for asserting the elements of a claim which, despite some uncertainty, can be seen to be at least potentially greater than the amount of the debt: see Elm Financial Services Pty Limited v MacDougal [2004] NSWSC 560. 30In this case, the alleged offsetting claim is one for defamation and related causes of action said to arise chiefly from an email sent by Ms Singh to various persons on 23 January 2013, including solicitors acting for opponents of the Plaintiff in other proceedings, as well as officers and associates of the Defendant. In it, Ms Singh stipulated: Action required: We need to stop misleading the practitioners: I will require by 12 noon today 23 January 2013, formal communication to all current CC Medical and City Clinic practitioners (and cc to all on this email distribution) - confirming the true financial position of the CC business - the communication must include: 1. There is no investor (if there is one, provide details of who it is); 2. There is no current investor funding except Roselyn Singh/UTSG; 3. You will note the facts that your business is struggling to meet its financial obligations to practitioners and suppliers, including your commitment to loan with Roselyn Singh/UTSG cannot be sustained; 4. You will explain to all why you are in this predicament ... All of the current practitioners contributing to the practice revenue need to have the facts that CC business is difficult financial situation ... 31The complaint is that the email conveys imputations that the company is struggling to meet its financial commitments and is in a difficult financial situation. It is true that in an action for defamation, though not in one for injurious falsehood, falsity is presumed, although of course the Defendant may plead a defence of justification founded on truth and public interest. In the circumstances of this case, however, the defence of justification would seem practicably insuperable. The material to which I have referred indicates, out of the Plaintiff's own mouth, that it was indeed struggling to meet its financial obligations to practitioners, that it required an emergency loan of $50,000 from the Defendant to meet routine periodical payments to them; and that it was unable to repay its loan to Ms Singh. 32Moreover, while it is correct that in order to make good a cause of action in defamation, damage does not have to be proved, in order to show that there is an offsetting demand, the considerations to which Palmer J referred in Macleay Nominees apply. It is impossible to conclude that there is a genuine offsetting claim for the purposes of s 459H(1) and (2) unless there is some evidence from which some assessment may be made of the quantum of damage suffered that might be recovered. There is no such evidence in this case. For that reason, an essential element required to establish a genuine offsetting claim is absent. 33I am therefore not satisfied that there is any such genuine offsetting claim as alleged. 34In those circumstances, I must dismiss the application. 35I order that the summons be dismissed, with costs assessed in the sum of $10,000. In conformity with the undertaking given by Mr Robinson at the outset of the hearing, the order for costs will be enforceable jointly and severally against the Plaintiff and Mr Robinson.