Hansmar Investments Pty Ltd v Perpetual Trustee Company Ltd

DECISION : 1. Order that the statutory demand of the defendant dated 1 June 2006 be set aside; 2. Order the defendant to pay the plaintiff's costs.

CATCHWORDS : CORPORATIONS - Winding-Up - Statutory demand - Whether Graywinter principle is satisfied if ground of challenge is raised in the supporting affidavit by a reasonably available inference - Whether demand for liquidated damages was a demand for a debt - Where claim arose under contract for sale made by mortgagee in exercising power of sale - Mortgagee was custodian for a responsible entity of a managed investment scheme - Where there was a change of custodian and transfer of mortgage, but no assignment of chose in action by earlier mortgagee - Whether genuine dispute that debt not owed to new custodian claiming to be the creditor.

Corporations Act 2001 (Cth) Conveyancing Act 1919 (NSW) LEGISLATION CITED : Legal Profession Act 1987 (NSW) Legal Profession Regulations 1994 Sale of Goods Act 1923 (NSW) Trustee Act 1925 (NSW)

Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1986) 70 FCR 452 Process Machinery Australia Pty Ltd v ACN 057 262 590 Pty Ltd [2002] NSWSC 45 Tokich Holdings Pty Ltd v Sheridan Constructions (NSW) Pty Ltd (in liq) (2004) 185 FLR 130, 22 ACLC 955 Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 POS Media v B Family Pty Ltd (2003) 21 ACLC 533 Energy Equity Corporation v Sinedie Pty Ltd (2001) 166 FLR 179 Callite Pty Ltd v Adams [2001] NSWSC 52 Financial Solutions Australasia Pty Ltd v Predella Pty Ltd (2002) 167 FLR 106; 20 ACLC 1,286 CASES CITED : Jampco Pty Ltd v Cameron (No. 2) (1985) 3 NSWLR 391 Rothenberger Australia Pty Ltd v Poulsen (2003) 58 NSWLR 288 Alexander v Ajax Insurance Co Ltd [1956] VLR 436 C G & M Pty Ltd & Ors v AHR Constructions Pty Ltd [1992] ANZ ConvR 370 AHR Constructions Pty Ltd v Maloney [1994] 1 Qd R 460 J Boag & Son Brewing Pty Ltd v Bridon Investments Pty Ltd (2001) 10 Tas R 26 Butt, The Standard Contract for Sale of Land in New South Wales, 2 ed Chitty on Pleading, 5 ed (1831) Vol 1 Box Valley Pty Ltd v Kidd (2006) 24 ACLC 471 Australian Securities and Investments Commission v Edwards (2005) 220 ALR 148; 57 ACSR 147

Hansmar Investments Pty Ltd PARTIES : v Perpetual Trustee Company Ltd

COUNSEL : Plaintiff: R Glasson Defendant: M Cohen

SOLICITORS : Plaintiff: Bartier Perry Defendant: Deacons

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

3330/06 Hansmar Investments Pty Ltd v Perpetual Trustee Company Ltd JUDGMENT 1 HIS HONOUR: This is an application pursuant to s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand. The statutory demand is dated 1 June 2006. It was served by Perpetual Trustee Company Ltd ("Perpetual") on Hansmar Investments Pty Ltd ("Hansmar Investments"). It demanded payment of an amount of $162,500. This was described as a debt being "money due pursuant to clause 9.3 of the contract for the sale of land between Permanent Trustee Australia Ltd and Hansmar Investments Pty Ltd dated 31 March 2005". 2 The contract in question was for the sale of land at 76/94-98 Alfred Street, Milsons Point. Permanent Trustee Australia Ltd ("Permanent") entered into the contract for sale as mortgagee. The contract price was $1,125,000. The date for completion was forty-two days after the date of contract. The settlement date was extended to 7 July 2005. However, Hansmar Investments was unable to complete. On 11 July 2005, Permanent gave notice of termination of the contract and forfeited the deposit of $112,500. 3 The contract described the vendor as: " Permanent Trustee Australia Ltd (ACN 008 412 913) in its capacity as custodian/mortgagee for Challenger Managed Investments Ltd (ACN 002 835 592), as responsible entity for the Howard Mortgage Trust (ARSN 090 464 074) As Mortgagee Exercising Power of Sale. " 4 Clause 9.3 of the contract provided that: " If the purchaser does not comply with this contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice. After the termination the vendor can - … 9.3 Sue the purchaser either - 9.3.1 Where the vendor has resold the property under a contract made within 12 months after the termination, to recover - s the deficiency on resale (with credit for any of the deposit kept or recovered and after allowance for any capital gains tax for goods and services tax payable on anything recovered under this clause); and s the reasonable costs and expenses arising out of the purchaser's non-compliance with this contract or the notice and of resale and any attempted resale; or 9.3.2 to recover damages for breach of contract. " 5 In March 2006, the land was resold by Perpetual for $850,000. The difference between the sale price under Permanent's contract with Hansmar Investments of $1,125,000 and the sale price obtained by Perpetual of $850,000, less the deposit of $112,500 under the contract with Hansmar Investments, is the amount claimed in the statutory demand. 6 The explanation for the vendor under the contract being Permanent, whereas the person claiming the debt under the statutory demand being Perpetual, is that, as the contract of sale itself states, Permanent held the mortgage as "custodian" for Challenger Managed Investments ("Challenger"), which was in turn the responsible entity of a managed investment scheme known as the Howard Mortgage Trust. The agreement between Permanent and Challenger was not in evidence. However, I can infer that Permanent held the mortgage on trust for Challenger which in turn held it on the trusts of the Howard Mortgage Investment Trust. (Section 601FC(2) of the Corporations Act provides that a responsible entity of a registered scheme holds scheme property on trust for scheme members). 7 On 22 March 2005, Challenger gave sixty days' notice to Permanent of termination of the "Custody Agreement". On 18 March 2005, Challenger entered into a Custody Agreement with Perpetual. That agreement provided that from 18 March 2005, Challenger appointed Perpetual as Custodian of the "Assets". The term "Assets" was defined as follows: " ' Assets ' means, in respect of a Scheme such of the assets of the Scheme that are transferred or delivered to the Custodian by Challenger on behalf of the Scheme and accepted by the Custodian to be held in accordance with the terms of this Agreement. " 8 Perpetual became registered as mortgagee. It executed a transfer of the land on 18 April 2006 to a new purchaser. It did so as mortgagee under a mortgage dated 24 June 2002. An historical search of the folio of the land records a transfer of the 2002 mortgage on 3 February 2006. I infer that the mortgage of 24 June 2002 was given by the registered proprietor to Permanent and this mortgage was transferred to Perpetual. Grounds for Challenging Statutory Demand 9 Hansmar Investments relied on two substantial grounds to challenge the statutory demand. It contended that no debt was owing under clause 9.3 of the contract of sale. It submitted that its liability under that clause was a liability to pay damages, not to pay a debt. 10 The second ground of challenge was that, so far as Perpetual's evidence revealed, there had been no assignment by Permanent to Perpetual of the benefit of the contract of 31 March 2005 with Hansmar Investments. Even if there had been such an assignment effective in equity, no notice of the assignment had been given pursuant to s 12 of the Conveyancing Act 1919 (NSW) to Hansmar Investments. Hansmar Investments submitted that if it owed any debt pursuant to clause 9.3 of the contract for the sale of land, the debt was not owed to Perpetual but to Permanent. 11 Hansmar Investments also raised a third issue. It submitted that there was a genuine dispute as to the amount of the debt claimed, or that it had an arguable offsetting claim. It relied on evidence that the property had been valued at various times at more than the amount of $850,000 for which it was sold in March 2006. It submitted that there was a plausible contention requiring investigation that Perpetual had failed to mitigate its loss by failing to take reasonable steps to secure a proper price on the resale of the property. 12 There is nothing in this third issue. The property was resold in March 2006. On 23 February 2005, a valuer valued the property at $1,100,000. The valuer observed that the market in the subject area was slow and that there would be "buying opportunities over the next 6-12 months". I do not think that such a valuation, more than a year before the property was sold, creates any plausible contention that the mortgagee (or an assignee of the mortgage and the benefit of the contract) failed to take reasonable steps to mitigate its loss arising from the breach of contract by Hansmar Investments. 13 Mr Reeves, a director of Hansmar Investments, was informed that on 22 September 2006 the property was resold for $1,250,000. However, there was no evidence to suggest grounds for an inquiry that Perpetual had not taken reasonable steps to advertise the sale, or had otherwise not complied with its duties as mortgagee, or as assignee of Permanent's contractual rights against Hansmar Investments. The Graywinter Principle 14 Section 459G of the Corporations Act 2001 (Cth) provides: " 459G Company may apply (1) A company may apply to the Court for an order setting aside a statutory demand served on the company. (2) An application may only be made within 21 days after the demand is so served. (3) An application is made in accordance with this section only if, within those 21 days: (a) an affidavit supporting the application is filed with the Court; and (b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company. " 15 Perpetual submitted that the first ground of challenge was not available to Hansmar Investments by reason of the principles in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1986) 70 FCR 452 at 459-460. Perpetual submitted that the ground was not identified expressly or by necessary inference, so as to be clearly delineated as a ground for challenging the statutory demand (Process Machinery Australia Pty Ltd v ACN 057 262 590 Pty Ltd [2002] NSWSC 45 at [22]; Tokich Holdings Pty Ltd v Sheridan Constructions (NSW) Pty Ltd (in liq) (2004) 185 FLR 130, 22 ACLC 955 at [56]; Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 at [7]). 16 In Process Machinery Australia Pty Ltd v ACN 057 262 590, Barrett J said (at [21] and [22]): 21 It is thus reasonably clear that the relevant concept of 'raising' or 'identifying' a particular ground involves some verbal delineation of that ground in the s.459G(3)(a) affidavit. If a debt of $10,000 were claimed as one year's interest under a contract providing for interest at the rate of 9% per annum on a principal sum of $100,000, it would not, in my opinion, be sufficient for the affidavit to annex the loan agreement and say no more. It would have to refer at least to the connection between the contract and the debt claimed and put in issue the calculation of interest - even if it merely said, 'The debt does not accord with the annexed contract'.

22 The real point is that the application and affidavit filed and served within the 21 day period must fairly alert the claimant to the nature of the case the company will seek to make in resisting the statutory demand. The content of the application and affidavit must convey, even if it be by necessary inference, 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. That process of delineation may not be extended after the end of the 21 day period, although it is open to the plaintiff to supplement the initial affidavit by way of additional evidence relevant to the area of controversy identified within the period." 17 I dealt with this submission when dealing with objections to the admissibility of an affidavit relied upon by the plaintiff which was filed and served after 21 days following service of the statutory demand. 18 As noted above, the statutory demand claimed an alleged debt due to the defendant in the following terms: " Money due pursuant to clause 9.3 of the contract for the sale of land between Permanent Trustee Australia Ltd and Hansmar Investments Pty Ltd dated 31 March 2005 - $162,500. " 19 In an affidavit filed and served within the period of 21 days allowed by s 459G, Mr Reeves swore that: " Hansmar exchanged on the purchase of Milsons Point on 31 March 2005 for $1,125,000. A copy of the front page of the contract for purchase is annexed marked W. "

The front page of the contract was annexed. It disclose that a 10% deposit was payable. 20 The supporting affidavit filed and served within the 21-day period disclosed that Hansmar Investments had failed to comply with a notice to complete, following which it received a notice of default and notice that the vendor (Permanent) would sell the property. Mr Reeves deposed that the property was sold in March 2006 for $850,000. 21 It was a reasonable inference from the affidavit that the amount claimed as a debt in the statutory demand was the difference between the purchase price under the contract of which the plaintiff was purchaser, the deposit forfeited under that contract, and the price obtained by a successor to the vendor on the resale of the land following the purchaser's default. All of those facts appeared from the body of the supporting affidavit or the documents annexed to it. 22 There was no express statement in the affidavit filed and served pursuant to s 459G(3)(a) that the statutory demand was challenged on the ground that the amount claimed was not a debt, but a liability in damages. However, I concluded that it followed by necessary inference that there was a question whether the amount claimed by Perpetual in the statutory demand was an amount of damages arising from Hansmar Investments' breach of contract, those damages being the difference between the sale price (less the deposit) under the contract with Hansmar Investments and the sale price under the contract to the second purchaser, or, on the other hand, whether the amount claimed was properly characterised as a debt. 23 Accordingly, I held that it was open to the plaintiff to supplement the first affidavit by tendering the whole of the contract including clause 9.3, because the question of whether the defendant was claiming a debt or was claiming damages was, I held, clearly delineated by necessary inference from the first affidavit filed within the 21-day period. 24 I did not understand that objection was taken to the second ground of challenge on the basis of the Graywinter principle. In any event, the text of Mr Reeves' first affidavit and the documents annexed to it disclosed that Hansmar Investments entered into and defaulted on a contract which it made with Permanent, that the property was resold by Perpetual, that Perpetual claimed as a debt an amount due pursuant to clause 9.3 of Hansmar Investment's contract with Permanent, and that Permanent and Perpetual were different companies (having different Australian Company Numbers). Again, the material contained in the first affidavit raised by necessary inference, a ground of challenge that the alleged debt was owed to Permanent and not to Perpetual. The statutory demand made no reference to the alleged debt having been assigned by Permanent to Perpetual. 25 I remain of the view that these grounds of challenge were sufficiently identified in the supporting affidavit, and that they arise by necessary inference from a combination of the text of the affidavit and documents annexed to it. 26 However, whilst I hesitate to differ from any observations of Barrett J, I respectfully consider that the test enunciated in Process Machinery Australia Pty Ltd v ACN 057 260 950 Pty Ltd at [22] and repeated in Elm Financial Services Pty Ltd v MacDougal at [7] that the ground of challenge must be raised expressly or by necessary inference, is stated too strictly. The Graywinter principle is based upon an implication from the requirement in s 459G that an application to set aside a statutory demand be accompanied by an "affidavit supporting the application" which must be filed and served within 21 days after service of the demand. The implication is now firmly established. However, in my view, the implication is no more than that the grounds of the application to set aside the demand must be raised by the supporting affidavit. 27 Exceptionally in this area of the law, an affidavit under s 459G may read like a pleading (Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund at 459). Thus, a supporting affidavit may raise a ground of dispute in a form which is inadmissible to prove the facts giving rise to the dispute, and those facts may be proved in a later affidavit filed and served outside the 21-day period. However, there is no requirement in s 459G that the supporting affidavit read like a pleading. 28 The implication is now firmly established that the grounds for applying to set aside a statutory demand must be raised in the supporting affidavit, so that a ground which is not so raised cannot be relied upon. It is one thing to draw that implication from the requirement that an application be accompanied by a supporting affidavit. It is quite another to imply from the requirement that there be a supporting affidavit anything as to the precision with which such a ground must be expressed, other than that it be raised. Whether it is raised expressly, by necessary inference, or by a reasonably available inference, provided it is raised, in my view the requirements of s 459G are satisfied. 29 In POS Media v B Family Pty Ltd (2003) 21 ACLC 533, Austin J observed that the observations of Barrett J in Process Machinery Australia Pty Ltd v ACN 057 260 590 Pty Ltd at [21] and [22] arguably took the observations of Sundberg J in Graywinter further than they were taken by the Court of Appeal of the Supreme Court of Western Australia in Energy Equity Corporation v Sinedie Pty Ltd (2001) 166 FLR 179, and might be inconsistent with Callite Pty Ltd v Adams [2001] NSWSC 52. 30 In POS Media v B Family Pty Ltd, it was arguable that the debt demanded in the statutory demand was not owed because no debt for the price payable on the transfer of shares arose until the shares were transferred. However, this ground of challenge to the statutory demand had not been raised in any way in the supporting affidavit. The agreement under which the alleged debt arose was not annexed to the supporting affidavit. Austin J said that it was unclear whether it would have been open to the plaintiff to have relied upon that ground if the affidavit had annexed the agreement without articulating the argument. His Honour observed that it might be argued that the ground was obvious on the face of the document. 31 Such a mode of reasoning would be consistent with Callite Pty Ltd v Adams. There, a solicitor served a statutory demand demanding payment of an amount of unpaid legal costs. One of the grounds of challenge to the demand was that the solicitor had failed to make the disclosure required by s 175 of the Legal Profession Act 1987 (NSW). Santow J (as his Honour then was) held that this ground of challenge was not available because no facts were deposed to from which one could infer that there was no fee disclosure and no costs agreement. However, the affidavit did depose to the receipt of accounts and those accounts were annexed. Santow J held (at [10]) that a perusal of the accounts showed that they lacked the prescribed statutory content as required by s 192 of the Legal Profession Act and Regulation 22A of the Legal Profession Regulations 1994. Section 192 of the Act precluded any action being taken for recovery of costs until 30 days had passed after the provision of a bill of costs which complied with the Act. Santow J held (at [12]) that the legal consequences which flowed from the form in which the accounts were rendered were not required to be pleaded in the affidavit. His Honour set aside the statutory demand on the basis that public policy precluded a statutory demand being used to bypass the safeguards of the Legal Profession Act. 32 I doubt that it could be said that in Callite Pty Ltd v Adams it was a necessary inference from the affidavit that this ground of challenge was raised. However, it was an available inference, so that it could fairly be said that the ground was raised in the supporting affidavit. 33 Having regard to the diversity of reasoning in these cases as to the precision with which a ground of challenge must be delineated in the supporting affidavit, I do not consider that comity requires me to follow the observations in Process Machinery Australia Pty Ltd v ACN 057 260 590 Pty Ltd at [21]-[22] that a supporting affidavit must clearly delineate the grounds of challenge to a statutory demand expressly or by necessary implication. 34 If I was wrong in my conclusion expressed during argument that the grounds of challenge were raised by necessary inference, I am nonetheless of the view that the grounds of challenge were available to the plaintiff. They arise from the terms of the supporting affidavit and documents annexed to it. In my respectful opinion, it is not necessary for the applicant to expressly articulate the grounds in the affidavit, or to do so by necessary inference, as distinct from available inference. In my respectful view, all that can be implied from the requirement in s 459G that there be an affidavit filed and served within 21 days supporting the application is that the grounds of challenge must be raised in that affidavit. As Parker J said in Financial Solutions Australasia Pty Ltd v Predella Pty Ltd (2002) 167 FLR 106; 20 ACLC 1,286 (at [34]): " … The statutory yardstick remains that the affidavit should support the application. The precise nature of the application may well influence what this requires ."

First Ground: Debt or Damages? 35 Section 459E permits a person to serve a statutory demand on a company relating to a single debt or to two or more debts that the company owes to the person that is or are due and payable. A liability to pay unliquidated damages for breach of contract to compensate an innocent party for loss is not a debt. 36 Counsel for Hansmar Investments submitted that clause 9.3 conferred on Permanent a right to sue it either for the "deficiency on resale" and reasonable costs and expenses in effecting a resale, or for damages for breach of contract. Counsel submitted that whilst clause 9.3.1 might be characterised as entitling the vendor to recover liquidated damages by action, it did not create a debt. 37 I accept that moneys payable by the defaulting purchaser under clause 9.3.1 are properly characterised as liquidated damages. Earlier versions of the standard form of contract for the sale of land made express provision to that effect. 38 In Jampco Pty Ltd v Cameron (No. 2) (1985) 3 NSWLR 391, Young J (as his Honour then was) considered clause 16 of the 1972 edition of the standard form of contract for the sale of land. It provided that if the purchaser defaulted, the deposit should be forfeited to the vendor who should be entitled to terminate the agreement and thereafter "either to sue the purchaser for breach of contract or to resell the property as owner and the deficiency bracket, if any, arising on such resale and all expenses of and incidental to such resale, or attempted resale on the purchaser's default shall be recoverable by the vendor from the purchaser as liquidated damages …" 39 Young J noted (at 392-393) that the clause conferred on the vendor an election either to claim damages in accordance with general law principles, or to claim liquidated damages being the deficiency on resale and expenses of resale on the purchaser's default. His Honour (at 393) characterised the latter claim as a claim "under the contract" as distinct from a claim for breach of it. His Honour noted that whilst a cause of action for "common law damages" arose at the date of breach, a cause of action for liquidated damages under clause 16 did not arise until the date of resale. Hence, pre-judgment interest would only run from the date of resale. 40 In Rothenberger Australia Pty Ltd v Poulsen (2003) 58 NSWLR 288, Barrett J considered the nature of liquidated damages where a policy of insurance excluded cover in respect of claims for liquidated damages, but not in respect of claims for unliquidated damages. In considering the distinction between liquidated and unliquidated damages, his Honour said: "[27] The relevant distinction, in my view, is that between agreed compensation calculated and quantified in a way specified in or ascertainable from the contract itself and damages to be assessed according to the ordinary principles for determining damages for breach of contract. The distinction is illustrated by cases in which the purchaser under a contract for the sale of land defaults and the vendor, as a result, may sue for damages for breach of contract in the ordinary way or, if he or she prefers, take advantage of a provision of the contract permitting the vendor to resell and to recover from the purchaser any deficiency on resale together with expenses of resale. A sum recovered by a vendor who pursues the latter course is properly regarded as involving the recovery of a 'liquidated sum' (see Tiplady v Gold Coast Carlton Pty Ltd (1984) 8 FCR 438), while the damages recovered by a vendor who takes the former course are 'unliquidated damages' or, in the words of Young J in Jampco Pty Ltd v Cameron (No 2) (1985) 3 NSWLR 391 at 393, 'breach of contract damages'. The difference between the two is that 'liquidated damages' are recoverable in satisfaction of a right of recovery created by the contract itself and accruing by reason of breach, while 'unliquidated damages' are compensation as assessed by the court for loss occasioned by breach. … " 41 His Honour considered an argument that "liquidated damages" were the fruits of success in any action upon a "liquidated claim". Historically, proceedings for a debt or liquidated demand were conducted differently from proceedings for the recovery of unliquidated damages. For example, judgment could be signed immediately in default of appearance. In Alexander v Ajax Insurance Co Ltd [1956] VLR 436, Sholl J exhaustively reviewed the types of claim covered by the phrase "debt or liquidated demand (in money)". His Honour said (at 445): " Perhaps the best statement which can be attempted of the meaning of the expression 'debt or liquidated demand (in money)', as used in 1851, is that it covered any claim:- (a) for which the action of debt would lie; (b) for which an indebitatus (or 'common') count would lie - including those cases formerly covered by the quantum meruit or quantum valebat counts, notwithstanding that the only agreement implied between the parties in such cases was for payment at a 'reasonable' rate; (c) for which covenant, or special assumpsit , would lie, provided that the claim was for a specific amount, not involving in the calculation thereof elements the selection whereof was dependent on the opinion of a jury. " 42 After referring to the three species of claim in debt, indebitatus assumpsit, and covenant or special assumpsit, Barrett J said in Rothenberger Australia Pty Ltd v Poulsen (at [26]): " [26] In the light of this historical analysis, it cannot be correct to say that anything recovered upon a 'liquidated demand' is 'liquidated damages'. Probably the most commonly encountered form of recovery upon a 'liquidated demand' is recovery of a debt. By no stretch of the imagination can recovery of a debt be said to entail recovery of any form of damages. But it may be correct to say that anything other than a debt recovered upon a 'liquidated demand' is 'liquidated damages', whether recovered upon an indebitatus count or upon a claim formerly classified as a claim in covenant or special assumpsit where, in Sholl J's words, 'the claim was for a specific amount, not involving in the calculation thereof elements the selection whereof was dependent upon the opinion of the jury'. And it is certainly correct to say that a sum recovered in circumstances where a contract actually provides for the payment of that sum by way of compensation for breach is 'liquidated damages'. " 43 His Honour's observation that recovery of a debt could not entail recovery of any form of damages (that is, liquidated or unliquidated), was not necessary for his Honour's decision. It was said in the context of his Honour rejecting an argument that everything which could be recovered on a liquidated demand was liquidated damages. Clearly, many debts are not recoverable as liquidated damages. However, with respect, the statement that recovery of a debt cannot entail recovery of any form of damages is not self-evidently correct. 44 A clause similar to clause 9.3 of the contract in this case, and similar to clause 16 of the 1972 edition of the standard form of contract considered in Jampco Pty Ltd v Cameron (No. 2), was also considered by the Queensland Court of Appeal in C G & M Pty Ltd & Ors v AHR Constructions Pty Ltd [1992] ANZ ConvR 370. Thomas J, with whom Mackenzie J agreed, said of the equivalent clause in the Queensland contract (which also provided for the deficiency on resale and expenses to be recoverable as liquidated damages) that it was a "claim [for] money due under contract, where such claim has a strong resemblance to one for damages for breach of contract" (at 372). 45 These and later cases (particularly AHR Constructions Pty Ltd v Maloney [1994] 1 Qd R 460 and J Boag & Son Brewing Pty Ltd v Bridon Investments Pty Ltd (2001) 10 Tas R 26) have considered the nature of the vendor's duties in exercising his contractual right to recover money as liquidated damages on re-sale. That is not the question before me. Suffice it to say that the better view of the authorities is that the duty on a vendor on exercising his power of re-sale under the clause is not strictly characterised as a duty to mitigate damages, or as a duty analogous to that of a mortgagee exercising the power of sale, but arises under an implied contractual term that the vendor act reasonably, which duty is "akin to the common law duty to mitigate loss" (Butt, The Standard Contract for Sale of Land in New South Wales, 2 ed, para 9.174 ff). 46 Unlike the provisions considered in these cases, clause 9.3.1 does not expressly provide that the vendor can recover the deficiency on resale and expenses as liquidated damages. Even if it did, the cases show that a claim for liquidated damages payable under a contract can properly be characterised as a claim for money due under the contract. 47 If a contract provides that if A breaches the contract A will pay B $1,000, if that is a genuine pre-estimate of loss, and if A does breach the contract, then, it is hard to see why it would not be correct to say that A was indebted to B in the sum of $1,000. The fact that the money was payable as the result of A's breach of contract does not alter the fact that as a result of A's promise to pay liquidated damages, in the events which happened, it has a contractual liability for an ascertained sum. As Thomas J said in C G & M Pty Ltd & Ors v AHR Constructions Pty Ltd, the claim resembles a claim for damages, but is a claim for money due under the contract. That is the language of debt. 48 In Alexander v Ajax Insurance Co Ltd [1956] VLR 436, Sholl J, quoting from Chitty on Pleading, 5th ed (1831) vol 1 pp 123-124, said that the action of debt had come by the middle of the 19th century to cover claims for money due "upon legal liabilities, or upon simple contracts, express or implied … whenever the demand is for a sum certain, or is capable of being readily reduced to a certainty. … but it is not sustainable when the demand is rather for unliquidated damages than for money, unless the performance of the contract were secured by a penalty in which case debt may be supported for the penalty and the real demand is to be ascertained according to the provisions of the 8 and 9 Wm. III, c. 11. " 49 Section 8 of the statute of 8 and 9 Wm. III, c. 11, provided that in an action on a bond or for any penal sum, the plaintiff could assign as many breaches as he should see fit, and the jury would assess damages for those breaches. If the defendant paid the amount of damages as assessed and costs, execution of the judgment for the bond or penal sum was stayed. (See generally, Austin v United Dominions Corp Ltd [1984] 2 NSWLR 612 at 625-627). 50 If a sum stipulated as a penalty for breach of contract could be recovered as a debt, (subject to a stay of execution on the judgment or intervention by equity), it is not obvious why the stipulation of a sum enforceable as a genuine pre-estimate of damage, and not a penalty, should not be recoverable as a debt. However, the forms of action were abolished by the Common Law Procedure Act 1852 (UK) and I have not been able to ascertain whether such a claim as the present could have been declared in debt. Many of the indebitatus counts were also for the recovery of a debt. The distinction usually drawn was between debt and unliquidated damages. 51 Guidance can be obtained from the recent decision of the Court of Appeal in Box Valley Pty Ltd v Kidd (2006) 24 ACLC 471. There, the Court of Appeal held that a company was not unable to pay its debts as and when they became due and payable, where it had entered into forward contracts for the sale of commodities, the market had moved against it, and it faced highly probable claims for substantial damages. The company had not thereby incurred a debt, although its financial position had become untenable. In the course of reaching this conclusion, the Court considered an argument based upon a "default clause" in the company's forward sale contracts. The position was summarised by Bryson JA (at [13]) as follows: " It is necessary to look at the operation of NACMA standard terms and conditions relating to default to understand what would be the consequence of a default. It would of course be an event of default if the time for completion of a forward sale contract arrived and the Company did not deliver the goods. (There would also be and I take it there actually were deemed defaults in the circumstances set out in the Default clause when the Company went into Administration and suspended payments of debts, and also when in association with the Administration it held a meeting of creditors, and again when it went into liquidation.) When a default happens, purchasers have the right to sue for damages on default. A purchaser would also have the right to follow the machinery in the Default clause, give written notice which would require compliance within a reasonable time, in the circumstances a very short time and more or less forthwith, and then purchase on the market "against the defaulter" (in the words of the Contract), meaning that the purchaser could claim against the Company the amount of money which would make good the loss, the difference between the two prices. " 52 After observing that an entitlement to damages for breach of a contract did not create a debt, his Honour observed (at [14]): " Entitlement to purchase against the defaulter after notice and to have the defaulter make good the loss on such purchase in accordance with the Default clause could well create a debt within the meaning of the Default clause, because the amount would be clearly ascertainable and not a matter for assessment (see Alexander v Ajax Insurance ) [1956] VLR 436; [1956] ALR 1077), but there would only be a debt on completion of the events referred to, which include giving notice and purchasing against the defaulter … " 53 Similarly, Basten JA said (at [66]): " … If the white cottonseed contracts required the Company to purchase white cottonseed at a fixed price, the Court would be entitled to consider whether the Company could pay for those purchases when they fell due. On that hypothesis, payment would have been contingent upon delivery, but the amount was a liquidated sum and the date for payment was fixed. By contrast, where the existing agreements required the sale of white cottonseed, the Company had then incurred no debt. It had an obligation (which it may not have been likely to meet) to deliver goods at a particular price on a particular date. However, if it failed to purchase the necessary supplies and defaulted, no liquidated debt would arise until the purchasers took further steps, namely to obtain white cottonseed from alternative sources, at a price which was not then known. " 54 Gzell J was also of the view that a claim under the default clause in a forward sales contract would constitute a debt once notice was given under that clause (at [73]). 55 In Box Valley Pty Ltd v Kidd, upon the vendor's default, the vendor would be liable for damages representing, prima facie, the difference between the contract price and the market value of the goods at the time they ought to have been delivered (Sale of Goods Act 1923 (NSW), s 53(3)). The contract included a specific term whereby the "defaulter" would be liable to pay the difference between the contract price and the price at which the purchaser purchased in the market following the vendor's default. Such a clause would properly be characterised as one for the payment of liquidated damages following breach, being "agreed compensation calculated and quantified in a way specified in or ascertainable from the contract itself" (Rothenberger Australia Pty Ltd v Poulsen at [27]), resulting in payment of a liquidated sum. It is not conceptually different from the obligation in clause 9.3.1 of the contract for sale of land whereby after a purchaser's default, a vendor who elects to exercise his contractual right of resale, is entitled to recover the loss on resale and expenses from the defaulting purchaser. The Court of Appeal said that if the contractual default clause were invoked, the vendor's liability under it would be a liability in debt. 56 In my view, where, under a contract, a person promises to pay a specific or readily calculable sum which does not depend upon an assessment, albeit that the sum is payable as liquidated damages for breach of contract, the person's contractual liability is properly characterised as giving rise to a debt in that sum. 57 Clause 9.3.1 does not contain an express promise by the purchaser to pay the deficiency on resale, and the reasonable costs and expenses arising out of the purchaser's non-compliance with the contract, or the notice, and of the resale, where the vendor resells the property within twelve months after termination. However, the purchaser's agreement that the vendor can sue for such a sum creates a debt, provided that the sum is ascertainable and does not depend upon an assessment. 58 There are two parts to clause 9.3.1: payment of the deficiency on resale, and reasonable costs and expenses. The calculation of the deficiency on resale should readily be able to be made. However, ascertaining what reasonable costs and expenses are recoverable may well involve a matter of assessment. 59 Even so, I consider that a claim for a sum due under clause 9.3.1 is a claim in debt. As Sholl J observed in Alexander v Ajax Insurance Co Ltd (at 440), claims on the common money counts for the payment of a reasonable price for goods or labour where no price or rate has been fixed are nonetheless liquidated demands even though there is an element of opinion involved in the assessment of what price is reasonable. A liability on such a quantum meruit claim is a debt for the purposes of the insolvent trading provisions of the Corporations Act. (Australian Securities and Investments Commission v Edwards (2005) 220 ALR 148; 57 ACSR 147 at [77]-[79]). 60 In the present case, no claim is made for costs and expenses. It suffices to say that the calculation of the debt involves no element of opinion or assessment. It is simply the difference between the contract price between Permanent and the plaintiff less the deposit, and less the price on resale. 61 In my view, the claim in the statutory demand is a claim for a debt within the meaning of s 459E.

Second Ground of Challenge: The Defendant's Standing as a Creditor 62 It follows that I do not consider there is a genuine dispute that Hansmar Investments was liable in debt to Permanent for the net deficiency on resale ($162,500) and the vendor's reasonable costs and expenses payable under the second limb of clause 9.3.1. The question is whether there is a genuine dispute that it is not so indebted to Perpetual. Perpetual submitted that: " 25. The Responsible Entity is identified clearly as Challenger in the contract for sale (see p. 50 to Ex. PR1) and Recital A to the Custody Agreement dated 18 March 2005. 26. Part 5C.2 of the Corporations Act , 2001 (Cth.) provides the legal framework for the conduct of such a Responsible Entity. 27. Relevantly, by s. 601FB(2), (3) & (4), Challenger as the Responsible Entity of the Howard Mortgage Trust, has the right to appoint agents who may conduct its business and hold property. 28. This has occurred with respect to the termination of the services of Permanent Trustee Australia Limited, the custodian disclosed upon the contract for sale; and the retention of the services of Perpetual Trustee Company Ltd. 29. There is no question of the operation of s. 12 of the Conveyancing Ac t, 1919, as it is Challenger that has at all material times been the Responsible Entity. … " 63 There is no evidence that Permanent or Perpetual was appointed as Challenger's agent. The contract for sale does not describe Permanent as selling as agent for Challenger. The Custodian Agreement between Permanent and Challenger was not in evidence. Permanent was the registered mortgagee. Whilst I can readily infer that it held the mortgage on trust for Challenger (which in turn held it on trust for the members of the Howard Mortgaged Trust), there is no evidence that it was acting as agent, as distinct from acting as trustee. 64 If Permanent were acting as agent for Challenger, it would be Challenger, not Perpetual, who would be the creditor to whom the debt under the contract for sale was owed. 65 Perpetual tendered a letter dated 22 March 2005 from Challenger Financial Services Group (apparently a reference to a number of companies including Challenger) to Permanent. The letter stated that Challenger was terminating a custody agreement between it and Permanent of 11 January 2002 and that the agreement would terminate sixty days from the date of the letter. Challenger advised that they would be in contact with Permanent shortly to discuss the transfer of the assets the subject of the Custody Agreement to the new custodian. 66 Perpetual also tendered parts of an agreement called a "Custody Agreement" of 18 March 2005. The defendant's solicitors stated in correspondence that they relied principally on clause 2 of that agreement, particularly clause 2.1 and 2.2(e). Clause 2.1 provided that on and from the Effective Date (the date of the agreement), Challenger appointed Perpetual as custodian of the Assets on the terms and conditions of the agreement. Perpetual accepted the appointment. 67 Clause 2.2 contained undertakings by Challenger and representations that all Assets would be located in Australia and would not include assets other than specified classes. The Assets included real property and loans secured by mortgages over real property and contracts incidental to such assets. 68 Clause 3 of the Custody Agreement required that Perpetual hold the Assets on the terms and conditions of the Agreement, and ensure that the Assets were clearly identified in its records as property of the relevant scheme, and were held separately from any other property. 69 The custody agreement does not itself assign the benefit of the contract between Permanent and Hansmar Investments to Perpetual. Such a contract is within the description of assets which might be transferred to Perpetual. However, the Custody Agreement does not itself effect such an assignment. It would also be necessary to investigate the terms of the arrangements between Permanent and Challenger before it could be said that Challenger was authorised to effect such a transfer of Permanent's rights to Perpetual. 70 Further, even if Permanent has assigned the benefit of its contract with Hansmar Investments to Perpetual, no notice of that assignment has been given to Hansmar Investments. 71 So far as the evidence reveals, Hansmar Investments is not indebted to Perpetual, but to Permanent. The fact that it appears likely that Permanent held the benefit of the contract on trust for Challenger (which in turn held it on the trust of the Howard Mortgage Trust), and the fact that Challenger terminated its custodian agreement with Permanent and replaced it with Perpetual, does not alter that conclusion. The defendant's argument seems to have proceeded on the unstated assumption that changing custodians had the same effect as the execution and registration of a deed of appointment of a new trustee and retirement of an existing trustee (Trustee Act 1925 (NSW) s 9), or the making of a vesting order. There is no reason to think that it does. 72 Perpetual also argued that if there were scope for the operation of s 12 of the Conveyancing Act, it was clear from paragraph 46 of Mr Reeves' first affidavit that the plaintiff had notice of such an assignment. 73 As Perpetual argued that s 12 had no relevant operation, in other words, that there had not been such an assignment, it is difficult to understand this submission. In paragraph 46 of Mr Reeves' affidavit, he referred to the fact that Perpetual had sold the property in March 2006 for $850,000. That may show that Hansmar Investments had notice that the mortgage had been transferred to Perpetual. It does not show that it had notice that the benefit of Permanent's contractual rights against Hansmar Investments had been assigned. 74 For these reasons, I consider there is a genuine dispute that Hansmar Investments is not indebted to Perpetual. Orders

1. That the statutory demand of the defendant dated 1 June 2006 be set aside;

01/03/2007 - Date of judgment in body of text corrected. - Paragraph(s) 0

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