BETWEEN : HORIZON STAR PTY LTD (ACN 009 344 174)

BETWEEN : HORIZON STAR PTY LTD (ACN 009 344 174)

BETWEEN : HORIZON STAR PTY LTD (ACN 009 344 174)

Statutory demands - Genuine dispute - Offsetting claim

Bartex Fabrics Pty Ltd v Phillips Fox (1994) 12 ACLC 462

Commonwealth of Australia v Verwayen (1990) 95 ALR 321

Complete Windscreen Service Nominees Pty Ltd v Neilsen & Moller Windscreens Pty Ltd (1995) 13 ACLC 1766

David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 13 ACLC 1572

Delnorth Pty Ltd v State Bank of NSW (1995) 17 ACSR 379

Eden Bay Pty Ltd v Bennett & Co (1997) 15 ACLC 1634

Food Delivery Services Pty Ltd v ANZ Bank (1996) 19 ACSR 345

Greenwood Manor Pty Ltd v Woodlock (1994) 48 FCR 229

Greer & Anor v Kettle [1938] AC 156

John Holland Construction Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250

Mackay v Brice & Anor (1979) 25 ALR 597

Paparone & Howison v Konstruct Holdings Pty Ltd & Ors, unreported; SCt of WA (Master Bredmeyer); Library No 980130; 25 March 1998

Petersen v Moloney & Anor [1951] HCA 57; (1951) 84 CLR 91

Re Louisbridge Pty Ltd [1994] 2 Qd R 144

Sacon Constructions Pty Ltd v Concrite Quarries Pty Ltd (1997) 15 ACLC 1303

Spencer Constructions Pty Ltd v G&M Aldridge Pty Ltd [1997] FCA 681; (1997) 15 ACLC 1001

State of WA v Bond Corporation Ltd [1990] FCA 522; (1991) ATPR 41-081

Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 76 ALR 513

Z-Tek Computers Pty Ltd v Auslinx International Pty Ltd (1997) 15 ACLC 1233

1 MASTER BREDMEYER: The plaintiff, Horizon Star Pty Ltd (Horizon), has applied in three separate applications to set aside three statutory demands. The applications were heard together and can be considered together in the one judgment. The demand by Carina Holdings Pty Ltd (Carina), was for $145,700. The demand by Wildbeach Corporation Pty Ltd (Wildbeach), was for $59,595. The demand by Janice Irene Franke (Mrs Franke) was for $14,432.08. Each of the demands annexed a copy of a deed of transfer of shares dated February 2001, signed by Mrs Franke, Philip Whitney Reimers, William Whitney Reimers, Rosemary Collander, Karen Reimers, Horizon, Carina and Wildbeach. The second schedule of that deed give details of the advances which are the subject of the demands and I quote:

"SECOND SCHEDULE

CARINA ADVANCES

Date Advance Amount

___________________________________________________

6 November 2000 8,800.00

7 November 2000 9,600.00

8 November 2000 9,600.00

9 November 2000 9,500.00

16 November 2000 9,800.00

17 November 2000 1,000.00

17 November 2000 9,800.00

21 November 2000 9,800.00

23 November 2000 9,800.00

27 November 2000 10,000.00

30 November 2000 9,800.00

1 December 2000 9,800.00

4 December 2000 9,800.00

5 December 2000 9,800.00

17 January 2001 9,000.00

18 January 2001 9,800.00

145,700.00

WILDBEACH ADVANCES

Date Advance Amount

___________________________________________________

9 January 2001 19,612.00

9 January 2001 7,815.00

16 January 2001 3,800.00

16 January 2001 3,368.00

17 January 2001 5,000.00

22 January 2001 10,000.00

24 January 2001 $10,000.00

59,595.00

FRANKE ADVANCES

Date Advance Amount

___________________________________________________

14 September 2000 10,000.00

29 January 2001 1,827.08

29 January 2001 2,605.00

14,432.08

2 Section 459H(1)(a) the Corporations Law requires the Court to be satisfied "that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates".

3 In approaching the exercise, as has been indicated on many occasions, "it is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute" Mibor Investments Pty Ltd v Commonwealth Bank [1994] VicRp 61; [1994] 2 VR 290 at 295 per Hayne J.

4 The Full Court recently confirmed that the approach to the issue involves the following: "... to reach a finding that there is a genuine dispute the applicant must satisfy the Court that: (a) The dispute is bona fide and truly exists in facts; and (b) The grounds alleging the existence of a dispute are real and not spurious, hypothetical, elusory or misconceived" Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294 at 27.

5 The affidavit filed in each case in support of the application to set aside the demand is that of Philip Whitney Reimers sworn 19 July 2001. Mr Philip Reimers is a director of Horizon which runs a business called West Coast Heavy Haulage. He has been the sole director of that company since 22 September 2000. Prior to that, between 10 October 1991 and 22 September 2000, his father, William Whitney Reimers, was the sole director of the company. Mr Philip Reimers had been a director of the company in an earlier period between April 1989 and October 1991, as had Mr Colin Steven Cook, who is an accountant with Winduss & Cook, for the same period. Mr Philip Reimers says in the affidavit that he was friendly with Mr Colin Ross Atkins, who told him that he was bankrupt and had nothing to do and was bored, and needed to start making a living. Atkins told him that he had access to some $300,000 cash and was interested in buying a haulage business. He, together with Atkins, made inquiries about the purchase of two haulage businesses. Negotiations were entered into, but the deals did not proceed. In about mid-October 2000, Atkins suggested to him that he would "tip" $200,000 into Horizon in return for a 50 per cent shareholding in Horizon. Atkins said that he had cash money that he would provide to Horizon and that as such the cash could only be "drip fed" to purchase an interest in Horizon. Reimers arranged for a new company, Carina, to be incorporated in about August 2000, as the vehicle for the proposed purchase of a 50 per cent interest in Horizon. Horizon paid for the costs of incorporating Carina. It was a $2 company. Philip Reimers was to own one share and Mrs Franke, who was Atkins' de facto wife, was to own the other share. Both Mrs Franke and Mr Philip Reimers were made directors.

6 In October 2000, Atkins also advised Reimers that, in consideration of him via Franke receiving a 50 per cent interest in Horizon, he would bring on board his management team of Philip Collins and Rodney Ihmes.

7 During the first week of November 2000, Horizon secured a contract to move equipment from the Telfer goldmine in WA to Blackwater in Queensland. Philip Reimers took the loader to Port Hedland for this job. Atkins said he would arrange another driver to take the CAT 944 loader from Port Hedland to Blackwater in Queensland and Reimers could fly back to Perth to help sort out certain cash flow problems that Horizon was experiencing at the time. However, Atkins did not arrange another driver and Reimers drove the vehicle to Blackwater in Queensland, arriving back in Perth on 21 December 2000.

8 In about October 2000, Mr William Reimers, the father, was diagnosed with bowel cancer. He died on 14 May 2001. When Mr Philip Reimers returned from Blackwater, he felt extremely unwell and on 3 January 2001, was also diagnosed with bowel cancer. He was operated on on 5 January 2001 and released from hospital on 15 January 2001. He was not well when he came out of hospital and spent some months convalescing at home. His doctor told him to remain at home until the end of April 2001, due to the aggressive nature of the operation. He says that on 11 January 2001, Atkins arranged for a locksmith to change all the locks at Horizon's premises in Kewdale. During the periods that Reimers was away from the business in hospital and on recuperation, Atkins managed the business of Horizon with the assistance of Collins and Immes. He said:

"At that time I thought I was going to die and after discussion with my accountant Colin Cook agreed to sell the whole of Horizon to Atkins for $100,000. My accountant Colin Cook negotiated on my behalf with Atkins."

9 In the first week in February, Reimers was admitted to Gosnells Hospital as a result of complications resulting from his operation. He remained on medication and strong painkillers until mid-March 2001.

"30. On or about 19 February 2001 1 was asked by Mr Atkins to attend at Mr Staffa's office to sign 'some papers' with regard to purchase of West Coast Heavy Haulage. At the time that I attended at Mr Staffa's office it was my belief that I was signing a contract for the sale of my interest in Horizon's business to Atkins for $100,000.00 of which $50,000.00 was going to be paid into Colin Cook's trust account at Winduss & Cook with a balance of $50,000.00 to be paid to me at a later date. I was requested to provide my fuel cards, my father's fuel card and my mobile phone. I handed over the cards but it was agreed I keep the mobile phone.

31. I attended at Mr Staffa's office and signed the contract at his office. The contract I signed was the papers which I now know to be the Deed. I was still very ill when I signed the Deed and I merely signed where I was requested to sign the Deed by Mr Staffa."

10 I need to say something about the deed of transfer of shares of February 2001. A stamped copy of that deed has been produced to me. Recitals G and L of that deed read:

"G. Carina, Franke and Wildbeach have advanced to Horizon the amounts referred to in the Second Schedule hereto to assist Horizon in meeting its day to day operating expenses.

...

L. Carina, Franke and Wildbeach are prepared to forbear with demanding repayment of the Carina Advances, and the Franke Advances and the Wildbeach Advances in consideration of the parties entering into this Agreement."

"16. Horizon, PW Reimers, WW Reimers and Callander hereby jointly and severally warrant that Horizon had the authority and consent of the directors of Horizon and the beneficiaries of the Trust to accept the Carina Advances and the Franke Advances and the Wildbeach Advances and none of them dispute Horizon's liability to repay those advances with interest."

12 The nub of the agreement is in cl 23 which provides that, subject to the conditions precedent, Franke will pay Philip Reimers the sum of $50,000 on the actual settlement date. If the conditions precedent are met, then within six months of the actual settlement date, Franke will pay Reimers the further sum of $50,000. WW Reimers was required to deliver to Franke a duly executed transfer of the shares in Horizon held in his name for payment of the sum of $1 per share. There are several conditions precedent, the most important for our purposes being cl 21 which provides that the National Australia Bank will approve and accept a business plan for the business for a period of 12 months following the actual settlement date and that NAB will provide an overdraft facility of not less than $150,000 for Horizon on the bank's usual terms of business. In the event that the conditions precedent are not met, the $50,000 paid will be paid into the trust account of Winduss & Cook and be held on trust for Franke. Clause 23.3 provides:

"23.3 If the Conditions Precedent are not met within 21 days of the date of execution of this agreement then either of Franke, Carina and Wildbeach, of the one part, or PW Reimers, WW Reimers, K Reimers and Callander, of the other part. may by written notice terminate this agreement where upon the Carina Advances, the Wildbeach Advances and the Franke Advances will be immediately due and repayable without deduction and the $50,000 referred to in clause 23.2 hereof will be repaid to Franke."

13 The defendants' case is that the $50,000 was paid, but the condition precedent was not met. The finance was not obtained from NAB and the lenders have terminated the agreement and demanded repayment of the Carina, Wildbeach and Franke advances.

14 Horizon contests the statutory demands on the basis that it has raised a number of genuine disputes and/or offsetting claims. The first is that the deed has not been stamped. As stated, a stamped copy has recently been produced to me. Secondly, it is said that, if Carina validly terminated the deed, then all the purported obligations on the part of Horizon under the deed have also been extinguished. I was referred to cls 66, 67 and 68 of the deed. Clause 66 provides that the terms and conditions of the deed are strictly confidential to the parties and their employees, legal advisers, accountants, auditors, financiers and other consultants and are not to be disclosed to any person except with four stated exceptions. Clause 67 provides that no party may make a press or other announcement for release or approach, or respond to any approach by journalists relating to this agreement without the prior written consent of the other parties to the deed. Clause 68 provides that cls 66 and 67 shall survive termination (for whatever reason) of the deed. Those clauses are a sideshow. They do not affect the recitals in the deed already mentioned whereby Horizon acknowledges that the sums in the second schedule have been advanced, ie, loaned, to Horizon and that the lenders are prepared to forbear from demanding payment in consideration of the parties entering into the agreement. Clause 23.3, quoted above, expressly provides that, if the conditions precedent are not met within 21 days of the date of execution of the agreement, either of the parties to the deed, ie, the Franke, Carina and Wildbeach parties on the one part and the Reimers and Callander parties on the other, may, by written notice, terminate the agreement.

15 By letter dated 1 June 2001, from Kevin Staffa, solicitor, to Colin Cook the lenders demanded repayment of the advances in full within seven days. (Mr Staffa's affidavit of 25 July 2001 in CIV 2040 of 2001 at 94 - 95.) The statutory demands issued on 12 June. The deed was terminated by letter on 28 June 2001 (Mr Staff's affidavit page 120).

16 The recitals in the deed and the relevant parts of the deed are powerful evidence that the advances set out in the schedule, which are the same as the sums claimed in the demands, are due and owing.

17 I should add that, although alluded in the affidavit, no argument was addressed to me that Mr Reimers did not know what he was signing due to his ill health. There is affidavit evidence on the other side that he was at all times advised by Mr Colin Cook, the company's account who witnessed his signature, and that his solicitors, Paiker & Overmeire, were also involved and had seen a draft. On the day of signing, 16 February 2001, he and Mr Cook had several changes made to the deed submitted. I quote from pars 40 and 42 of Mr Reimers' affidavit:

"40 I am not aware of what advances were actually made by Carina to Horizon. Atkins told me that Carina paid some of Horizon's accounts but I have been unable to verify this. To the best of my knowledge and belief no such advances were received by Horizon.

...

42 I also believe that while Wildbeach Corporation Pty Ltd ('Wildbeach') and Franke advanced money to Carina and not to Horizon that the appropriate course of action would be for Carina to issue proceedings against Wildbeach and Franke for recovery of any monies that it claims are owing to them."

18 I comment in relation to par 42 that it matters not where Carina got its money from because the deed acknowledges that the advance came from Carina. So, whether the money was loaned to Carina for on-lending to Horizon, or whether it was loaned direct to Horizon from a third party, but on behalf of Carina, it has the same legal effect. The debt is owed to Carina. In Mrs Franke's affidavit of 23 August 2001 in COR 259 of 2001 she states, at par 12, that Patricia Dawn Gray, who is the sister of Ross Atkins, loaned the $145,700 to Carina which was on-lent to Horizon. As I say, it matters not. Mrs Gray in an affidavit sworn 22 August 2001 said she provided the money to Carina from her Challenge Bank account in her name as trustee for the Ross Atkins Property Trust. She has produced copies of bank records. Mr Ihms, who was one of Mr Atkins' management team running the business of Horizon at the time, has prepared a printout of the advances by Carina to Horizon in the period November 2000 to January 2001. It is found at JIF3, page 74, of Mrs Franke's affidavit of 23 August 2001 in COR 259 of 2001. She explains in some details what some of the sums were for.

19 The advances of Wildbeach to Horizon totalling $59,595 are detailed in the affidavit of Patricia Dawn Gray, sworn 22 August in COR 258 of 2001. In that affidavit, she produces a bank statement from Wildbeach showing cheques drawn and debited to the account for the seven sums claimed in the second schedule to the February deed. Also attached to that affidavit is a list of creditors owed money by Horizon and at PDG7 a list of creditors paid directly by Wildbeach. For example, Kingston Industries WA was owed $19,612 by Horizon. It was paid this sum by a cheque drawn on Wildbeach's account on 9 January 2001. That is the first entry in the second schedule listing the Wildbeach advances. Mrs Gray explains how these advances to Horizon were in the form of direct payments to creditors. I quote par 13 of her affidavit:

"13. The amounts advance by the Creditor were paid directly to creditors of the Company.

The advances were deliberately made in this way because the Company had an overdraft facility with a limit of $150,000 with the National Australia Bank, Kewdale which was drawn beyond its limit. Had we deposited the loans into this account they would not have been available to pay the Company's creditors or operating expenses but would have merely gone to reduce the overdraft."

20 Mrs Franke has explained how she made the Franke advances, three sums totalling $14,432.08, in her affidavit sworn 23 August 2001 in COR 259 of 2001. The initial payment of $10,000 paid on 14 November 2000 was advanced by her and paid directly to a creditor of Horizon. She said this sum was paid by electronic transfer from her Westpac Challenge bank account at Innaloo, which account is in her name.

21 In order to cast doubt on the existence of the Carina, Wildbeach and Franke advances, counsel for the plaintiff has referred me to the plaintiff's balance sheet prepared as at 31 December 2000 by Winduss & Cook. That balance sheet does not show any liabilities due to Carina, Wildbeach or Franke. As at 31 December 2000, according to the second schedule of the deed, Carina had made 14 advances to Horizon totalling $126,900. No money from Wildbeach had been advanced by then. $10,000 from Mrs Franke had been advanced by then. The accounts do not show any liabilities owing to Carina or Franke. This is offered as evidence raising a genuine dispute as to the validity of the demands. I consider it matters not that the advances from Carina and Franke are not recorded in these accounts. The money injected into the company had not then been characterised as advances. The money deposited into the company's account, or used to pay its creditors, was, as Atkins said, cash money which was "drip fed" into Horizon to purchase an interest in Horizon. As at October 2000, the oral arrangement between Atkins and Reimers was that Atkins would drip feed $200,000 into Horizon for a 50 per cent shareholding. There were good reasons why both sides would not want to reveal too much about this assistance to Horizon. I understand the accounts were prepared at the request of the bank, no doubt, to satisfy the bank about the financial health of the company. As at 31 August 2000, the company had debts of $331,156. As at 31 December 2000, the trade creditors had been reduced to $102,836. The company had good reason not to tell the bank that this pleasing result had been achieved by further borrowing. In any case, it was not then thought of as borrowing. It was the injection of capital for the purchase of a half share in the business. Mr Atkins also had a good reason not to want too much publicity about his involvement in the business. He was an undischarged bankrupt and not supposed to have access to funds, and not supposed to be managing a business. The failure of the accounts to 31 December 2000 to show any liabilities to Carina and Franke in no way detracts from the significance of the February deed, where these advances are specifically admitted. Not only is the total of the advances from the three entities admitted, but the particular advances which make up the total are listed in the second schedule, and are also admitted. It mattered not to Reimers what companies or individuals would be called upon by Atkins to advance moneys.

22 In relation to the Wildbeach demand, Mr Reimers, in a latter affidavit of 8 October 2001, has stated that at no time has he, in his personal capacity or as a director of Horizon, ever requested Wildbeach and/or Patricia Dawn Gray to advance any funds to Horizon. He said he has not had any business dealings with either Wildbeach or Mrs Gray prior to 19 February 2001. I consider that matters not. His arrangement was made with Mr Atkins. Mrs Gray, who is the sister of Mr Atkins, is a director of Wildbeach. As previously related, she states in her affidavit that the sums provided by her company were paid directly to Horizon's creditors because the company had exceeded its overdraft limit of $150,000 with the National Australia Bank and had the Wildbeach money been deposited into the account it would have simply gone to the bank. As previously related, she has produced copies of her company's bank statements showing the seven cheques drawn and a statement of the creditors paid. They were all paid between 9 and 24 January 2001. It matters not that Mr Reimers had no direct dealings with Mrs Gray. He was on sick leave at the time. The company was managed by the Atkins interests and one of the those managers, Mr Ihms, has produced a printout of the cheques paid by Wildbeach on behalf of Horizon. The all-important, significant fact is that in the deed of February 2001 Mr Reimers has acknowledged these loans. He signed that deed after it had been considered by his accountant and lawyer.

23 An offsetting claim is raised by the plaintiff in Mr Reimers' supplementary affidavit of 8 October 2001. In that affidavit, at par 7, he states that the bank statements of Horizon show that the following transfers of money were made from Horizon to Carina.

24 I consider this affidavit and this evidence is inadmissible. The application to set aside the statutory demand was filed on 19 July 2001, within the 21-day statutory period and the affidavit of Mr Reimers in support is also dated 19 July 2001. This supplementary affidavit is dated 8 October 2001. There is no mention in the earlier affidavit of any offsetting sums being paid by Horizon to Carina. If there had been some mention of it in that first affidavit, then some elaboration of that could be made in a later affidavit. But where, as here, there is no mention of it in the first affidavit, the supplementary affidavit falls foul of s 459G(3) that the affidavit supporting the application must be filed within the same 21-day period. It was held by Sundberg J in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] FCA 822; (1996) 21 ACSR 581 that an affidavit must be filed and served within time supporting the application. Otherwise, the Court has no authority to set aside the statutory demand. The affidavit need not detail in admissible form all the evidence. It must, as a minimum, contain a statement of the material facts on which the applicant intends to rely to show that a genuine dispute exists. It may verify pleadings or the truth of correspondence. If it sets out the bare bones of the genuine dispute or offsetting claim, it can be supplemented by a later affidavit, but not otherwise. That decision was followed by the Full Court of this State in Energy Equity Corporation Ltd v Sinedie Pty Ltd [2001] WASCA 419.

25 A similar decision was given by Perry J of the South Australian Supreme Court in D&S Group of Companies Pty Ltd v O'Connor Investments Pty Ltd (1997) 15 ACLC 1794. No account can be taken of a supplementary affidavit insofar as it raises any ground not identified in the original affidavit.

26 I fail to consider a submission of the plaintiff which logically should have been considered earlier, namely, that Mrs Franke, one of the two directors of Carina, had no authority from Carina to instruct a solicitor, Mr Kevin Staffa, to issue the statutory demand on behalf of Carina against Horizon. Mr Reimers says he is the other director of Carina (they, incidentally, each own one share) and that no meeting of the board of directors of Carina was held authorising the issue of the statutory demand. It is true that no meeting of the board of Carina was held to authorise the issue of the statutory demand. But I consider that there is no merit in the argument that the demand is thereby invalid. Mr Reimers is the only director of Horizon which is said to owe Carina $145,700, a debt admitted by Carina in a deed. If a directors' meeting of Carina was held to consider ways of collecting the debt, Mr Reimers would have a clear conflict of interest and would have to withdraw from the meeting. He cannot use his position as a director of Carina to cause advantage to another entity such as Horizon or to cause detriment to Carina: see s 182(1) of the Corporations Law. To do so is a criminal offence: see s 184(2) of the Law. I consider there is no invalidity in the demand issued.

27 I consider that the plaintiff has not raised any genuine dispute or offsetting claims to these demands and these three applications will be dismissed.