In the matter of K James Corporation Pty Ltd [2012] NSWSC 602

Judgment (ex tempore) 1HIS HONOUR: The defendant Anthony Campo served on the plaintiff K James Corporation Pty Limited (the company) a creditor's statutory demand for payment dated 14 March 2011, claiming a debt of $89,403, said to be comprised of the principal sum of $75,000 loaned to the company by the creditor together with interest of $10,949 and various loan administration fees. By originating process, the company applies, pursuant to (CTH) Corporations Act 2001, s 459G, s 459H and s 459J, to have the statutory demand set aside. However, although the application refers to sections other than s 459G, the only real issue is whether there is a genuine dispute as to the indebtedness of the plaintiff to the defendant. 2Ms Kathy James is the sole director of, and a fifty percent shareholder in, the plaintiff company. Between 2005 and 2010 she and Mr Campo cohabited in a de facto relationship. 3According to Mr Campo's affidavit sworn 13 October 2010, in proceedings brought by him pursuant to (NSW) Conveyancing Act 1919, s 66G, in respect of a jointly held property of the parties: 24. In about August 2007 I lent the defendant [Ms James] $75,000 following discussions between us. To the best of my recollection words to the following effect were said between us in or about August 2007: The defendant: KJ: "My car is coming off lease and I owe the ATO about $60,000.00. I am very worried and extremely upset." AC: "Why don't you ask your brothers for help. They both have plenty of money." KJ: "I have and they are both short of cash at the moment" "You could draw down $80,000 for me on your existing line of credit secured over your Five Dock property. I'll sign a receipt, pay all the interest and have the principal repaid in 2 or 3 years." AC: "How can I be sure you will repay the loan?" KJ: "If things go wrong, I can always sell the Resi Franchise for $120,000 which would enable me to pay you." On 24 August, 2007, I paid the defendant $75,000.00 4It may be observed that there was no reference in that version of the conversation to the company. 5Following that conversation, on 24 August 2007, Mr Campo deposited into an account in the name of Ms James in the Commonwealth Bank a sum of $75,000, recorded in the bank statement as "deposit". The evidence does not reveal the precise form of the payment, as to whether it was by cheque or cash deposit, or precisely how it was made. So far as it goes, however, this suggests an advance to Ms James; at least, it more likely indicates an advance to Ms James than to the company. 6On 28 August 2007, Ms James signed a document entitled "agreement", on the letterhead of the plaintiff company, in the following terms: This is to advise that on 24 August 2007, Anthony Campo advanced me Kathy James for use in my business (Resi Boston) a loan of $80,000. I will make interest payments until such time as I can repay the loan in full. 7It was signed over the signature block "Kathy James Franchise Business Operator". While the document is recorded on the letterhead of the plaintiff company and refers to the purpose of the advance being use in the business operated by the company, it describes the advance as one to Ms James for use in her business. It is at least, if not more, as consistent with an advance to her, albeit for use in her business - perhaps by a loan from her to the beauty business - as it is with a direct loan to the company. 8In proceedings for de facto property adjustment between the parties in the Federal Magistrates Court, Ms James affirmed an affidavit on 25 November 2010, in which she deposed as follows: 41. In 2007 after consultation with the Respondent I required funds for my business. The Respondent borrowed $75,000.00 using one of his Five Dock properties as security and gave that to me. 42. That $75,000.00 was used to fund the business and our lifestyle. 9She also made a verified financial statement, in which she did not disclose any indebtedness on her part to Mr Campo. It may that this can be explained on the basis that she had by then determined to contend that the advance was a gift, to be treated by way of contribution, rather than a repayable loan, although this sits rather uncomfortably with the document of 28 August 2007. 10In response to that affidavit, Mr Campo swore an affidavit on 9 February 2011, in which he answered those paragraphs of Ms James' affidavit as follows: 41. I agree with the content of paragraph 41 of the Applicant's Affidavit and say that I lent $75,000.00 to the Applicant in August 2007. It was a term of that loan that that the Applicant would completely indemnify me for all interest and other charges which I would incur in respect of my borrowing of that amount. The Applicant has not yet made any payments to me in respect of the principal on this loan and stopped mailing payments on account of interest in June 2010. 42. I deny the content of paragraph 42 of the Applicant's Affidavit. The Applicant told me that she needed the loan for her business and to pay debts. 11Again, it may be observed that while that response refers to the loan being needed for the business "and to pay debts", it does not refer to the company. 12Mr Campo on the same date made a verified financial statement in which he recorded amongst his assets "debt owed by Kathy James $75,000". 13Since at least 2008, however, the company has, in its financial statements, recorded a debt to Mr Campo of $75,000. The company did not produce documents in answer to a notice to produced calling for documents that might have evidenced the basis on which that was done. I rejected a financial statement of the company prepared in May 2012, after these proceedings had been commenced, in which the loan from Mr Campo had been removed as a liability of the company. 14In her affidavit in these proceedings, Ms James sought to explain this as follows: 8. I refer to paragraph 11 of Campo's Affidavit and I respond as follows: ... (c) ... I caused the plaintiff [company] to redirect distributions to me to Anthony Campo in reduction of my debt to him. The entry in the books was simply a short hand way of dealing with that issue. In any event, I have since corrected the balance sheet to more appropriately reflect the loan arrangements. 15It appears well and truly arguable that the purpose of the advance was, at least in part, to assist Ms James' business, which was carried on by the company; but that end can be achieved in many ways, and not only by an advance directly to the company. As I have foreshadowed, one possible means is a loan to Ms James, with the proceeds on-lent to the company. The fact that the proceeds were used in the business is equivocal in the context of this dispute. 16It is true that by adopting a position that the accounts do not correspond with the true position, the company is probably asserting that it has made tax returns, and at least conducted its affairs for fiscal reasons, on a basis now said to be inaccurate, but in the context of a dispute such as this, the true question is not how has the company conducted its affairs, but what is the true intention of the parties to the transaction. 17On Mr Campo's behalf, it is submitted that it is understandable that in early affidavit material, before he knew the contents of the company's accounts, he supposed that the loan had been to Ms James personally; a position which has changed only since the accounts came to light. 18However, if a court ultimately has to determine whether the loan was one to Ms James or to the company, a fundamental integer of that determination is the intention, objectively ascertained, of the parties. Mr Campo's statements made before he knew the contents of the accounts are far more likely to cast light on his true intention, than a position resorted to by him only after the content of the accounts came to his knowledge. 19Although I need not resort to it for the purpose of resolving the question before me, reference might also be made to the objective circumstances. So far as the evidence goes, Ms James appears to have net assets in the order of $400,000, whereas the company appears to have a net deficiency of funds of about $200,000, even after disregarding the liability to Mr Campo. Assuming, as I do, that Mr Campo intended the advance to be a loan and to be repayable, there is a high degree of improbability that he would make that loan to a company with a deficiency of funds, when the person with whom he was living, and who had asked for the advance, had assets of $400,000 or thereabouts, out of which the loan could be recovered. 20It has been submitted on behalf Mr Campo that Ms James raises only a dispute on her part and not on the part of the company. To the extent that there is anything in this point, it is answered by paragraph 3 of Ms James' affidavit of 5 April 2012, in which she makes clear that she is raising the dispute on behalf of the company as well as on her own behalf. As the sole director of the company, that is plainly something which she can do. 21To my mind, it is manifest that there is an arguable dispute as to whether this loan was made to Ms James in person as distinct from to the company. 22I order that the creditor's statutory demand dated 14 March 2012 by the defendant to the plaintiff be set aside. 23I order that the defendant pay the plaintiff's costs, assessed in the sum of $10,000.