Lords Holdings Pty Ltd v Brizzi

1 Mr Aitken, who appears for the Plaintiff, seeks to file in Court and to rely upon an affidavit of Sam Peter Cassaniti sworn on an unidentified date. The affidavit is tendered in support of the allegation that there is a genuine dispute as to the existence of the debt claimed by the Defendant. The affidavit is sought to be filed well out of the time for filing of an affidavit in support of the application to set aside the statutory demand which is prescribed by s.459G(2) of the Corporations Act 2001 (Cth). 2 There was in fact an affidavit filed within time in support of the present Originating Process. That is an affidavit of Travis Rourke which was sworn on 24 February 2004. The affidavit raises only one ground upon which it is said that a genuine dispute as to the existence of the debt arises. The affidavit deposes that Mr Rourke, who is a director and, indeed, the sole director of the Plaintiff, has inspected the Plaintiff's books and records and it appears that the Plaintiff has borrowed sums of money from the Defendant totalling $226,000. Mr Rourke says that the Plaintiff borrowed these monies from the Defendant, "in its capacity as trustee for the Securities Investment Trust and not in the Plaintiff's own right" . Paragraph 12 of the affidavit deposes: "The Plaintiff is not liable to the Defendant for the repayment of these amounts. It is no longer the Trustee of the Securities Investment Trust."

Paragraph 13 then goes on to request the Court to set aside the statutory demand. 3 It is quite clear that the only ground advanced in the only affidavit filed within the time required by s.459G is a proposition of law, namely, that the Plaintiff is not liable to the Defendant for the repayment of monies borrowed by the Plaintiff as trustee because the Plaintiff is no longer the trustee of the trust. 4 The affidavit sought to be tendered by Mr Aitken this morning raises, in my view, a completely different ground. Mr Cassaniti seeks to say that he is the accountant of the Plaintiff; he has investigated the books and records of the Plaintiff and he says that an amount of $186,600 claimed to be owing to the Defendant by the Plaintiff was never in fact received by the Plaintiff. He further seeks to say that the monies were taken by the director of the Plaintiff at the time of the loans in breach of his duties as a director. 5 In my view, by no stretch of the imagination can it be said that these facts amplify or expand upon the simple ground taken in the affidavit of Mr Rourke, namely, that the Plaintiff is not liable for repayment of the amounts borrowed because it is no longer trustee. The grounds raised by Mr Cassaniti's tendered affidavit therefore are not permissible and cannot be accepted by the Court as evidence in these proceedings for reasons which have been advanced in a string of cases, the most well known of which is Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452. I need not elaborate on the principle; it is sufficiently well known. For those reasons, I reject the tender of Mr Cassaniti's affidavit. 6 Mr Aitken requests that I deal specifically with a particular submission which he has put and I am happy to do so. 7 Mr Aitken submits that Mr Cassaniti's proffered evidence expands upon the evidence in Mr Rourke's affidavit in paragraph 8. That paragraph states as follows: "I have inspected the Plaintiff's documents and records and it appears that the Plaintiff borrowed the following sums of money from the Defendant: 1. 24 April 2001 $100,000.00 2. 7 June 2001 $75,000.00 3. 13 June 2001 $50,000.00 4. 20 July 2001 $1,600.00

These loans totalled: $226,000.00" 8 Mr Aitken says that paragraph 2 of Mr Cassaniti's affidavit, denying receipt of the money by the Plaintiff, expands upon this paragraph. I am unable to agree. It seems to me that paragraph 2 of Mr Cassaniti's affidavit seeks directly to contradict what is said in paragraph 8 of Mr Rourke's affidavit, namely, that the Plaintiff appears to have borrowed the relevant sums from the Defendant. I do not think it is a legitimate use of language to say that a direct contradiction of paragraph 8 is in any sense an expansion of paragraph 8. Mr Cassaniti's affidavit, in paragraph 2, simply seems to raise a completely different factual circumstance, namely, that in fact and in law, the Plaintiff did not borrow the sums referred to because it had never received them. For that reason I also reject the affidavit.

9 Mr Aitken seeks to tender a caveat by the Defendant placed on the title of some property owned by the Plaintiff. Mr Aitken says that the caveat is evidence going towards the proposition that the monies said to have been advanced by the Defendant to the Plaintiff were not advanced pursuant to the particular contracts which are attached to the statutory demand and that the claim by the Defendant, as evidenced by the caveat, is inconsistent with the claim made in the statutory demand. 10 In my opinion, the evidence sought to be adduced is adduced in support of a ground of dispute which is not raised in the only affidavit which is filed within time, that is the affidavit of Mr Rourke, and therefore I reject the tender.

11 Mr Aitken seeks to tender a document, the source of which is not precisely identified, but it appears to be a facsimile from the Defendant to the accountant of the Plaintiff, Mr Cassaniti. 12 Mr Aitken tenders the document in support of a proposition that the borrower of funds from the Defendant was not in fact the Plaintiff but was in fact someone else. 13 Again, that evidence is tendered in support of a ground of dispute which is not contained in the affidavit of Mr Rourke of 24 February. Indeed, it seeks directly to contradict that affidavit. For those reasons in my opinion the evidence is not admissible and I reject the tender.

14 Mr Aitken seeks to tender a document, the precise description of which I am not certain. However, the tender is in support of a contention that the borrower of the funds from the Defendant was not the Plaintiff but some other entity. 15 For the reasons which I have already given, this ground is not raised within the affidavit of Mr Rourke, as it ought to have been if it was to be raised at all. I have already referred in argument to a document which forms part of Mr Rourke's affidavit, namely, a letter or a document dated 21 March 2003, signed by Mr Allan on behalf of the Plaintiff. Mr Allan was then, there is no contest, the sole director of the Plaintiff. The document states as follows: "Friday 21 March 2003. I, Stefan Allan, as director of the formerly known Lords Securities Pty Ltd, 'the company' hereby confirm that the company is now indebted to Robert Brizzi in the sum of $226,600, plus interest and penalty rates, which includes those amounts detailed in the written confirmation of investment agreements dated 26 April 2001, 7 June 2001 and 13 June 2001. It is hereby acknowledged that those monies are now due and owing to Mr Robert Brizzi and that the company has no dispute that this money is now due and owing." 16 The document is apparently signed by Mr Allan, beneath whose signature appear the words: "Executed on behalf of Lords Securities Pty Ltd by the authorised person whose signature appears herewith pursuant to the Corporations Act." 17 The inclusion of that document within the material attached to Mr Travis Rourke's affidavit of 24 February 2004 called out for an express denial of the content of that document, if there was to be an express denial, or if there was to be any denial at all. Mr Rourke cannot claim to have been unaware of the document and of its purport. 18 What is now sought to be done is to tender material which is in direct contradiction to material of which Mr Rourke was directly aware and it is material said to support a ground of dispute to the debt which is manifestly not incorporated at all in Mr Rourke's affidavit. For that reason I reject the tender. 19 In case the matter goes elsewhere, I think it expedient to have marked for identification those documents which I have rejected. The document which I now reject will be MFI "3". The previous two documents rejected will be MFI "1" (the caveat) and MFI "2" (the apparent facsimile).

20 Mr Aitken seeks to tender a copy of a statutory demand dated 11 November 2002 addressed to the Plaintiff by the Defendant. The statutory demand apparently claims the same debt, namely $226,600. 21 Mr Aitken seeks to tender the document because he says that that statutory demand was, on his instructions, not proceeded with or compromised in some way and that there may be grounds upon which an estoppel arises preventing Mr Brizzi, the Defendant, from pursuing the statutory demand which is the subject of this Originating Process. 22 If there was any circumstance arising from the service of the previous statutory demand which gave rise to an estoppel prohibiting the service of the statutory demand which is the subject of these proceedings, then that is a matter which should have been raised in the affidavit of Mr Rourke. It is not, of course, raised there. There is no fact appearing in admissible evidence which suggests that there is any grounds for such an estoppel. I therefore reject the statutory demand and supporting affidavit. The documents will together be marked MFI "4".

23 Mr Aitken tenders a photocopy of an affidavit of Mr Stefan Allan dated 29 November 2002. Apparently the affidavit was sworn in support of an application to set aside a statutory demand which had been served by the Defendant upon the Plaintiff some time in November 2002. I think that that statutory demand is now MFI "4". 24 Mr Aitken submits that because this affidavit was filed in opposition to a statutory demand which claims the same debt as is claimed in the statutory demand which is the subject of these proceedings, one which was served some almost 13 or 14 months later, he is entitled to read that affidavit in support of the Plaintiff's present Originating Process to set aside the later statutory demand. 25 In my view, that proposition cannot be accepted. I need hardly elaborate upon the reasons. First, the affidavit was filed in previous proceedings relating to a separate and earlier statutory demand, not the present proceedings and, second, the material in that affidavit was not filed in opposition to the present statutory demand in accordance with the provisions of s.459G. In any event, if it be of any further relevance, the affidavit is sworn on 29 November 2002, whereas there is in evidence an express acknowledgment by Mr Allan, the deponent, dated 21 March 2003 in which Mr Allan expressly acknowledges: "The company has no dispute that this money is now due and owing." 26 Mr Aitken says that Mr Allan was not a director of the Plaintiff as at 21 March 2003. Be that as it may, Mr Allan seems to contradict directly in the document of 21 March 2003 what he says in his affidavit of 29 November 2002. 27 Further, as I have said on a number of occasions this morning, the ground of dispute which is set out in the affidavit of Mr Allan of 29 November 2002 does not appear in Mr Rourke's affidavit. For that reason I reject the affidavit. It will be marked MFI "5".

28 By an Originating Process filed on 24 February 2004, the Plaintiff seeks an order under s.459G of the Corporations Act setting aside a statutory demand served on it by the Plaintiff on or about 29 January 2004 on the ground that there is a genuine dispute as to the existence of the debt. 29 The facts are straightforward. The Plaintiff was the trustee of a trust called the Securities Investment Trust which was established by a trust deed dated 1 September 1997. Between 24 April 2001 and 20 July 2001, the Plaintiff, as trustee of the trust, borrowed a total of $226,000 from the Defendant which is the sum claimed in the Defendant's statutory demand. The money has not been paid. The borrowing is admitted in paragraph 8 of an affidavit of Travis Rourke, the sole director of the Plaintiff, which was filed on 24 February 2004. 30 The sole ground upon which the Plaintiff says that a genuine dispute as to the debt exists is that on 14 April 2003 it ceased to be the trustee of the Securities Investment Trust upon appointment of a new trustee. That ground appears in paragraph 12 of the affidavit of Mr Rourke. The Plaintiff says that when it ceased to be trustee, it ceased to be liable to third parties such as the Defendant for liabilities which it incurred while trustee. 31 As appears from a letter sent by the Plaintiff's solicitors to the Defendant's solicitors on 20 February 2004, this proposition seems to be founded on the notion that because the loans were made to the Plaintiff "as trustee for the Securities Investment Trust" the loans were therefore made, not to the Plaintiff, but to the trust itself. 32 It is an elementary principle of law that where a trustee in the course of the trust business contracts a debt, the debtor against whom the creditor may enforce the debt is the trustee. This is because a trust fund, in itself, has no legal personality capable of entering into a contract. Likewise, it is an elementary principle of trust law that a trustee who incurs liabilities to a third party in the course of the trust business remains liable to the third party after the trustee ceases to hold office as such, in the absence of a clear contractual provision between the trustee and the third party to the contrary. The retiring trustee who remains liable to the third party is, of course, entitled to indemnity out of the trust fund and may claim against the new trustee to obtain that indemnity. 33 In the present case, the contracts for loan between the Plaintiff and the Defendant are evidenced by letters whereby the Defendant states that it acknowledges "receipt of your investment with Lords Securities Pty Ltd" , which is the Plaintiff's former name. At the very foot of the page, above the company's address, appear the words: "Lords Securities Pty Ltd as Trustee for the Securities Investment Trust" . It seems to be these words upon which the Plaintiff's solicitors fastened in order to ground their proposition that it was the trust and not the Plaintiff who had borrowed monies from the Defendant. 34 Mr Aitken very properly concedes at once that the proposition is unarguable and he has not sought to argue it. There is, of course, no conceivable argument that the loan contracts between the Plaintiff and the Defendant provided, either expressly or by implication, that the ordinary and well known principles of trust law as to a trustee's liability to third parties would not apply and that the Defendant would have recourse for repayment of the debts only to the entity which was trustee of the trust fund at the time when the debts became repayable. The proposition advanced by the Plaintiff's solicitors in their letter of 20 February 2004 was utterly untenable. 35 I hold that there is no genuine dispute as to the existence of the debt the subject of the Defendant's statutory demand. The Plaintiff's Originating Process is dismissed.

36 Miss Baxter, who appears for the Defendant, has sought an order that the Defendant's costs of these proceedings be paid on an indemnity basis. 37 This is a case in which there was no dispute as to the facts. The Plaintiff's contention that a genuine dispute existed was founded on a proposition of law which, as Mr Aitken has conceded, was manifestly and fundamentally wrong, as any competent lawyer would instantly recognise. That the Plaintiff sought to resist payment of a statutory demand and made this application founded solely upon that proposition, betokens either bad faith on the part of the Plaintiff or gross ignorance of the law on the part of its solicitors. 38 Bad faith on the part of the Plaintiff or gross ignorance of the law on the part of its solicitors is unpardonable. The Defendant should not be out of the pocket at all in defending proceedings which should never have been brought. I therefore order that the Plaintiff pay the Defendant's costs of these proceedings on an indemnity basis.

39 Mr Aitken seeks an extension of time for compliance with the statutory demand. I note that the debt has been claimed as outstanding now for some almost two years. 40 The ground put forward in opposition to the subject statutory demand was, as I have held, utterly without foundation and without merit. I do not see any reason at all in those circumstances to extend time for compliance with the statutory demand. If any extension is sought or any stay of my orders is sought, they must be sought from the Court of Appeal.

41 Mr Aitken has sought to advance other submissions as to why I should vary the orders or the position which I have taken. Nothing has been said in my opinion, with all respect to Mr Aitken, which would induce me to alter my view. The debt claimed has been outstanding for a considerable period of time and it seems to me that the Plaintiff should be held to compliance with the statutory demand or face the consequences. If any relief is sought, I say again, it must be sought from the Court of Appeal. 42 MFI "1" to "5" may be returned to the Plaintiff. - oOo -

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