Medeco Group Pty Ltd v Cripps [2009] NSWSC 927 | Case summary

2177/09 Medeco Group Pty Ltd v Edwin George William Cripps as trustee of the Cripps Family Superanuation Fund & 1 Or JUDGMENT 1 HIS HONOUR: This is an application to set aside a statutory demand. 2 There are two issues. The first is whether there is jurisdiction to entertain the application. If so, the second issue is whether there is a genuine dispute that the debt claimed in the statutory demand was not due and payable. 3 The question of jurisdiction arises in the following way. 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. " 4 The defendants contend that a copy of the supporting affidavit was not served within 21 days, as required by s 459G(3). 5 The statutory demand was served on the plaintiff on 13 March 2009. The defendants are the trustees of the Cripps Family Superannuation Fund. In that capacity they claimed that the plaintiff owed them a debt of $206,049.32. Principal of $200,000 is said to be due and payable in respect of a convertible note deed between them and the plaintiff dated 25 June 2007 following an Event of Default, being the non-payment of interest for the quarter year ended 31 December 2008. The balance of the debt claimed was interest of $6,049.32 for that quarter. 6 The statutory demand stated that the address of the creditor for service of copies of any application, and affidavit supporting an application to set aside the demand, was the address of the defendant's lawyers, namely Haney Lawyers, Haney House, Level 3, 33 Elkhorn Avenue, Surfers Paradise, Queensland. The statutory demand was served under cover of a letter from that firm of lawyers. The covering letter gave a facsimile and email address for the firm. 7 The originating process and supporting affidavit were filed on 2 April 2009. On 2 April 2009, Haney Lawyers received from the plaintiff's solicitors by facsimile a copy of the application to set aside the statutory demand and an incomplete copy of the supporting affidavit. 8 The copy was incomplete because the bottom line of the second page of the affidavit was cut off. The paragraph in question included the sentence "I told Cripps words to the effect 'the new CFO is in the middle of preparing forecasts for the float and we should be listed by June or July. The note would convert then'". The last line stating "and we should be listed by June or July. The note would convert then" was the line not reproduced on the facsimile. Otherwise, the affidavit was completely reproduced by the facsimile. This included the reproduction of the initials and signatures on the affidavit. On the page in question, the initials were partly obliterated, but it was plain that they were there. 9 The defendants' solicitors responded appropriately, and as one would expect. They sent a facsimile to the plaintiff's solicitor on the same day stating that they appeared to have received an incomplete transmission of Dr Clift's affidavit. They asked for the facsimile to be resent. 10 On 3 April 2009 the plaintiff's solicitors sent an email to the defendants' solicitors attaching an electronic copy of the affidavit. The copy attached was not a scanned copy showing the signatures, but was a complete and accurate transcription of the text of the affidavit as filed. 11 The 21-day period for service of the copy of the application and supporting affidavit expired on 3 April 2009. 12 Mr Casselden, who appeared for the defendants, submitted that this was not good service of a copy of the supporting affidavit as required by s 459G(3), because the defendants' solicitor did not receive a document identical to that which was filed. The facsimile copy of the affidavit omitted a line of text. The document sent by email was unsigned, and, so far as appeared on the face of the document sent by email, therefore unsworn. Mr Casselden submitted that s 459G requires there to be an identity between the affidavit filed and the affidavit served. 13 In support of that submission Mr Casselden referred to Bell Construction Services Pty Ltd v Form-Kwip Building Services Pty Ltd [2001] NSWSC 73 where Santow J (as his Honour then was) said (at [13]): " S459G thus mandates identity between the affidavit filed and the affidavit served. "

14 He also referred to Robowash Pty Ltd v Robowash Finance Pty Ltd [2000] WASCA 409; (2000) 158 FLR 338. There, the Full Court of the Supreme Court of Western Australia held that a copy of the supporting affidavit had not been served as required by s 459G(3) where the document served omitted four pages of annexures. Kennedy J, with whom Wallwork and Anderson JJ agreed, referred to cases decided under rules of court requiring service of a copy of a writ as showing that strict conformity was required between the original and the copy (at [24]-[28]). 15 Likewise, in Kortz Ltd v Data Acquisition Pty Ltd [2006] FCA 1722; (2006) 155 FCR 556, Greenwood J of the Federal Court said that there needed to be an identity between the material as filed and the material served (at [33]) so that the defendant was informed precisely of the final form of the material that the plaintiff was relying upon in seeking to advance the merits of the application (at [35]). 16 In the present case, it is unnecessary for me to decide whether an alleged copy of an affidavit that does not include all that is in the original, or is otherwise imperfect, is a copy within the meaning of s 459G(3). That is because within the 21 days provided for by s 459G(3) the defendants, through their nominated solicitor, had received a complete and accurate transcript of the affidavit as filed, albeit that the receipt took the form of two documents. 17 The dictionary definition of "copy" in the Macquarie Dictionary (revised 3rd edition) includes, relevantly, "a transcript, reproduction or imitation of an original". 18 This may be compared with the definition of "reproduction" which relevantly includes "that which is made by reproducing; a copy or duplicate", and "reproduced" defined as "to make a copy, representation, duplicate or close imitation of". It can also be compared with "duplicate" as a noun or adjective, meaning "exactly like or corresponding to something else"; and "a copy exactly like an original". 19 I doubt that the expression "exact copy" is tautologous, or that there is an inherent contradiction in speaking of an "imperfect copy". Be that as it may, I do not accept that "copy" in s 459G means only a photographic copy. A copy can be made by transcription, and court documents were so copied in earlier times. In Bailey v Hinch [1989] VR 78 referred to in Robowash (at [27]), Gobbo J held that a "copy" of an oral order made by a judge was made and posted on the door of the court when the words used by the judge were reproduced in a document, such that the words appeared in writing for the first time in the document so posted. 20 In this case, a complete and accurate transcription of the affidavit was provided within the 21-day period. 21 I should add that it was accepted by the defendants that service by facsimile or by electronic means was effective if the document so to be served was received by the intended recipient (Austar Finance Group Pty Ltd v Campbell [2007] NSWSC 1493; (2007) 215 FLR 464). 22 I turn then to the substance of the application. I understand the plaintiff to rely upon s 459H(1)(a), namely that there is a genuine dispute between the company and the defendants about the existence of the debt to which the demand relates. For reasons which follow, it is unnecessary to decide whether it is that provision which is engaged where the plaintiff's contention is not that the debt claimed is not owing, but rather that it was not due and payable when the demand was served. 23 In determining whether there is a genuine dispute, either as to the existence of the debt, or as to whether the debt is due and payable, the question is whether the plaintiff has raised a "plausible contention requiring investigation" (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669; (1994) 12 ACSR 785 at 787). 24 On 25 June 2007, the plaintiff entered into the convertible note deed with an entity called the Cripps Family Settlement Fund. Pursuant to that deed, the defendants, as trustee of the fund subscribed $200,000 for a note. The note was required to be converted into shares in the plaintiff upon there being an Initial Public Offering of ordinary shares in the plaintiff through the admission of its shares to trading on the Australian Stock Exchange. 25 In the meantime, the plaintiff acknowledged its indebtedness in the amount of $200,000. Under the convertible note deed, interest is payable for "The Term", at 12 percent per annum. Interest is payable quarterly in arrears. "The Term" means 24 June 2010, or the date at which the note is converted into shares on listing, whichever is the earlier. 26 However, clause 9.1 of the deed provides "If an Event of Default occurs, the Moneys Owing shall become immediately due and payable". An Event of Default includes the plaintiff's failing to pay any interest within 60 days after interest becomes due and payable. The "Moneys Owing" after an Event of Default is defined to mean the Principal Moneys including "any interest payable on Notes". 27 Clause 13.1 of the convertible note deed provides "The company and the note holder may alter, modify, or add, to this Deed by mutual agreement evidenced in writing". 28 Clauses 14.1 and 14.3 provide: " 14.1 A party's failure or delay to exercise a power or right does not operate as a waiver of that power or right. ... 14.3 A waiver is not effective unless it is in writing. " 29 The plaintiff failed to pay interest of $6,000 due on 30 September 2008, and a further $6,000 due by 31 December 2008. 30 It is common ground that, as a result of the plaintiff's failure to pay those instalments of interest, by 8 February 2009 the debt of principal and outstanding interest owed by the plaintiff to the defendants had become due and payable. 31 The plaintiff's director, Dr John Clift, gave evidence of discussions with Mr Cripps, which he said took place on or about 9 February 2009. He deposed: " 10. On or about 9 February 2009, I met with Cripps to discuss the acquisition of Allied by the Plaintiff and the subsequent listing of the Plaintiff on the ASX. I told Cripps words to the effect 'the new CFO is in the middle of preparing forecasts for the float and we should be listed by June or July. The Note would convert then'. 11. Cripps said words to the effect 'Then I don't need you to repay the $200,000. If you continue to pay the interest on the Note and retain me as an employee of Allied, we can work out later how much of the Note is paid and when. I am happy to convert the Note on the listing.' 12. I responded with words to the effect of 'If you didn't agree to the Note being allowed to run until we float and be converted then, I wouldn't have wanted you around the organisation and your consultancy and all other benefits would have ceased'. 13. Cripps stated that 'I want my consultancy to continue and want to be here when we float. You only have to pay the twelve grand in interest as soon as possible and my wife will stop trying to get the Note repaid'. 14. I asked what his wife had to do with it. Cripps responded 'I am the only person who can control our super fund so it doesn't matter about her. I will deal with it'. 15. Cripps and I then discussed when the interest payments could be made. I proposed one payment could be made almost immediately. A second would be paid on 2 March 2009. Cripps said words to the effect 'Make those payments and we can leave the repayment of the note until we float or later in the year if we don't.' 16. I responded stating 'Good, we can get on restructuring Allied and getting listed without having to raise any more funds.' 17. Immediately following the discussion with Cripps, I instructed the Plaintiff's accountant to pay $6,000 as soon as possible and $6,000 on 2 March 2009. " 32 Other evidence shows that, if the alleged agreement arose, it arose after mediation. There is a dispute as to whether the mediation occurred on 9 February 2009 or a few days later, but that is not material. There is also a dispute as to what was agreed between the parties. However, there is a seriously triable issue that words were said between Dr Clift and Mr Cripps to the effect of those deposed to by Dr Clift. The effect of such a discussion is at least arguably that an agreement was made orally between Dr Clift and Mr Cripps that the plaintiff was not required to repay the principal amount, which was then due, provided that interest payments were made with the first such payment to be made almost immediately, and the second on 2 March 2009. 33 No point was taken by the defendants that any such agreement was made with Mr Cripps alone, and not with both of the trustees. If such an agreement were made there would clearly be a triable question as to whether Mr Cripps had authority from his co-trustee. It could not be said on this application that any such agreement would be void for want of authority. 34 Mr Casselden submitted that no such agreement as deposed to by Dr Clift could be binding, because it was not in writing as required by clause 13.1 of the deed. He submitted that there could be no waiver of the defendants' right to receive payment of the principal, because there was no writing. 35 I do not accept that the absence of writing is fatal to the plaintiff's claim. The agreement to which Dr Clift deposes is not an agreement which statute requires be in writing. Where parties agree that any variation to their contract is to be in writing, then unless writing is required by statute, it still remains open to them to vary the agreement orally by agreeing (expressly or impliedly) also to vary the term requiring a variation to be in writing. 36 Clause 13.1 is a strong pointer to the parties' intending that they would not be contractually bound by terms to which they agreed to vary the deed unless that agreement was in writing; much in the same way as parties who negotiate subject to contract are presumed only to be bound by terms upon which they might agree, upon those terms being reduced to a formal signed document. 37 But whilst there might be a presumption against the parties' intending to be bound by the terms allegedly agreed to in the absence of writing, that is a question which could only properly be determined on a trial. 38 It was faintly submitted that the alleged agreement would fail for want of consideration. But I think it arguable that consideration for the agreement could be found in the defendants being entitled to retain the notes so that the debt could be converted to shares on the float, rather than the plaintiff's being required to repay the debt immediately. Once such a repayment was made the defendants would lose the opportunity to convert the debt to shares. 39 Nonetheless, on the agreement as alleged by the plaintiff, the suspension of its obligation to repay the principal was conditional upon its making at least two payments of interest, with the second such payment to be made by 2 March 2009. The first payment of $6,000 was made on 16 February 2009. The second payment was not made on 2 March 2009. It had not been made by the time Mr Cripps swore his affidavit on 6 May 2009. So as far as appears, it has still not been made. In other words, the condition upon which the debt, which was otherwise due and payable, was not to be due and payable, was not satisfied. 40 The plaintiff contends that it was excused from making the second payment of interest on 2 March 2009 because the defendants repudiated the oral agreement that Dr Clift deposes was made. That repudiation is said to have been effected by the service of a letter dated 12 February 2009 from the defendants. The plaintiff says Dr Clift received this letter on 20 February. The defendants say it was served on 12 February. 41 In the letter dated 12 February 2009 the defendants made demand for immediate redemption of the moneys owing under the convertible note deed, comprising the principal amount of $200,000 and two interest payments each of $6,000. That demand was repeated by the defendant's lawyers on 19 February 2009. 42 If an agreement to the effect of that deposed to by Dr Clift were made, then the sending of that correspondence would be a repudiation of the agreement. Assuming that to be so, what would be the consequences? Either the plaintiff accepted the repudiation, or it did not. 43 If the plaintiff did not accept the repudiation, then the agreement made on or about 9 February 2009 deposed to by Dr Clift remained on foot. Under that agreement, the plaintiff, as a condition of not being required to pay principal, was required to make interest payments, including the second interest payment due on 2 March 2009. If the agreement remained on foot the principal and interest of $6,000 were debts which had become due and payable from 3 March 2009, because of the failure of the condition. 44 The alternative is that the plaintiff did accept the repudiation, although there is no evidence to that effect. But if the plaintiff did accept the repudiation so as to bring the alleged agreement of 9 February 2009 to an end, the parties would revert to the position in which they were before that agreement was made under which the outstanding principal was then due and payable, together with interest which was then due and payable. On no view did the letters of 12 and 19 February 2009 operate as a further variation so as not to require the plaintiff to pay interest on 2 March 2009, or to defer the time for payment of principal if interest was not paid on time. 45 It is theoretically possible that if an agreement as alleged were made and was repudiated by the defendants, and the plaintiff accepted the repudiation, the plaintiff might have a claim for damages. No such claim was hinted at in the supporting affidavit, and on that basis alone could not be raised as an off-setting claim under s 459H(1)(b) (Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452). 46 In any event, there was no evidence to show that the plaintiff could arguably make good a claim for damages. For example, there was no evidence that the plaintiff was in a position to make the second interest payment of 2 March 2009. Nor was there any evidence that the plaintiff would suffer damages by being required to repay the debt, rather than being in a position to convert the debt to shares, because there was no evidence that there was a real chance that the float would occur. Therefore, I can put aside the question of an off-setting claim. 47 It follows from the above reasons that, on the version of the facts put forward by the plaintiff, there is no genuine issue that the debt for principal and interest was not due and payable at the time of the statutory demand of 13 March 2009. 48 For these reasons, I order that the originating process be dismissed. I order the plaintiff to pay the defendants' costs. The exhibit may be returned after 28 days.

Medeco Group Pty Ltd v Cripps

At a glance

Court

Decision date

Before

Source

Judgment (11 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (8)

Cited By (1)