Morehuman (Australia) Pty Ltd v Talimor Pty Ltd

CATCHWORDS : CORPORATIONS - Winding-up - Application to set aside statutory demand - Plaintiff received advance by way of loan from trust of which defendant is trustee - Loan evidenced by written contract signed by director of plaintiff - Signing of written contract preceded by discussions between director of plaintiff and appointor of trust - Discussions suggested repayment schedule materially different from that stipulated by written contract - Defendant sought repayment of loan by plaintiff - Defendant served statutory demand on plaintiff - Whether debt owed by plaintiff presently due and payable - Whether seriously arguable that discussions between director of plaintiff and appointor of trust brought about immediately binding agreement for loan - Where discussions included no reference to rate of interest - Whether relevant that director of plaintiff did not carefully read written contract - Whether relevant that defendant did not initially demand adherence to repayment schedule stipulated by written contract - Whether seriously arguable that defendant estopped from calling up loan as a result of representations by appointor of trust - Where defendant has not acted unconscionably - Held no genuine dispute that debt owed by plaintiff was not presently due and payable - Application to set aside statutory demand dismissed.

Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACSR 785; (1994) 12 ACLC 669 Victorian Producers Cooperative Co Limited v Edwards, Supreme Court of South Australia Full Court, 1 September 1993, unreported, BC9303977 CASES CITED : Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 Graywinter Properties Pty Limited v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 Energy Equity Corp Limited v Sinedie Pty Limited (2001) 166 FLR 179

Morehuman (Australia) Pty Ltd PARTIES : v Talimor Pty Ltd

COUNSEL : Plaintiff: G Lindsay SC & A Fox Defendant: D Robertson

SOLICITORS : Plaintiff: Bartier Perry Defendant: Thompson Eslick

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

4448/06 Morehuman (Australia) Pty Ltd v Talimor Pty Ltd JUDGMENT 1 HIS HONOUR: This is an application under s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand served by the defendant. The statutory demand was received by the plaintiff on 7 August 2006. By its demand, the defendant claimed that the plaintiff owed it $490,657 as moneys advanced on 24 July 2003, repayable on 24 July 2005, inclusive of interest at 7.5% per annum from 25 July 2003. 2 There is no issue that the plaintiff received an advance by way of loan on or about 24 July 2003. The correspondence between the parties' solicitors suggested that there was an issue as to whether the loan was repayable to the defendant, as distinct from some other person. However, at the hearing, that ground was rightly not relied upon by the plaintiff. The ground on which the plaintiff claims it is not presently indebted is that it says that the loan, including interest, was not repayable on 24 July 2005, but is only repayable out of the proceeds of sale, or perhaps out of the profits, of a property redevelopment being undertaken by the plaintiff at Erskineville, New South Wales. Currently, it is not expected that the apartments to be constructed on the Erskineville property will be sold before mid to late 2007. 3 In considering whether there is a genuine dispute, within the meaning of s 459H of the Act, as to whether the debt is presently due and payable, I adopt the well-known approach articulated by McLelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACSR 785 at 787-788; (1994) 12 ACLC 669 at 671-672. His Honour said: " It is, however, necessary to consider the meaning of the expression genuine dispute' where it occurs in s 459 h . In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the 'serious question to be tried' criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be' not having 'sufficient prima facie plausibility to merit further investigation as to [its] truth' (cf Eng Mee Yong v Letchumanan [1980] AC 331 at 341), or 'a patently feeble legal argument or an assertion of facts unsupported by evidence': cf South Australia v Wall (1980) 24 SASR 189 at 194. But it does mean that, except in such an extreme case, a court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments (at 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Div 3 of Pt 5.4 of the Corporations Law, and to the terms of Div 3: 'These matters, taken in combination, suggest that at least in most cases, 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 that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute.'" 4 The defendant is the trustee of the Glowwine Investment Trust. It was appointed as trustee on 15 May 2003. On 16 May 2003, a Mr William Paul Sweeney was appointed a director of the plaintiff. At the time of the advance, according to the company search of the defendant which Mr Sweeney produced, he and a Ms L S Adler were the directors of the defendant. The defendant replaced Happle Pty Limited as trustee of the Glowwine Investment Trust. Prior to 27 March 2003, Happle Pty Limited was known as Adler Corporation Pty Limited. The defendant was appointed as the new trustee by a Mr R Adler in the exercise of Mr Adler's powers as appointor under the trust deed. 5 According to the evidence of Mr Salman Bayni, a director of the plaintiff, in November 2002 a subsidiary of the plaintiff had exchanged contracts for the purchase of a property in Erskineville, in order to construct 46 residential apartments on the site. Mr Bayni deposes that in early June 2003, he had a meeting with Mr Adler and a Mr Vamvakaris, during which a conversation to the following effect took place: " I said: 'The purchase of the Erskineville property is due to settle later in the year. We will then start the development, including marketing the project. Morehuman needs money to run the business. St Peters is a done deal, but we need about $1 million to fund Morehuman to find new deals. We'll be able to repay it from Erskineville within about two years, when the project is complete, however, this will depend on what the market does.' Mr Adler said: I will give you $400,000.00 now and we'll see how St Peters goes. If it goes well, I'll consider lending more money. The money will have to come out of the Glowwine Investment Trust. How and when will you repay the $400,000.00?' I said: 'The money will be repaid, plus interest, out of the proceeds of sale when the Erskineville property is completed.' Mr Adler said: 'Okay, that sounds fine, but you'll need to keep me informed.'" 6 Mr Bayni deposes that on or about 24 July 2003, he met Mr Adler, who handed him a document entitled "Debt Acknowledgment Notice". Mr Adler told him: " This is to confirm the money which is being advanced by the Glowwine Investment Trust. Just sign the document at the bottom. "

7 Mr Bayni deposes not to recall reading the document carefully, but does not depose that he did not read it. He says that he understood the document to relate to the plaintiff's request to borrow $400,000 from the Glowwine Investment Trust, and that the document acknowledged the advance to be made. The Debt Acknowledgment Notice is in the following terms: "Morehuman Australia Pty Limited (the Borrower ) hereby seeks to borrow funds from Glowwine Investment Trust (the Lender ): Amount of Advance: $400,000.00 Date Required: 24 July 2003 Payee Details: Morehuman Australia Pty Ltd Purpose of Advance: Working Capital Term: 2 years Interest Rate: 7.5% Special Payments: Repayment after 1 year of $100,000 The Borrower hereby confirms to the Lender that it is solvent and able to pay its debts as and when they fall due. Dated: 24 July 2003 "

It was signed by Mr Bayni. 8 On or about 24 July 2003, the plaintiff received a cheque drawn by Adler Corporation Pty Limited as trustee for the Glowwine Investment Trust. The cheque was signed either by Mr Adler or Ms Adler - it is not clear which. At this time, the defendant had been appointed as trustee of the Glowwine Investment Trust and had asked the bank to change the banking records to reflect that change. There is no issue that the funds advanced to the plaintiff were funds of the Glowwine Investment Trust, of which the defendant was then the trustee, even though the cheque was drawn by the former trustee. Hence there is no dispute that the moneys advanced are repayable to the defendant. The only question is whether they are presently due and payable. 9 Mr Bayni was asked by Mr Adler's bookkeeper to sign acknowledgments in relation to the loan. He was sent letters on 31 October 2003, 30 November 2003, and 31 December 2003 enclosing the loan schedule and amounts of accrued interest. He signed the letters of 30 November 2003 and 31 December 2003 to acknowledge that the attached statements accorded with his understanding of the loan. The attached statements included a statement that the maturity date was 24 July 2004. 10 Mr Bayni deposed that in August 2004, he had a conversation with Mr Adler to the following effect: " Mr Adler said: 'How are you going with Erskineville?' I said: 'Erskineville is running behind schedule. We are not selling enough apartments yet and it won't be at a point where its making a profit for some time. It won't be finished in the 2 years as hoped, so you won't be getting the $400,000.00 until the market picks up.' Mr Adler said: 'That's fine, just keep me updated.'" 11 No demand for repayment of the loan was made until 7 April 2006. By letter of that date, the defendant demanded repayment of the loan within seven days. There was no response by the plaintiff to that demand. On 18 July 2006, the defendant's solicitors, Thompson Eslick, wrote to the plaintiff. They said: " Dear Sir Re: Glowwine Investment Trust Debt We advise that we have received instructions from Talimor Pty Limited as trustee for the Glowwine Investment Trust (the " Trust "). We are instructed that Morehuman (Australia) Pty Limited (" MHA ") is indebted to the Trust for the amount of $488,109.59 as at 30 June 2006 in respect of an advance made by the Trust to MHA on 24 July 2003. We are further instructed that demand has been made by the Trust for repayment of this debt and its demand has been left unanswered. We are instructed that it is not disputed by MHA that the debt is due and payable by it. You, as the sole director of MHA signed a notice acknowledging the terms of the loan on 24 July 2003. We enclose a copy of the acknowledgment signed by you for your reference. We are instructed to indicate that unless $488,109.59 is paid to the Trust within 14 days of the date of this letter, action will be taken to recover that debt without further notice to MHA or yourself. We await your (or your solicitor's) earliest response. " 12 This letter provoked a response from the plaintiff's solicitors, Bartier Perry, on 1 August 2006. They said: " We refer to your letter dated 18 July 2006 to Morehuman (Australia) Pty Ltd (" MHA "). Mr Bayni was overseas when the letter arrived and is expected to remain overseas for approximately a further 14 days. Upon Mr Bayni's return we will be in a position to obtain instructions to provide a detailed reply. However, in the interim, our client denies that a demand has been made by the Glowwine Investment Trust (" the Trust ") for the repayment of $488,109.59, or any other amount. MHA disputes that this amount is a debt and that it is due and payable. The document entitled " Debt Acknowledgment Notice " dated 24 July 2003 does not, despite its title, acknowledge that MHA owes $400,000.00, nor any other debt, to the Trust. It is clearly a prospective document by which MHA notifies the recipient that it wishes to borrow money on certain terms. " 13 Three objections were raised by this letter. First, that no demand had been made by the trust for repayment. That objection was clearly spurious as demand had been made by the trustee. The second objection was that the defendant disputed there was a debt. This objection is equally spurious as there is no issue that the money was advanced at interest by way of loan. The third objection was that any debt was not due and payable. No reason was advanced for this claim. However, I do not conclude from Bartier Perry's failure to advance reasons in this letter for their contention that no debt was due and payable, that the present claim is not genuine. When the letter was written, Bartier Perry's client was overseas, and accordingly, it is understandable that they would not have full instructions. Accordingly, I draw no inference adverse to the plaintiff from the terms of this letter. 14 The statutory demand was served on or about 7 August 2006. On 18 August 2006, Bartier Perry again wrote to Thompson Eslick. The ground on which they denied that a debt was owing and payable was that the moneys had not been advanced by the defendant, and that the matters contained in their letter of 1 August 2006 had not been addressed. Again, no reason was advanced as to why the loan had not fallen due for payment. However, it appears from the affidavit of the plaintiff's solicitor, Mr Gazecki, that at this time Mr Bayni was still overseas. Accordingly, I do not conclude from the fact that the plaintiff's solicitors did not then raise the ground now relied upon as a ground of dispute, that that ground is not a genuine one. 15 Counsel for the defendant submitted that the plaintiff had not demonstrated an arguable case that Mr Adler had authority to bind the plaintiff to the terms of the loan. Mr Sweeney deposed that from 16 May 2003, he was the sole director of the plaintiff. He deposed that he authorised the payment of $400,000 on the basis that the loan would be made on the terms of the Debt Acknowledgment Notice. However, leaving aside the fact that the company return lodged with the Australian Securities and Investments Commission shows that Mr Sweeney was then one of two directors, there is a serious issue to be tried that Mr Adler did have authority to deal with Mr Bayni. Mr Sweeney had no dealings with Mr Bayni. Mr Adler was the appointor of the trust with apparent authority to appoint and remove trustees. The director, or directors of the defendant, apparently allowed Mr Adler to negotiate the loan. There is therefore a genuine issue that the defendant is bound by whatever Mr Adler agreed to on behalf of the defendant. 16 Nonetheless, the plaintiff's evidence does not show an arguable case that the terms of the contract of loan were those discussed in June 2003 with Mr Adler, as distinct from the terms contained in the Debt Acknowledgment Notice signed immediately prior to the advance. 17 The plaintiff submitted that there was a genuine issue that the discussions in June 2003 went beyond a negotiation on terms of a contract to be entered into in the future, and amounted to an immediately binding agreement for loan. Hence, it was submitted that the terms of the contract of loan were to be found in the oral discussions in June 2003, rather than in the signed Debt Acknowledgment Notice. 18 I do not consider this to be seriously arguable. The discussions of June 2003, as deposed to by Mr Bayni, were preliminary, and were not in terms where the parties expressed their intention to be immediately bound by the terms agreed to. Moreover, there was no discussion as to the rate of interest to be charged. The plaintiff submitted that it could be implied that a reasonable rate of interest would be payable. I do not know how one could determine what was a reasonable rate of interest on a loan of the kind the plaintiff says was made. It may well be that in some circumstances a term could be implied for payment of a reasonable rate of interest. I will assume that that is so without deciding the question. I accept that where a contract for loan provides for a rate of interest to be fixed by a lender, a term may be implied that the rate to be fixed shall be a reasonable rate, having regard to other commercial rates charged in like circumstances (Victorian Producers Cooperative Co Limited v Edwards, Supreme Court of South Australia Full Court, 1 September 1993, unreported, BC9303977 at 5). However, Mr Bayni does not depose to any discussion to the effect that the rate of interest should be such rate as might be fixed by the lender. 19 Here, the question is whether it is seriously arguable that the parties bound themselves to an agreement for loan on the basis of the discussion between Mr Adler and Mr Bayni, when there was no discussion about interest. I do not think it is. Moreover, the fact that the discussions in June 2003 were preliminary appears from both the evidence of Mr Vamvakaris, and the words attributed by Mr Bayni to Mr Adler. Mr Vamvakaris deposes to Mr Adler saying that "I will see what I can do" and that "I could probably arrange for about $400,000 to come out of the Glowwine Investment Trust." That is not the language of contract. Mr Bayni deposes to having said that the money could be repaid in about two years when the project was complete, but this would depend on the market. According to him, Mr Adler responded to his statement that the loan and interest would be paid out of the proceeds of sale by saying that "that sounds fine". Again, this is not the language of a concluded contract. 20 The fact that immediately before the advance was made, Mr Adler presented a document for signature, which set out the terms of the intended advance, shows that it was this document that the parties are objectively taken to have intended would record their bargain. The document set out all the required terms of the loan. There is no evidence that Mr Bayni did not have the opportunity to read the document. It is short and would take only a moment to read. There is no evidence that Mr Adler misrepresented the effect of the document. The plaintiff did not submit that it was induced to sign the Debt Acknowledgment Notice by misrepresentation. Nor did it point to any ground on which its consent to the terms of the agreement, as recorded in that document, could be vitiated in equity or by statute. Rather, it argued that the terms of the agreement were to be found in the discussion which preceded the Debt Acknowledgment Notice rather than in the notice itself. 21 For the reasons I have given, I do not think this contention is seriously arguable. Indeed, even if the discussions between Mr Adler and Mr Bayni had amounted to an agreement on terms, I do not think it seriously arguable that the parties had agreed to be bound by those terms. In any event, the discussions were superseded by the document the plaintiff, through Mr Bayni, signed immediately prior to, or contemporaneously with, the advance. 22 It is not to the point that Mr Bayni did not carefully read the document. In Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 the High Court said (at 182 [47], and 185 [57]): "[47] … Legal instruments of various kinds take their efficacy from signature or execution. Such instruments are often signed by people who have not read and understood all their terms, but who are nevertheless committed to those terms by the act of signature or execution. It is that commitment which enables third parties to assume the legal efficacy of the instrument. To undermine that assumption would cause serious mischief. …

[57] … The general rule, which applies in the present case, is that where there is no suggested vitiating element, and no claim for equitable or statutory relief, a person who signs a document which is known by that person to contain contractual terms, and to affect legal relations, is bound by those terms, and it is immaterial that the person has not read the document. " 23 Accordingly, I am of the view that it is not seriously arguable that the plaintiff is not bound by the terms of the document Mr Bayni signed, notwithstanding that I assume that that signing was preceded by the oral discussions to which he has deposed. 24 The plaintiff did not submit that it was arguable that if the Debt Acknowledgment Notice had contractual effect, the instrument should be rectified to accord with the prior oral agreement or the continuing common intention of the parties. This is not surprising, having regard to the stringent requirements for convincing proof of such a common intention, or prior agreement, continuing up to the time of the execution of the instrument recording the agreement, which such a claim would require. 25 The plaintiff submitted that the defendant's subsequent conduct provided corroboration that the contract was as it contended it to be. The plaintiff pointed to the evidence of Mr Adler's statements in August 2004, and to the fact that no demand was made for repayment of the debt until April 2006. The acquiescence of Mr Adler in August 2004 is consistent with the terms of the discussions with him as deposed to by Mr Bayni in June 2003. However, it does not follow that it is arguable that the Debt Acknowledgment Notice did not record the terms of the loan. The fact that Mr Adler was prepared to allow indulgence, and the fact that the plaintiff gave an indulgence until April this year in not calling up the debt, do not indicate that it is reasonably arguable that the terms of the loan were other than as recorded in the signed Debt Acknowledgment Notice. 26 It was submitted that the parties had acted on the basis that moneys would be repayable only from the profits of the Erskineville development. Of course that submission is not wholly correct. The signing of the Debt Acknowledgment Notice and the correspondence of October, November and December 2003 are not consistent with that. In any event, even if the parties had so conducted themselves, it would not displace the conclusion that the Debt Acknowledgment Notice set out the terms of the contract of loan. 27 The plaintiff also submitted that the defendant was estopped from calling up the loan, contrary to the representations made by Mr Adler. Mr Bayni deposed in his affidavit of 25 September 2006 that: " At all times I relied upon the representations made by Mr Adler to me that the $400,000 loan from the Glowwine Investment Trust was to be repaid from the proceeds of sale of the Erskineville property after completion of that development project. " 28 The defendant submitted that this ground of dispute was not articulated in the affidavit served within 21 days after service of the statutory demand, and accordingly was not a ground available to the plaintiff (Graywinter Properties Pty Limited v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452; Energy Equity Corp Limited v Sinedie Pty Limited (2001) 166 FLR 179 at 185). This may well be right. However, I prefer to rest my conclusion on the basis that on the whole of the evidence relied on by the plaintiff, it is not arguable that it would be unconscionable for the defendant to deny the assumption which Mr Bayni deposes he made, namely, that the loan would not be repayable except out of the profits from the sale of the Erskineville property. 29 The representation attributed to Mr Adler, namely, that it "sounds fine" that the principal and interest would be repaid out of the proceeds of sale when the development was completed, could not reasonably have induced an assumption the loan would only be repayable out of profits from the sale. However, leaving that point aside, and assuming that Mr Bayni's assumption could be expressed in other terms more consistent with the conversation to which he deposes, still there is nothing which makes it unconscionable for the defendant to insist on the contractual terms. The fact that those terms were preceded by discussions to different effect does not arguably make it unconscionable for the defendant to insist on the contract as signed. 30 There is no evidence to show that the defendant bears any responsibility for Mr Bayni not having taken up the opportunity to carefully read the terms of the Debt Acknowledgment Notice, assuming he did not. Mr Bayni's prior discussions with Mr Adler were to the effect that he, Mr Bayni, represented that the loan could be repaid when the project was complete, and that he expected the project to be complete in about two years. The effect of the document was that the borrower undertaking the development, rather than the lender, assumed the risk of delay in completion of the development. There is nothing unconscionable about a lender, following such prior discussions, proffering terms requiring the loan to be repaid in two years, offering the borrower the opportunity to read the document containing those terms, and then making an advance on the basis of the document the borrower signed. 31 Accordingly, I do not consider that there is an arguable case that the defendant is estopped from seeking recovery of the loan. 32 For these reasons, I do not consider that there is a genuine dispute between the parties that the debt claimed by the defendant is presently due and payable. 33 Accordingly, I order that the originating process be dismissed and that the plaintiff pay the defendant's costs. 34 The plaintiff seeks an order extending the period for compliance with the demand to 21 days from today. That order is not opposed by the defendant. Accordingly, I order that the period for compliance by the defendant with the statutory demand dated 3 August 2006 be extended up to and including 17 October 2006.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.