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[2009] NSWSC 1257
plaintiff. The statutory demand dated 17 April 2009 and served on 22 April 2009 was set aside under s 459J(1)(a) of the Corporations Act 2001 (Cth) ([19]).
1 cited instrument linked from this judgment.
The creditor's demand claimed $400,000 under a deed that made the payment due if any one of five different events occurred. The demand did not say which event the creditor relied on or what had happened. The Court held that the company needed this information to understand and assess the claim, even if Mr Osborne knew facts about the relevant property and interests. Because the demand and the unanswered request for particulars left the company unable to assess whether the debt was genuinely disputed, Austin J set the demand aside for defect causing substantial injustice.
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In Patonga Beach Holdings Pty Ltd v Lyons [2009] NSWSC 1257, Austin J considered an application by Patonga Beach Holdings Pty Ltd (Patonga) to set aside a creditor’s statutory demand. The demand sought $400,000 as an unpaid balance under a deed of settlement dated 20 December 2007. The plaintiff applied under s 459G of the Corporations Act 2001 (Cth), and the Court ultimately set the demand aside under s 459J(1)(a) ([1], [6], [19]).
The deed provided for a total settlement payment of $550,000. It specified initial payments of $25,000 and $125,000, with the remaining $400,000 payable upon the earliest of five events: the passage of four years, disposal of the Property, disposal of specified interests in Colo Investments, or disposal of a beneficial interest in the Property ([2]). Clause 7 provided security for any unpaid part of the settlement sum through an “unlimited personal guarantee” given by Robert Osborne and Patonga ([3]).
The demand stated that the $400,000 balance was due “on or about 9 April 2008”. It referred to clause 5(c) of the deed and the guarantee provision, but did not identify which of the five possible triggering events the defendants said had occurred or what facts were said to establish it ([1], [11]). Austin J noted that the four-year event could not explain a demand in April 2008, because that period would not expire until 20 December 2011 ([11]).
The defendants’ rights were said in the demand to derive from an assignment of Ray Armstrong’s rights and obligations under the deed. The assignment was dated 24 January 2008, with a notice of assignment dated 4 September 2008 ([1]). The plaintiff and Osborne disputed that the debt had become due. Their solicitor requested further particulars, but none were provided ([16]–[18]).
There was also evidence concerning the transfer of leasehold interests associated with the Property in Vanuatu. Austin J expressed reservations about what a transfer document dated 7 May 2007 actually transferred: it left blank the part specifying the property, and if the relevant company held only a sublease, the document might have transferred only a sublease, if anything ([5]). The Court did not resolve that factual question. It decided the application on the demand’s failure to explain the alleged trigger event ([6]).
Section 459J(1)(a) permits the Court, on an application under s 459G, to set aside a demand if a defect in the demand would cause substantial injustice unless the demand is set aside. Section 459J(2) makes clear that a demand cannot be set aside merely because it has a defect ([7]). The inquiry therefore required both a defect and substantial injustice arising from it.
Austin J referred to Topfelt Pty Ltd v State Bank of NSW Ltd (1993) 12 ACSR 389 for an explanation of “defect”. The passage quoted there described a defect in ordinary usage as a lack or absence of something necessary or essential for completeness, or a shortcoming, deficiency or imperfection ([8]). The Court also referred to the approach in LSI Australia Pty Ltd v LSI Holdings Pty Ltd (2007) 25 ACLC 1602; [2007] NSWSC 1406: a demand can be defective if it is so vague or ambiguous that a director cannot identify the general nature of the debt sufficiently to assess whether a genuine dispute or offsetting claim exists ([9]).
Austin J did not depart from that approach. He concluded that the demand in this case did not satisfy the relevant standard because it failed to say which of the alternative events in clause 5(c) was alleged to have occurred ([10]–[11]). Merely identifying the clause was insufficient. The clause set out several different routes by which the payment obligation could become due, and the demand did not identify which route the defendants relied on.
The unexplained date of 9 April 2008 added to the problem. The demand gave no explanation for why that date mattered, and the defendants tendered no evidence at the hearing explaining it ([14]). The Court therefore considered the demand’s account of the claim insufficiently meaningful to let the plaintiff assess the asserted basis for payment.
The defendants argued that Osborne knew the relevant facts and that Patonga was a related entity. Austin J rejected that as an answer to the omission. A person may know the surrounding facts yet still need to know how the claimant puts its case. Knowledge of what may have happened is not the same as knowing which event the creditor alleges triggered payment ([12]–[13]). The distinction matters because the debtor needs to be able to test the claim as actually advanced, rather than guess which contractual basis the creditor intends to rely on.
The Court also considered the earlier request for particulars. The solicitor’s letter denied that the debt was due and asked for further information. In Austin J’s view, that letter supported rather than undermined the plaintiff’s position: it showed that the failure to identify the relevant subparagraph and factual basis left the claim unclear ([16]–[17]).
The defect caused substantial injustice because the plaintiff had to decide whether to apply to set aside the demand without knowing precisely how the defendants made their claim, and therefore without being able to assess whether a genuine dispute was available. The lack of a response to the request for particulars within the statutory period compounded that difficulty ([18]). The Court set aside the demand under s 459J(1)(a) ([19]).
The judgment did not purport to establish a new general test for statutory demands. It referred to the defect analysis in Topfelt and the sufficiency standard stated in LSI Australia. Austin J expressly said he was not asked to depart from the observations in LSI Australia and would not do so ([8]–[10]).
The contribution of the decision, on its own terms, is its application of that standard to a demand relying on a contractual clause with multiple alternative triggering events. The demand named the clause and the amount, but the Court held that those details did not suffice where the creditor failed to identify which event allegedly made the debt payable ([11], [18]). The debtor was not required to infer the creditor’s case from the clause or from its own knowledge of surrounding facts ([12]–[13]).
The decision also illustrates the separate substantial-injustice requirement. The Court did not treat every omission as enough to set aside a demand. It connected the omission to the plaintiff’s inability to assess whether there was a genuine dispute, its need to decide whether to apply without understanding the claim, and the lack of a response to its request for particulars within the statutory period ([18]). That connection was necessary because s 459J(2) prevents setting a demand aside merely because a defect exists ([7]).
The judgment text supplied here does not describe later legislative changes or later judicial treatment of Patonga Beach Holdings. Accordingly, it supports an explanation of the principle applied in this case, but not a broader account of how the law has developed since 2009.
At [11], Austin J observed that the demand did not identify “[t]he particular event” said to have triggered the payment and guarantee obligations. In plain English, the creditor had cited a clause containing several possible triggers but had not stated which one it relied on.
At [13], the Court explained that it is one thing to think, based on known facts, that no payment obligation arose, and another to know how the creditor puts its claim. The practical point is that a debtor cannot properly test the creditor’s case merely by knowing what happened in the background. It needs to understand which contractual route the creditor says makes the debt payable.
At [14], Austin J noted that the demand’s reference to 9 April 2008 was unexplained. The date did not clarify which triggering event was alleged; instead, it introduced another point requiring explanation.
At [18], the Court connected the defect to substantial injustice. The plaintiff had to consider whether to apply to set the demand aside without knowing precisely how the claim was made, and its request for particulars received no response within the statutory period. In plain terms, the missing information affected the plaintiff’s ability to make an informed assessment during the relevant process.
At [19], the Court made the operative order: the demand dated 17 April 2009 and served on 22 April 2009 was set aside under s 459J(1)(a).
The reasoning is most directly engaged where a creditor’s statutory demand relies on a contract that provides several alternative events for payment, but the demand does not identify which event is alleged to have occurred. The key features in this case were a clause listing five possible triggers, a demand that referred generally to that clause, and no explanation of which trigger the creditor relied on ([2], [11]).
The reasoning may also be relevant where a demand gives a payment date that appears significant but does not explain its connection to the contractual obligation. Here, the demand said the balance was due “on or about 9 April 2008”, but the Court was given no explanation for that date ([11], [14]).
The case is particularly relevant to the argument that a debtor already knows the underlying facts and can therefore work out the creditor’s case. Austin J rejected that reasoning in this context. Even a debtor familiar with the facts may need the creditor to identify which event it says has triggered payment, so the debtor can evaluate the claim as advanced ([12]–[13]).
The decision does not establish that every demand must set out every item of evidence or every detail of a creditor’s case. The judgment’s stated concern was whether the demand identified the general nature of the debt sufficiently for the debtor to assess whether there was a genuine dispute. Its application will depend on the wording of the relevant demand and the underlying payment terms ([9]–[11]).
The judgment text provided does not cite any decision after Patonga Beach Holdings, and it does not report how a later court treated this decision. No later applications, distinctions, affirmances or reversals can therefore be identified from the supplied source.
The two authorities expressly cited in the judgment are Topfelt Pty Ltd v State Bank of NSW Ltd and LSI Australia Pty Ltd v LSI Holdings Pty Ltd. Austin J referred to Topfelt when discussing the meaning of “defect” ([8]). He referred to LSI Australia for the standard of whether a demand identifies the general nature of the debt sufficiently for assessment of a genuine dispute, and said he would not depart from those observations ([9]–[10]).
Those references establish the reasoning Austin J used in 2009. They do not establish how later courts have treated Patonga Beach Holdings itself. A current assessment of its later treatment would require materials beyond this judgment.
The Court did not decide the other grounds advanced by the plaintiff, because it considered the s 459J(1)(a) ground sufficient to dispose of the application ([6]). The judgment therefore does not resolve the other questions raised about the form or content of statutory demands made by an assignee or demands against a guarantor.
The Court also did not determine whether the 7 May 2007 transfer document transferred the Property, a sublease, or something else. Austin J described uncertainties in the document and the evidence, but did not need to decide them to set aside the demand ([5]–[6]).
The decision does not specify what level of detail would be sufficient in every demand involving alternative contractual triggers. Its conclusion is tied to the combination of an unidentified trigger event, an unexplained due date, the plaintiff’s inability to assess whether the debt was genuinely disputed, and the unanswered request for particulars ([11], [14], [16]–[18]).
Finally, the source does not establish whether the creditor could issue a fresh demand with further information, or what procedural or substantive consequences might follow. Those matters were not addressed in the orders or reasons reproduced here. The judgment’s stated disposition is limited to setting aside the demand before the Court ([19]).
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CITATION : Patonga Beach Holdings Pty Ltd v Lyons [2009] NSWSC 1257
DECISION : Statutory demand set aside under s 459J(1)(a)
CATCHWORDS : CORPORATIONS - winding up in insolvency - creditor's statutory demand - whether defect in the demand - whether substantial injustice would be caused unless demand set aside
LEGISLATION CITED : Corporations Act 2001 (Cth), s 459G, 459J
CASES CITED : LSI Australia Pty Ltd v LSI Holdings Pty Ltd (2007) 25 ACLC 1602; [2007] NSWSC 1406 Topfelt Pty Ltd v State Bank of NSW Ltd (1993) 12 ACSR 389
PARTIES : Patonga Beach Holdings Pty Ltd (Plaintiff) John Howard Lyons, Rosebanner Pty Ltd and Australian Hotels Ltd (Defendants)
COUNSEL : R M Lovas (Plaintiff) J B Simpkins SC (Defendants)
SOLICITORS : Angela M Frost (Plaintiff) Legal Ease Lawyers (Defendants)
IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST
2769/09 PATONGA BEACH HOLDINGS PTY LTD V JOHN HOWARD LYONS & ORS JUDGMENT 1 HIS HONOUR: This is an application under s 459G of the Corporations Act 2001 (Cth). The schedule to statutory demand describes the debt, said to be $400,000, as follows: "Balance of settlement sum due on or about 9 April 2008 as per subclause 5(c) of clause 7 of the deed dated 20 December 2007 between Ray Armstrong, the company, Robert Osbourne, Colo Investments Ltd, Karuah Ltd and Goldstar Gaming Pty Ltd (ACN 095 092 416), the rights and obligations of Ray Armstrong under such Deed having been assigned to John Howard Lyons, Rosebanner Pty limited ACN 003 916 309 and Australian Hotels Limited ACN 010 869 655 by way of Deed of Assignment dated 24 January 2008 and Notice of Assignment dated 4 September 2008." 2 The deed dated 20 December 2007 was a deed of settlement of disputes between Raymond Armstrong and Robert Osborne, and interests associated with each of them. Clause 5 provided that in consideration of the transfer of Mr Armstrong's interests in Colo Investments to Mr Osborne, Mr Osborne was to pay to Mr Armstrong the amount of $550,000 on the following terms: "(a) $25,000 upon the date of this Deed and (b) $125,000 within 90 days of the date of the Deed; and (c) the balance of $400,000 either: (i) within 4 years from the date of this Deed; or (ii) upon the disposal of the Property; or (iii) upon the disposal of any part of Osborne's interest or the interest of a related entity of Osborne, in Colo Investments; or (iv) upon the disposal of any part of Osborne's beneficial interest or the beneficial interest of a related entity of Osborne, in Colo Investments or (v) upon the disposal of any beneficial interest in the Property [Leasehold title No 11/0D22/069] whichever is the earlier." 3 By clause 7, any unpaid part of the settlement sum was secured by the "unlimited personal guarantee" of Mr Osborne and Patonga Beach Holdings Pty Ltd, the plaintiff. 4 The Property was a leasehold title located at Rue de Paris, Port Vila, Vanuatu. According to the recitals to the Deed: Colo Investments became the proprietor of the leasehold title on 19 December 2005, but the transfer in its favour was not registered and so at the date of the deed it was "the unregistered owner of the leasehold to the Property"; Colo Investments subleased the Property to Club Vanuatu Ltd on the same day. 5 The evidence includes a form of transfer of lease made under the Land Leases Act of the Republic of Vanuatu and dated 7 May 2007, by which Club Vanuatu Ltd transferred some leasehold property to a company called Lakehouse Investments Ltd. The hearing proceeded on the basis that this was a transfer of the Property, that is, the leasehold interest held by Colo Investments. But now that I have had the opportunity to review the evidence, I am not sure that this is so. The transfer of lease document leaves blank the clause that would specify the property transferred, and on the face of it, if Club Vanuatu Ltd had only a sublease, only a sublease (if anything) was transferred by that instrument. It is also odd that the instrument bears a date earlier than the date of the Deed, but the recitals to the Deed do not mention it. 6 The plaintiff seeks an order setting aside the statutory demand on several grounds. Some of them raise some difficult questions about the form and content of a statutory demand made by an assignee, and a statutory demand made against a guarantor. When I indicated at the hearing that, having read the papers, I was inclined to find in favour of the plaintiff under s 459J(1)(a), submissions focused on that ground. Although the submissions made by senior counsel for the defendant were clearly and articulately put, I have decided that the statutory demand should be set aside under that provision. In the circumstances I shall not deal with the other grounds that were advanced. 7 Section 459J(1)(a) says that on an application under s 459G, the court may by order set aside the demand if it is satisfied that: "(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside". Section 459J(2) says that except as provided in subsection (1), the court must not set aside a statutory demand merely because of a defect. 8 The concept of a "defect" was explained by Lockhart J in Topfelt Pty Ltd v State Bank of NSW Ltd (1993) 12 ACSR 389, at 392: "The definition of 'defect' is an inclusive definition, so one must construe the term initially according to its ordinary meaning and then introduce into it, if it is otherwise not included, the deemed statutory connotations. According to its ordinary usage a 'defect' means a lack or absence of something necessary or essential for completeness; a shortcoming or deficiency; an imperfection." 9 The parties placed emphasis on some observations of mine in LSI Australia Pty Ltd v LSI Holdings Pty Ltd (2007) 25 ACLC 1602; [2007] NSWSC 1406 at [54]: "If the demand is so vague or ambiguous that it fails to identify, to a reasonable person in the shoes of a director of the debtor company, the general nature of the debt to a sufficient degree that the director can assess whether there is a genuine dispute as to the existence or amount of the debt or an offsetting claim, then there is a lack of something necessary for completeness, and therefore a defect in the demand." 10 I was not asked to depart from those observations and I will not do so. In my opinion the standard there articulated, was not met by the statutory demand in the present case. 11 The description of the debt in the statutory demand identifies clause 5(c) and clause 7 of the Deed. But under clause 5(c) the sum claimed is to become payable only upon the happening of one of five events. The particular event that, according to the defendant, has triggered the obligation of Mr Osborne, and the guarantee obligation of the plaintiff, is not identified. The only hint to the way the defendant puts its claim is that the balance was said to have become due "on or about 9 April 2008". But nothing is said to explain what happened, according to the defendant, on that day. Obviously clause 5(c)(i) did not become applicable at that time, because the four years will not expire until 20 December 2011. On its face, the description of the debt in the statutory demand does not inform the plaintiff just why it is that the defendants says the debt has become due, and therefore it does not permit the plaintiff to assess whether there is a genuine dispute about the defendant's claim. 12 The defendant's response is to argue that all the facts concerning the matters listed in clause 5(c) are within the knowledge of Mr Osborne and therefore the plaintiff, which is a related entity of Mr Osborne. It argues that, because of the knowledge that Mr Osborne has, it is enough for the statutory demand simply to identify clause 5(c) and leave it to Mr Osborne to work out what the defendant claims to have happened that has triggered the obligation to pay. 13 In my view that is incorrect, given the precise wording of clause 5(c). Mr Osborne, reading the statutory demand, would presumably have wanted to know, being aware of all the facts relating to ownership interests, just how the defendant put its claim that there had been an event triggering the payment obligation. Only when he knew that, would he be able to decide whether the claim was properly disputed. It is one thing to believe, on the basis of the facts that you know, that there is no payment obligation, but it is another thing to hear how the claimant puts its case, for only then can you focus on whether the ingredients of the claim are properly made out. 14 Additionally, the inclusion in the statutory demand of the day, 9 April 2008, without any explanation at all (and the date was not explained by any evidence tendered at the hearing) creates a dimension for confusion that needed to be clarified by the text of the document, but was not. 15 According to his affidavit, Mr Osborne believed at the time that the deed was entered into, the intention of the parties was that the obligation to pay $400,000 should only be accelerated in time if he disposed of his beneficial interest in the lease. He said that the transfer of the lease to Colo Investments had never been registered but instead, the lease was eventually transferred from Club Vanuatu Ltd to Lakehouse Investments Ltd (presumably by an instrument other than the one dated 7 May 2007, for according to Mr Osborne's evidence it was later than the Deed and it was a transfer of the lease rather than any sublease). Mr Osborne claimed to be the sole beneficial interest holder of Lakehouse Investments. Therefore his claim was, apparently, that clause 5(c) had not been triggered by any of those events because he had retained sole beneficial ownership. On the other hand, clause 5(c)(ii) refers to "disposal of the Property". If the statutory demand had specified that provision, then at least Mr Osborne and the plaintiff would know that the issue upon which they needed to concentrate was whether that provision had been triggered in any way. But they were not told. 16 On 7 May 2009 a solicitor acting for Mr Osborne and the plaintiff wrote to the defendants' solicitors saying that her clients denied that the debt was due and payable. The letter asserted that there had been no disposal of any part of Mr Osborne's interest or the interest of a related entity in Colo Investments, or of any beneficial interest in the Property. The letter requested further particulars of the claim, but no particulars were provided. 17 The defendant relied on the letter to show that Mr Osborne and the plaintiff were in possession of all relevant facts at the time. It seems to me, however, that the letter reinforces the point made by Mr Osborne in his affidavit, namely that the omission to identify which sub-paragraph of clause 5(c) was material, and the factual basis for alleging that materiality, meant that the statutory demand was insufficiently meaningful to permit him to assess the true content of the allegation, and hence his solicitor requested further particulars. 18 I am satisfied that, in the circumstances, the failure of the defendant to specify in the statutory demand which subparagraph of clause 5(c) had been attracted and on what basis, meant that the plaintiff and Mr Osborne were not placed in a position of being able to assess whether there was a genuine dispute as to whether the money had become payable. The statutory demand was therefore defective. Because of the nature of the defect, substantial injustice will be caused unless the demand is set aside. This is because the lack of information in the statutory demand put the plaintiff in the unacceptable position of having to decide whether to make an application to set the demand aside without knowing precisely how the claim was made and therefore whether it could rely on a genuine dispute; further, when the matter was raised by the plaintiff's solicitor in correspondence, there was no response within the statutory period. 19 I shall make an order under s 459J(1)(a) that the statutory demand dated 17 April 2009 and served on 22 April 2009 be set aside. **********
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.
Patonga Beach Holdings Pty Ltd
Lyons
The statutory demand dated 17 April 2009 and served on 22 April 2009 was set aside under s 459J(1)(a) of the Corporations Act 2001 (Cth) ([19]).