Plaintiff v Defendant

1 These are applications pursuant to s 459G of the Corporations Act 2001 (Cth) ('the Act') to set aside two statutory demands each dated 11 August 2017.

2 In the Gordon Nominees proceeding,[1] the description of the debt set out in the schedule to the statutory demand is:

Undocumented and at call loan advanced to the Company by the Creditor in the financial year ending 30 June 2014 - $2,000,786.00.[2]

3 In the Gordon Finance proceeding,[3] the description of the debt in the schedule to the statutory demand is:

Undocumented and at call loan advanced to the Company by the Creditor in the financial year ending 30 June 2012 - $4,347,611.00.[4]

4 The key issues raised in relation to each of the separate statutory demands are similar, namely:

(a) is there a genuine dispute as to the existence of the two debts; and

(b) was there authority to serve the statutory demands?

The background is largely identical. Accordingly, I will deal with both in the one judgment.

5 Queenfield is trustee of the Travel Inn Motel Unit Trust ('the Trust'). It conducted all its business and dealings relevant to these applications as trustee. Queenfield was the proprietor of a business known as Best Western Plus Travel Inn Hotel in Carlton ('the Travel Inn'). Queenfield also owned the land on which the hotel is situate.

6 Prior to July 2015, all the units in the Trust were owned by Gordon Nominees, of which Moishe Gordon ('Mr Gordon') is a director.[5] Until 30 June 2015, Mr Gordon and his son, Yaakov Gordon, were directors of Queenfield.[6]

7 As a consequence of divorce proceedings in the Family Court, it became necessary for Gordon Nominees to sell the Travel Inn or to sell down, either in whole or in part, its interest in the Trust in order for Mr Gordon to meet his financial commitment to his former wife.[7]

8 By Sale of Units Deed made 1 July 2015 between Queenfield as Trustee, Gordon Nominees as the vendor and TLP Nominees Pty Ltd as the purchaser and others, Gordon Nominees sold 50 of its 100 units in the Trust to TLP Nominees.[8]

9 I was taken at length to the provisions of the Sale of Units Deed. There is no need to set out that material pertaining to the unit sale, save to note that:

• the purchase price was $5,250,000;[9]
• the Vendor's warranties included a warranty that all the 'Disclosure material' is complete and accurate;[10]
• the Vendor's warranties also included that: 'the Vendor has not included anything in the Disclosure Material that is be [sic] misleading';[11]
• the 'Disclosure Material' was defined to include all information, communication or disclosure contained in any document provided by the Vendor, information available publicly (by searches of public registers); and
• all information which the Purchaser would be aware of by undertaking reasonable enquiries, appraisals and investigations based on the information from the documents or publicly available information.[12]

10 It was also of note that TLP Nominees lent Gordon Nominees the sum of $2,100,000 on the conditions contained in a separate loan agreement annexed to the Sale of Units Deed.[13] That loan of $2,100,000 does not form part of the amounts claimed in the statutory demands. However, how the TLP Nominees loan was dealt with became the subject of whether or not Queenfield had power to call up each of the loans the subject of the statutory demands.

11 Queenfield's financial report for the year ending 30 June 2015 relevantly set out:

Current assets - receivables - $4,401,987.00

Note 3 includes loan - Gordon Finance Trust $4,347,611.00

Note 7 with respect to non-current liabilities includes:

Borrowings - related

Gordon Family Trust minus $2,167,759.00.[14]

12 Gordon Finance is the Trustee of the Gordon Finance Trust. Gordon Nominees is the Trustee of the Gordon Family Trust. I am uncertain as to why the receivable from the Gordon Family Trust is recorded as a negative non-current liability rather than a positive non-current asset. However, nothing turns on that distinction. I note that the Gordon Finance liability of $4,347,611 is recorded as a current asset. Accounting protocols dictate that a current asset, being a receivable, is payable within 12 months.

13 The 30 June 2015 accounts for Queenfield[15] are not signed. However, it is conceded that Mr Gordon, as a director of Queenfield, signed the 30 June 2015 accounts some time in 2016.[16]

14 The balance sheet for the Trust (of which Queenfield was the Trustee) as at 30 June 2016 includes the following entries:

Loans receivable

Gordon Finance Trust $4,347,611.00

Loan - Gordon Family Trust $2,000,786.00.[17]

15 Mr Gordon contends that the two debts were first raised at a board meeting of Queenfield held in February 2017.[18]

16 Mr Efron, Mr Gordon's solicitor,[19] attended the Queenfield board meeting on 23 February 2017 as proxy for each of Mr Gordon and Yaakov Gordon.[20] The minutes of meeting relevantly recorded:

At John Paolacci's invitation, Dennis Beed raised queries in relation to two loan items that have appeared in the Company's financials in recent years. Mr Beed asked Graeme Efron to provide details on the following loan items:

• A loan from the company in 2011/2012 to Gordon Finance Pty Ltd for in excess of $4.3 million; and
• A loan from the Company in 2013/2014 to Gordon Nominees Pty Ltd for in excess of $2 million.

Mr Beed said that after reviewing the financials that he was of the view that there was no terms attached to these loans, unless Graeme Efron had records that proved to the contrary.

Mr Beed stated that the Company had borrowed these monies from NAB, before loaning them to interests controlled by Moishe Gordon, and was paying interest on them and claiming that interest as a tax deduction. Ms Barrett queried whether the interest the Company had paid to NAB should be charged back to Moishe Gordon's interests.

Graeme Efron confirmed the dates on which the monies had been lent to each of Gordon Finance Pty Ltd and Gordon Nominees Pty Ltd and stated that he presumed that there were no terms attached to these loans.

...

Owing to the tax implications for the Company ... Dennis Beed asked Graeme Efron to revert to the Board with information on these loans once he had spoken to Moishe Gordon. Mr Efron agreed to do so.

Mr Paolacci also asked Graeme Efron where the Company's books and records for the past five years were as no one had been able to locate them. Mr Efron said that he did not know, but presumed that Moishe Gordon's previous accountant may have these records.[21]

17 At a board meeting of Queenfield on 7 March 2017, the issue of quorum and entitlement to vote, a consequence of the rights arising under the TLP Nominees loan to Gordon Nominees and its subsequent cancellation, arose.[22] In addition, the minutes of the meeting recorded with respect to the Gordon Finance loans and the Gordon Nominees loans:

... Mr Efron said that he did not have any further information except that his client's investigation was ongoing into these matters.

Mr Efron then denied that there were any debts owing to Gordon Finance Pty or GNPL.

Mr Efron said that he would now make detailed enquiries into these matters.[23]

18 I accept that the reference in the last paragraph as to 'debts owing to' should have been 'debts owing by ...'.

19 On 7 March 2017, the board of Queenfield purported to resolve:

If repayment is not made forthwith, that the Company pursue all means necessary to recover these funds, including legal proceedings. The board delegates its powers to Raffaelina Paolacci to instruct and engage solicitors and other advisors as necessary to cover these funds without any further board approval.[24]

20 Mr Efron, in his capacity as attorney for Moishe Gordon, voted against that resolution.

21 Subsequently, Queenfield made demand for repayment of each of the sums by email transmissions dated 8 March 2017.[25]

22 On 13 June 2017, Mr Gordon provided a digital copy of a 5 June 2015 resolution to Queenfield's bookkeeper.[26] His position is that the two loans were discharged by resolution of Queenfield made 5 June 2015.[27] The resolution is in the following terms:

Queenfield Pty Ltd

Minute of meeting: Board Meeting

Date: Friday 5 June 2015

Chairman: M Gordon

Attendance: K Gordon by telephone

100% for $23,750,000

50% based on total value of $22m and retain 50% income stream.

1. Consider the offer of the proposed sale of 50% of units to Paolacci subject to an additional loan of $2.1 million.
2. Discussed the email of 5 June confirming the only loan account is $11.5m to NAB.
3. Resolved to discharge the two Gordon loan accounts by distribution from the Asset Realisation Reserve.

Gordon Family Trust $2,167,759.

Gordon Finance Trust $4,347,611.

1. Motion carried unanimously.
2. Resolved to sell 50% to Paolacci for $5.25m and loan of $2.1m subject to legal advice and documentation.
3. Motion carried unanimously.

Signed:

M Gordon

Chairman.[28]

23 By email dated 23 June 2017, Queenfield's solicitors, Collins & Collins, wrote to Efron & Associates, the solicitors acting for Gordon Nominees and Gordon Finance. That email set out Collins & Collins' position in relation to receiving instructions pursuant to the two debts and the resolution passed 7 March 2017. The email then dealt with the lack of communication regarding the 5 June 2015 resolution, and sought a further explanation.[29]

24 On 30 June 2017, Mr Gordon wrote to Raffaelina Paolacci. Mr Gordon initially set out material in relation to how the acquisition was structured. There followed:

It was requested by John on behalf of you when entering into that 50% acquisition that Queenfield's accounts be 'cleaned up' prior to your acquisition in early July 2015 so as to present you with a clean balance sheet as would have been the case had the deal proceeded by way of a new JV company/trust.

Accordingly, prior to concluding the deal with you, as the director I held a meeting of the then board and passed the resolution recorded in the 5 June minute discharging the two related party loan accounts against the asset realisation reserve. [emphasis added]

I repeat that prior to your acquisition of 50% interest in Queenfield, all loan obligations due to Queenfield in June 2015 by my companies had been discharged. [emphasis added]

Upon acquisition of your interest in Queenfield, you acquired the same equity interest in the Travel Inn freehold and business as you would have had the deal proceeded by way of a new JV company/trust and a new bank borrowing of $11.5m.

I believe that the issue of the alleged outstanding loan accounts was raised for the first time at a board meeting in February 2017.

These loans were raised again at the board meeting in March 2017. Whilst the accuracy of the minutes is disputed, it is acknowledged that the minutes accurately recorded Mr Efron as denying that there were any debts owing to Queenfield by Gordon Finance or Gordon Nominees.

Clearly this is a planned mischievous and oppressive strategy created by others to try and get my share of this business for nothing.

When Ms Barrett had recently presented accounts for 2016 to be signed off I noted that the 2015 accounts were incorrect as it failed to take into account discharging the two related party loan accounts against the asset realisation reserve.

Accordingly, as soon as I had returned from the Philippines, I called the meeting with Lorraine to address the issue being to correct 2015 accounts for Queenfield.

I provided her with a copy of the 5 June minute after I was able to access my records held in storage upon my return from the Philippines.[30]

25 By letter dated 4 July 2017 from Collins & Collins to Efron & Associates, it was relevantly set out with respect to Mr Gordon's letter of 30 June 2017 as follows:

Mr Gordon's letter states that he obtained the 5 June Document from his files after recently returning from overseas.

Mr Gordon does not address why the 5 June Document does not appear in [Queenfield's] books and records. Nor does Mr Gordon address any of the questions put to you in our letter of 29 June 2017.

...

We are aware that on 13 June 2017, Mr Gordon sent an email containing the 5 June Document in Microsoft Word format to Lorraine Barrett. We are in possession of that email and the attachment.

Having performed a basic analysis of the metadata of the electronic file that is the 5 June Document, this data clearly states that it was created by Graeme Efron on 9 June 2017.

There is no evidence in the meta data that we have seen that indicates the 5 June Document was created in June 2015 as Mr Gordon contends.

We have now been instructed to have the electronic copy of the 5 June Document subjected to a detailed forensic analysis so as to determine of [sic] all the other metadata relating to this file.[31]

26 An analysis was undertaken by David Caldwell of Forensic IT Pty Ltd. That analysis is consistent with what was set out in the letter of 4 July 2017 from Collins & Collins to Efron & Associates.[32]

27 It is clear that the document purporting to be the resolution of 5 June 2015 has been fabricated after the event. That conclusion is reached by reference to the meta data uncovered on behalf of Queenfield and by the wording of the resolution itself referring to figures which could have only been quantified on preparation of the 30 June 2015 accounts, well after the 5 June 2015 date in any event.[33]

28 By letter of 10 July 2017, Collins & Collins requested Efron & Associates to provide access to the hard drive on which the resolution was created.[34] That was followed up with an email of 21 July 2017 noting that there had not been a response to the issues raised.[35]

29 The plaintiffs' submit that the affidavit material clearly establishes the existence of a genuine dispute in relation to the debts.[36] Particular reliance is placed upon Ligon 158 Pty Ltd v Huber.[37] As in that case, the plaintiffs' submit that Queenfield's 2015 accounts did not reflect any conscious or informed decision of anyone in authority, and that the issue of the 2015 accounts should not be fatal to the plaintiffs' case.[38] Additionally, evidence and contemporaneous documents further support the plaintiffs' proposition that the loans were extinguished, particularly:

(a) John Paolacci's evidence and his letter of 15 June 2015 setting out TLP Nominees Ltd's offer to purchase;

(b) the correspondence of Efron & Associates on 16 June 2015 and 23 June 2015; and

(c) the Sale of Units Agreement provided by Efron & Associates, the purchase price of which was effectively the same as in Mr Paolacci's letter.[39]

Such evidence is asserted to be consistent with the choses in action not being included in the sale of 50 per cent of the units in the Unit Trust, and the choses in action having been extinguished prior to 1 July 2015.[40] According to the plaintiffs, it cannot be said to be so lacking in substance that it can be dismissed without further examination.[41]

(a) There is no evidence that the debts were extinguished and Mr Gordon's own evidence is that he manufactured the 5 June [resolution] two years after the alleged resolution was passed. The evidence is overwhelming that Mr Gordon concocted the written resolution in an attempt to mislead Queenfield and avoid the Debts.

(b) The evidence that the Debts are due and payable is clear from the Gordon Finance affidavit, the Gordon Nominees affidavit and the affidavits [sworn on behalf of Queenfield] ...

(c) The [Queenfield] affidavits demonstrate that:

(i) The Debts were being discussed on 16 June 2015 prior to the acquisition of units ... and 11 days after Mr Gordon allegedly 'wrote them off'; and

(ii) Of most significance, Mr Gordon signed off on the 30 June 2015 accounts which contain and acknowledge the debts in March 2016.

(d) The affidavit of Michael Langmaid sworn 18 October 2017 ... who was the accountant for Queenfield and Gordon Nominees and Gordon Finance, also confirms that he has never been instructed to write off the Debts and has never given advice to do so to Mr Gordon. Rather, he says that the Debts are properly reflected in Queenfield's financial accounts and remain due and payable.[42]

31 Although Gordon Nominees was the unit holder in the Trust, Gordon Finance was not as at 5 June 2015 and never had been a beneficiary of the Trust. In those circumstances, discharge of the Gordon Finance Trust Debt in the sum of $4,347,611 by way of distribution from the asset realisation reserve was not legally valid. The purported discharge of the Gordon Finance Trust Debt was without consideration.

32 Further, the borrowing by Gordon Family Trust had increased from $1,376,234 to $2,167,759 during the financial year ending 30 June 2015.[43] Mr Gordon could not have possibly known what the figure was to be inserted in the resolution until after the Queenfield financial accounts for the financial year ending 30 June 2015 were produced in March 2016.[44] A resolution in the form produced by Mr Gordon could not have been passed on 5 June 2015.

33 At first blush the contention put forward on behalf of Queenfield appears well founded. That contention is as follows:

...the alleged disputes amount to either mere assertion of a dispute which has no bearing on the Debts, or the advancement of grounds which are illusory, spurious, insufficiently particularised and completely contradicted by the evidence.[45]

34 Notwithstanding that certain contemporaneous documents and Mr Gordon's conduct seemingly contradict the plaintiffs' position, there are other circumstances which bear upon the issues.

35 In Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (In liq),[46] the Court of Appeal summarised the principles to set aside statutory demands as follows:

The terms of s 459H of the Corporations Act and the authorities make clear that, on an application to set aside a statutory demand, the applicant is required only to establish a genuine dispute or offsetting claim. The applicant is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task. It is not necessary for the applicant to advance a fully evidenced claim. Therefore, the task faced by an applicant is by no means at all a difficult or demanding one.

In determining such an application, it is not necessary or appropriate for a court to engage in an in-depth examination or determination of the merits of the alleged dispute. This is because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction and requires the applicant to establish that there is a 'plausible contention requiring investigation' of the existence of either a dispute as to the debt or an offsetting claim. It is therefore not helpful to perceive that one party is more likely than the other to succeed or that the eventual state of the account between the parties is more likely to be one result than another. Further, the determination of the 'ultimate question' of the existence of the debt at a substantive hearing should not be compromised.

The court is required to determine whether the dispute or offsetting claim is 'genuine'. It has been said that the criterion of a 'genuine' dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of a dispute be real and not spurious, hypothetical, illusory or misconceived. It has also been observed that the dispute or offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion. It must also have sufficient factual particularity to exclude the merely fanciful or futile. A rigorous curial approach is essential to the effective operation of the statutory scheme.

The court is not required to accept uncritically 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, as it may not have sufficient prima facie plausibility to merit further investigation as to its truth. The court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence, although this should not be read as suggesting that the applicant must formally or comprehensively evidence the basis of its dispute or off-setting claim. Except in such extreme cases, the court should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on by the applicant to set aside a statutory demand.

Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd involved a demand for payment of a debt alleged to be due under a contract for the supply of goods. The applicant relied on four matters, each of which had the potential to affect the respondent's entitlement to be paid the entire amount of the debt. Barrett J held that all four matters were sufficiently plausible to raise a genuine dispute. He relevantly stated:

The [applicant] will fail in [the] task [of establishing a genuine dispute] only if ... the contentions upon which it seeks to rely ... are so devoid of substance that no further investigation is warranted. Once the [applicant] shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the [applicant], it must find that a genuine dispute exists, even where any case apparently available to be advanced against the [applicant] seems stronger.[47]

36 Queenfield's submission is simply put, namely, that I ought to have regard to the statement by McLelland CJ in Eyota Pty Ltd v Hanave Pty Ltd.[48] That is, the Court is not obliged to 'accept uncritically as giving rise to a genuine dispute, every statement in an affidavit',[49] including those which are 'inconsistent with... other statements by the same deponent'.[50]

37 Queenfield submits that the debts are confirmed by the recording of the same in the statutory accounts and, in particular, as they were signed by Mr Gordon when he was in a position to know whether or not the debts were owing. In this regard, Queenfield relies upon s 1305(1) of the Corporations Act 2001 (Cth) which provides that a book kept by a body corporate under a requirement of the Act 'is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book'. The expression 'book', by virtue of s 9, includes the 30 June 2015 account signed by the director.

38 Sloss J addressed the application of s 1305 in Shot One Pty Ltd (in liq) v Day.[51] Her Honour said:

The plaintiffs contend that the financial statements and general ledger files of Shot One listed above are clearly 'books' within the meaning of s 1305(1) and thus provide (and would have provided at the time the Deed of Settlement was entered into) prima facie evidence of the loans made by Shot One to Rising Rocket.

The defendants, on the other hand, accept that a company's general ledger and financial accounts are books for the purposes of s 1305(1), but they do not accept that the loan account entries recorded in the books of Shot One can be relied upon as prima facie evidence of their contents. Relying upon observations made by their Honours in Whitton v Regis Towers Real Estate Pty Ltd and Livingspring Pty Ltd v Kliger Partners, the defendants submit that the mere existence of entries in a company's general ledger and financial accounts does not establish a presumption that the matters stated therein are prima facie true and correct and accurate. Rather, they submit, the true or correct position is, as Austin J explained in ASIC v Rich, that while the books are treated as prima facie evidence of the matters stated in them, the weight to be attached to that evidence is a matter which is to be measured in accordance with the common sense of the tribunal.

In Whitton v Regis Towers Real Estate Pty Ltd, Buchanan J, with whom Marshall and Tracey JJ agreed, said:

Section 1305 of the Corporations Act does not elevate the entry to prima facie evidence that any such transaction (or series of transactions) exists. It can be no more than prima facie evidence that an unknown person formed an opinion on an undisclosed basis that, in the absence of any directly recordable transaction nevertheless, as a balancing entry, such a figure should appear in the accounts. Mr Harris took the matter no further and, indeed, eroded any weight the entry may have had.

Similarly, in Livingspring Pty Ltd v Kliger Partners, Maxwell P and Buchanan JA stated:

LS [the applicant] called in aid on the appeal s 1305(1) of the Corporations Act, which, it was said, established "a presumption that company accounts are prima facie true and correct and accurate". The provision does no such thing. All that s 1305(1) provides is that a company's books (relevantly, its financial reports and records) are admissible and are "prima facie evidence of any matter stated or recorded" in them. As the Full Federal Court said in Whitton v Regis Towers Real Estate Pty Ltd, s 1305 does not elevate an entry in a book of account to the status of prima facie evidence of the transaction(s) which the entry purports to record. The same must be true of an entry purporting to record the existence, and value, of an asset.

More recently, in ASIC v Rich, Austin J said:

Section 1305(1) does not make the company's books conclusive evidence of the matters they contain, in the sense of requiring the tribunal of fact to make a finding in terms of the content of the books in the absence of proof to the contrary by the opposing party. The books are prima facie evidence of the matters stated in them, but the weight of that evidence is to be measured in accordance with the common sense of the tribunal of fact...

In my view it would be open to the tribunal of fact to find that the prima facie evidence constituted by the company's books is outweighed by other evidence (including evidence adduced by the proponent of the books, even if the opponent does not give evidence about them); or by some quality or characteristic of the books themselves, even if there is no other evidence. In particular, if a book has the appearance of a draft or (being electronic) has a file title indicating that it is a draft, that alone may be sufficient (all other things being equal) for the tribunal of fact to reject the book as evidence of the matter stated in it, notwithstanding that the book is prima facie evidence of that matter; a fortiori if, in addition to having the appearance of a draft, the book contains inconsistencies or ambiguities or the matter otherwise demands explanation.

Austin J then referred to the purpose of s 1305(1) as outlined in the explanatory memorandum to the Companies Bill 1981, which introduced the provision, and said:

Therefore s 1305(1) allows a company's books to be introduced in evidence as they are, without any 'authenticating' evidence by any witness, and allows the books to be relied upon to prove transactions recorded in them. But it does not elevate the matters contained in the books to a plane of probative value that requires the court to disregard the context in which the matters relied on appear in the tendered document. If, for example, there is some doubt as to whether a particular transaction is 'recorded' in a book because of some uncertainty about the status of the document or ambiguity about what it contains, s 1305(1) does not overcome the problem.[52]

39 Her Honour went on to follow the approach of Austin J, determining that while the books in question were 'generally to be treated as prima facie evidence of the matters stated in them', that prima facie evidence 'was rebutted or "outweighed" (to adopt Austin J's language) by ... other evidence'.[53]

40 Albeit that I am satisfied the entries in the 30 June 2015 accounts are prima facie evidence of the recording of the two loan accounts, s 1305 does not prevent Mr Gordon from contending that the loans were written off in June of 2015. Other evidence may rebut or outweigh this prima facie evidence. In this regard, Mr Gordon provided the following explanation for not noting the loans in the June 2015 accounts:

I note that the Queenfield financial reports which erroneously contains the alleged debts were forwarded to me in draft form in 2017 by Ms Lorraine Barret based on 2015 accounts prepared by Mr Michael Langmaid, a former accountant of the Gordon Group who has not been in direct contact with me since early 2015.

The debt was first raised by the Paolacci's in February 2017 during a time when I was in the Philippines. The first time I realised that these debts were still being recorded in the Balance Sheet was when Ms Barret, Queenfield's former accountant presented accounts for 2016 for signing. Upon reviewing these accounts prior to sign off, I noticed that the 2015 accounts were also incorrect as they did failed to record that the two related party loans had been forgiven and were discharged as against the asset realisation reserve.[54]

41 The explanation may be weak but it is not fanciful. Although it is unlikely that Mr Gordon would not have checked the 2015 compliance accounts to ensure that the same reflected the position as contended for by him, that is a matter for cross-examination.

42 In Rescom Asia Pacific Pty Ltd v Reapfield Property Consultants Pty Ltd ('Rescom'),[55] the Court of Appeal, on a leave application, noted that evidence to the effect that the debtor repeatedly promised to make payment could not be reconciled with assertions made in the affidavits to set aside its statutory demand. After quoting the passage from Eyota referred to in paragraph [36] hereof, Almond J said:

In this case the judge found that the objective evidence before the Court was contrary to the assertions made on its behalf to the effect that Reapfield was in breach of any arrangements set out in the marketing agreement and concluded that the applicant had not demonstrated that the dispute was genuine.[56]

43 The statement referred to in Rescom must be considered in the light of the facts of that case. In Ligon 158 Pty Ltd v Huber ('Ligon 158'),[57] Barrett AJA set out the following approach to s 459G by the New South Wales Court of Appeal, as discussed in BrittenNorman Pty Ltd v Analysis and Technology Australia Pty Ltd:[58]

(1) While there must be evidence showing a serious question to be tried or an issue deserving of a hearing, that evidence cannot and need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable.

(2) The short time allowed by s 459G(2) for the preparation of the affidavit supporting the claim for an order setting aside the demand militates against the presentation of the fullest and best evidence in some cases.

(3) In determining whether there is evidence of a genuine dispute regarding the debt, the court is generally not concerned to engage in an enquiry as to the credit of the deponent of the supporting affidavit. At the same time, it is not required to accept uncritically every statement in the affidavit that is inconsistent with undisputed contemporary documents, inherently improbable, does not have sufficient prima face plausibility to merit further investigation or is an assertion of facts unsupported by the evidence.

(4) Inconsistent contemporaneous documents are not necessarily sufficient to defeat the company's challenge even though they might pose difficulties for the ultimate proof of the case that it would advance if the dispute were litigated.[59]

44 Accordingly, given the statement in the preceding sub-paragraph (4), it is necessary, in appropriate circumstances, to delve beyond the position set out in contemporaneous documents. Given the comments made with respect to the effect of s 1305, the position set out in documents is not always immutable.

45 In essence, Queenfield invited me to accept that the debts had been acknowledged by Mr Gordon signing the June 2015 compliance accounts and that I should not accept that the debt had been written off by reason of the apparent subterfuge in preparing and proffering the resolution. I reiterate that I find that argument attractive. However, counsel for the plaintiffs referred me to the circumstances of Ligon 158.

46 In Ligon 158, the Court of Appeal was required to consider whether a genuine dispute was so devoid of plausibility as to require no further investigation.

47 Ligon 158 was one of the Ligon companies owned by the Binetter family. In 2006, the Australian Taxation Office ('ATO') commenced an audit of the Binetter companies, including Ligon 158. Ligon 158 expended significant sums of money defending proceedings instituted by the ATO. A sum of $410,000 was paid on 25 February 2010 from Ms Huber's account to Ligon 158 by cheque and banked into Ligon 158's account. Ms Huber maintained that this amount was advanced as a loan to Ligon 158.

48 Barrett AJA, with whom McColl J and Meagher JJA agreed, said:

It was not disputed that Ms Huber paid the sum of $410,000 to Ligon 158 by cheque dated 1 July 2010 which was presented on 2 July 2010. Ligon 158 maintains, however, that Ms Huber, by making that payment to it, did not make a loan. Rather, it is said, she played her part in a series of steps to create a temporary increase in her bank balance as at 30 June 2010. Ligon 158 contends that, in February 2010, Ms Huber used certain funds in her bank account to make a non-refundable contribution of $410,000 towards certain legal expenses incurred by Ligon 158 and subsequently participated in a plan executed in late June/July 2010 to cause her bank balance to be increased temporarily by $410,000.

A cumulation of factors led the primary judge to the conclusion that characterisation of the payment by Ms Huber as a non-refundable contribution to legal expenses was a recent invention that deprived the dispute asserted by Ligon 158 of the "genuine" quality contemplated by s 459H(1)(a). It was for that reason his Honour dismissed the proceedings.[60]

...

The primary judge delivered a concise and closely reasoned ex tempore judgment at the conclusion of the hearing. He rejected as implausible and not warranting further investigation Ligon 158's contention that the payment of $410,000 to it by Ms Huber was not a loan but a non-refundable contribution towards legal expenses. His Honour reached that conclusion for reasons he summarised as follows:

The incredible implausibility of Ms Huber donating her savings of $410,000 for legal expenses incurred by her husband's brother's company on a basis that it would never be repayable, would still not suffice of itself to deny this dispute the epithet of 'genuine'. However, when one superimposes on it the facts that it was originally documented in [Ligon] 158's books as a loan; that that was 'corrected' only after the present dispute had arisen; that when the first demand in respect of the February advance was rebutted, there was no suggestion then that it was not a loan but a non-repayable contribution, and no reference to the idea that the 30 June repayment was merely a transitory device to create an appearance in Ms Huber's account; and that the text messages of 29 June falsify Mr Binetter's version of the repayment, I am satisfied that the dispute as to this debt is not a genuine one, but one created after the demand for repayment was made: as appears from, first, the failure to raise it in respect of the first creditor's statutory demand and, secondly, the so-called 'correction' of the ledger some time in July, August or September 2015.[61]

49 Barrett AJA identified the principal question in that appeal as:

whether, in the light of the evidence as I have described it, the primary judge correctly concluded that the contention of Ligon 158 as to the status of the payment to it by Ms Huber (that is, that it was related to steps to raise her bank balance temporarily, following her earlier nonrefundable contribution to legal expenses) was so devoid of plausibility that no further investigation was required.[62]

50 Barrett AJA set out the circumstances in relation to the drawing of cheques, the renewal of the loan and interest, and then stated:

Fourthly, the only objective evidence in support of Ms Huber's contention that the payment by her in late June/July 2010 was a renewed loan is the entry in Ligon 158's books of account. Ms McCaw [the company's bookkeeper] recorded a liability of $410,000 on the footing that the company had received proceeds of a loan. Significantly, however, that treatment in the books reflected nothing more than an assumption by Ms McCaw as to the character of the transaction. Andrew Binetter gave her no instruction on the matter until about June 2015 and she, of her own volition, never made any earlier enquiry of him as to the entries that were appropriate or required. The accounting entries as they stood before the adjustment in about June 2015 therefore apparently did not reflect any conscious or informed decision of anyone in authority within Ligon 158 as to the nature of the receipt from Ms Huber and the transaction giving rise to it.[63]

... while the natural tendency might be to think, as the primary judge did, that it was implausible that Ms Huber should make a substantial cash contribution to her husband's brother's company, there are three circumstances suggested by the evidence that might, on further investigation, cause any such implausibility to be resolved.[64]

52 Barrett AJA also considered impressions gained from correspondence and text messages, and concluded that '... there is fertile ground for investigation of the true import of the text messages.'[65] His Honour concluded:

Having regard to these seven factors, it cannot be said that the proposition that Ms Huber made a non-refundable contribution as distinct from a loan is so devoid of plausibility as to warrant no further investigation. On the material before the primary judge and this Court, an ultimate conclusion of non-refundable contribution might well be considered less likely than an ultimate conclusion of loan. But that is beside the point, given that it is not the function of the Court to weigh the merits of the competing contentions. The only question is whether Ligon 158's case, based on non-refundable contribution, is so lacking in substance that it can be dismissed without further examination. The primary judge erred in giving a positive answer to that question.[66]

53 Barrett AJA also handed down the leading judgment in Creata (Aust) Pty Ltd v Faull ('Creata').[67] His Honour concluded that there was a genuine dispute based upon the construction of a deed and whether it had been breached. On the issue of recent invention, his Honour said:

I have addressed to this point the aspect of the 'genuine dispute' concept that concentrates on a showing of serious question to be tried or plausible contention requiring further investigation. Another aspect, no less important, requires that the serious question or plausible contention not be something merely created or constructed in response to the pressure represented by the service of the statutory demand. If the dispute is of that quality and is accordingly not advanced in good faith, it is not 'genuine'.

... the question of possible recent invention is one that must now be considered.

It was submitted on behalf of Mr Faull that grounds for a conclusion of recent invention exist in this case. Mr Henderson's telephone conversation with Mr Saunders took place on 26 June 2015. A payment of US$400,000 became due by Creata under the 2014 deed in January 2016. Creata made that payment and there is no suggestion that it disputed its obligation to do so. Nor is there any suggestion that Creata raised with Mr Faull the allegations made by Mr Saunders and their implications for his rights under the 2014 deed at any time before Mr Faull served the statutory demand. In those circumstances, Mr Faull says, it should be inferred that Creata's case based on what was said by Mr Saunders was merely created or constructed in response to the pressure represented by the service of the statutory demand.

That inference is said by Mr Faull to be strengthened by his evidence of events in the early part of January 2017. Mr Henderson emailed Mr Faull on 11 January 2017 and asked Mr Faull to contact him by telephone. Mr Faull, who was in Thailand, telephoned the following morning, 12 January 2017. Mr Henderson said that he would like to meet with Mr Faull because 'times have changed at Creata' and some 'financial issues' had arisen. The January 2017 instalment of $US400,000 was due within a few days. In the course of the telephone conversation thus sought by Mr Henderson, there was discussion about possible times for a meeting during a then forthcoming visit to Sydney by Mr Faull. There was reference to the possibility of lunch on 23 or 24 January 2017 but no firm arrangement was made. When Mr Faull mentioned during the telephone conversation that the instalment was about to become due, Mr Henderson said, according to Mr Faull's evidence, 'I'll see what I can do'. Mr Henderson accepted that a conversation took place generally as described by Mr Faull. He also accepted that he did not, at that time, raise with Mr Faull the allegations that Mr Faull had breached the 2014 deed.[68]

54 Mr Henderson, for Creata, gave evidence that he planned to raise the alleged breaches of the deed with Mr Faull face to face at a meeting that he had sought prior to the statutory demand being served. Given such evidence, Barrett AJA was not satisfied that the assertions on behalf of Creata regarding breach of the deed could be considered 'recent invention'.[69] This was so, even in the context of evidence that an instalment had been paid after Mr Henderson had received information surrounding the alleged breach.

55 I am also keenly aware of the following statement by Brooking and Charles JJA in Spacorp Australia Pty Ltd v Myer Stores Ltd:[70]

The only question for us is whether the judge erred in determining that there was no genuine dispute. One can of course differ from the judge without deciding that the debt did not exist. A great range of states of mind on what we might call the ultimate question - the existence of the debt - may accompany the view that there is a genuine dispute, ranging from a clear conviction that the debt does not exist to the opinion that the genuine dispute hurdle has only just been cleared.

We think, if we may say so, that, except in a case in which it is as plain as a pikestaff that there is no debt (where bluntless may be in the interests of both sides), judges should, in general at all events, in dealing, whether at first instance or on appeal, with the question of genuine dispute, be at pains to perform the admittedly delicate task of disposing of that question without expressing a view on what we have called the ultimate question. For otherwise, on an application which resembles if it is not in law an interlocutory one, things may be said which embarrass the judge before whom the ultimate question comes.[71]

56 I conclude that whether or not Gordon Nominees and Gordon Finance is each indebted to Queenfield warrants further investigation. Although, I have expressed the view that Queenfield's submissions are attractive, given what I have extracted in the previous paragraph I should not express my view on what might result in any curial proceeding.

57 I have reached that conclusion on the following bases:

(a) Queenfield could not have relied upon the June 2015 accounts as part of the 'disclosure material' nor as part of any warranty relating to the disclosure material.[72] It is unclear from the affidavits submitted on behalf of Queenfield as to what was the nature of the extent of financial material considered as part of the 'disclosure material'. Neither of the Paolacci affidavits deposed to having perused the 30 June 2014 statement. Although John Paolacci does assert that he reviewed copies of Queenfield's financial records in early June 2015, he does not identify those records. Given the statement attributed to him in the minutes of the meeting dated 23 February 2017, what was considered before entering into the Sale of Units Deed is matter for cross examination;[73]

(b) the purchase price for half the units in the trust was $5,250,000. As at 30 June 2015, by my calculation, the financial reports for the trust for the year ending 30 June 2015 disclosed current assets of $406,961, save for the Gordon Finance Trust Loan. Non-current assets included the land and buildings of $20 million and intangibles of $250,000. Accordingly, the total assets disregarding the loans to Gordon Finance and Gordon Nominees were $20,656,961. The total liabilities, excluding the negative liability in favour of the Gordon Family Trust, were $12,043,651. The net assets are $8,613,310. Fifty per cent of the net amount is $4,306,655.[74]

(c) if the $4,347,611 from Gordon Finance is returned to the balance sheet as a current asset (as the June 2015 account records) and if the negative liability from the Gordon Family Trust is treated as an asset either as a current asset or a noncurrent asset, then the total net assets of the Trust as at 30 June 2015 were $15,128,680. Fifty per cent of that sum was $7,564,340;[75]

(d) accordingly, I conclude that it is not fanciful to equate the purchase of 50 per cent of the units as not taking into account the amounts set out in the 30 June 2015 accounts as being owed by the Gordon entities;

(e) my simplistic calculations are corroborated by Queenfield's own material. Exhibit 'JP-3' to the affidavit of John Paolacci, sworn 17 October 2017, sets out some concerns with the initial offer and attaches an amended offer. That amended offer includes the following:

TLP Nominees Pty Ltd ... hereby offer to purchase a 50% interest in the freehold and 50% interest in the business as a Going Concern of the Best Western Travel Inn situated at 225-245 Drummond Street, Carlton

Subject to the following terms:

The purchase price: $11,000,000 being the 50% share of $22,000,000

Payment of purchase price paid as follows

(a) Take over 50% of the debt of circa $11.5m,

(b) Pay balance of purchase price being circa $5.250m to TCF trust account as part settlement ...[76]

...

(f) The amended offer also included a provision as to adjustment of loans. I was not addressed as to the meaning or construction of the proposal in subparagraph (i) of the offer which set out:

Intercompany loans, to be transferred to Gordon Family Trust, with any balance to be treated as an equity adjustment.

I will not speculate as to what sub paragraph (i) of the amended offer in the circumstances might have meant. Of course one construction would permit the cancellation of the loans with a corresponding decrease in the equity in the Trust. The offer was for the land and business at that juncture. It was only later that it transposed into an offer for the units. It is again of note that the purchase price paid for 50 per cent of the units is not dissimilar to the adjusted offer for the freehold and business.

(g) it was also debated about whether I was entitled to receive evidence about another offer to purchase the Travel Inn in May 2015. Given the adjusted offer made on behalf of TLP Nominees Pty Ltd is relevant, I do not need to determine whether or not to accept evidence as to the third party offer. However, I note that if it had become critical, I would be entitled to receive evidence, even if hearsay, of the third party offer, not to establish the truth of the same but to establish that there is an issue requiring further investigation.[77]

(h) It cannot be said that the issue of the loan accounts being written off arose solely in response to the service of statutory demands. The existence of the loans seems not to have been accepted or was refuted as soon as the issue was raised.[78] Accordingly, the concept of recent invention is not so germane in this proceeding. Further, I see no reason to depart from Young J's observations in John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd,[79] where his Honour said:

It may be that I am doing a disservice to this court in approaching the matter in this mathematical way. It may be that it is far more appropriate in the instant sort of case for the court to just take a broad brush approach. Thus the court might just say that because this is not a debt collecting court, where there is a construction case of this nature, the demand should be set aside under s 459J(1)(b) whenever it can be seen from the correspondence that there are honestly held views on either side which have brought a dispute between the parties. Thus, the matter can be dealt with in the ordinary way in which construction disputes are dealt with without the time and expense that is involved in running this sort of litigation ahead of that dispute. If I were to do that in the instant case, I would come to the same result.[80]

(i) I see no reason to confine the John Holland principle to building cases. Mr Gordon set out a position prior to the service of the statutory demands and has not resiled from that position. I should also add that although the circumstances of the production of the 5 June 2015 resolution do not sit comfortably with Young J's observation about 'honestly held views...', I have drawn on the circumstances surrounding the sale of the units in arriving at a determination which does not rely upon the efficacy of the resolution.

(j) Formal demands for repayment were served shortly after the board meeting on 8 March 2017.[81] That is, prior to the service of the statutory demand in August 2017, the efficacy of the debts became an issue.

(k) By letter dated 23 June 2017, Collins & Collins wrote to Lorraine Barrett, director of Abaco Accounting Pty Ltd with respect to a meeting between Ms Barrett, Mr Gordon and Mr Efron on 9 June 2017 at a suburban café. A purported resolution of 15 June 2015 was said to be provided at that meeting.[82] The letter's reference to 15 June 2015 should have been to 5 June 2015;[83]

(l) Collins & Collins wrote to Mr Efron on 23 June 2017 seeking discovery of the 5 June 2015 resolution. In part, that letter set out:

If, as our client QPL expects, legal proceedings are shortly commenced in the Supreme Court of Victoria to recover the debts owed by Gordon Nominees, the 5 June 2015 Document relating to their creation will be discoverable by the Gordon companies.[84]

(m) In a later letter, dated 29 June 2017, dealing with the issue of the 5 June 2015 document Collins & Collins set out as follows:

We will otherwise seek our client's instructions to bring an application under r 32.05 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) for the discovery requested in our letter of 23 June 2017 and repeated in this letter.[85]

Rule 32.05 deals with discovery from a prospective defendant. Accordingly, it is reasonably clear that QPL, at that stage, contemplated the prosecution of curial proceedings and not the service of a statutory demand. Given that pre-trial discovery was contemplated one conclusion which is open to me is that Queenfield's legal team contemplated that a 'genuine dispute' would be raised in response to service of a statutory demand. It is open for me to conclude that Queenfield's legal team contemplated a 'genuine dispute' being raised if it had served a statutory demand;

(n) By letter dated 30 June 2017, Mr Gordon wrote directly to Raffaelina Paolacci. In that letter, Mr Gordon set out some of the history, being:

• prior negotiations with third party interests;
• the offer initially proposed for a joint venture valuing the land and business at $22 million (less liabilities) and the subsequent acquisition of 50 per cent of the units. That letter included in part:

Accordingly, prior to concluding the deal with you, as the director I held a meeting of the then board and passed the resolution recorded in the 5 June minute discharging the two related party loan accounts against the asset realisation reserve.

I repeat that prior to your acquisition of 50% interest in Queenfield, all loan obligations due to Queenfield in June 2015 by my companies had been discharged.

Upon acquisition of your interest in Queenfield, you acquired the same equity interest in the Travel Inn freehold and business as you would have had the deal proceeded by way of a new JV company\trust and a new bank borrowing of $11.5m.

I believe the issue of the alleged outstanding loan accounts was raised for the first time at a board meeting in February 2017.

These loans were raised again at the board meeting in March 2017. Whilst the accuracy of the minutes is disputed, it is acknowledged that the minutes accurately recorded Mr Efron as denying that there are any debts owing to Queenfield by Gordon Finance or Gordon Nominees.[86]

(o) In June 2015, all the units in the trust were held by Gordon Nominees. Gordon Finance did not and never has held units in the trust. The purported resolution contains the following:

Resolved to discharge the two Gordon loan accounts by distribution from the Asset Realisation Reserve.[87]

(p) Although Queenfield submitted that the debt could not be extinguished by an adjustment of the asset realisation reserve, I am satisfied that it is arguable that such a methodology may be adopted.[88] On behalf of Queenfield it was submitted that as Gordon Finance was never a unit holder, it had no interest in the trust funds, including the revaluation reserve of $13,858,696 recorded in the 30 June 2015 accounts. Whilst I accept that to be the case, it does not exclude a scenario where Gordon Nominees, as sole unit holder, might enter into an arrangement with Gordon Finance whereby Gordon Nominees' interest in the asset realisation reserve was correspondently diminished. That is an issue which requires further investigation.

58 There is material which dictates that further investigation is required. It cannot be said that the dispute identified by the plaintiff was so devoid of plausibility that no investigation was required. Accordingly, I determine that each of the statutory demands ought to be set aside.

Was there authority to serve the statutory demands?

59 Much of the Court's time was taken up with argument about whether or not Collins & Collins had authority to sign the statutory demands and serve the same. For the reasons previously set out, I do not need to determine that issue. However, if my reasoning as to why the statutory demand ought to be set aside is ultimately demonstrated to be incorrect, I ought to address the issue.

60 The plaintiffs contend that under s 459J(1)(b) of the Act there is 'some other reason' to set aside the statutory demands, namely, the resolutions purported to be passed at the meetings of Directors held on 7 March and 5 April 2017 were invalid, such that the resolutions to recover the alleged debts were invalid.[89]

61 As previously noted, TLP Nominees lent Gordon Nominees the sum of $2,100,000 on the conditions contained in a separate loan agreement which was annexed to the Sale of Units Deed. The term of the loan was for two years following the advance date. The advance date was defined as no later than 14 July 2015. The advance bore interest at the rate specified as provided therein.[90]

62 The sum of $2,100,000 was advanced to Gordon Nominees.

63 The transaction documents also included a Deed of Guarantee & Indemnity between TLP Nominees and Mr Gordon. I will not deal with the provisions of that Guarantee & Indemnity. Nor will I deal with the provisions of a General Security Deed between Gordon Nominees and TLP Nominees.

64 A Unitholders' Agreement was also entered into between Gordon Nominees, TLP Nominees and Queenfield. Relevant provisions of the Unitholders' Agreement provided:

TRUSTEE DIRECTORS

(a) Each Unitholder is entitled to appoint, and to replace from time to time, one Director for every 20 Units that [sic] Unitholder owns in the trust.

(b) If the unit holding of a Unitholder changes such that its entitlement to appoint Directors under clause 3.3(a) changes, that Unitholder must do all things necessary, including causing the resignation or appointment of Directors (as the case may be) to ensure that, at all times, the number of Directors reflects the entitlement of the Unitholder to appoint Directors.

(c) Every appointment of a Director will take effect when the written notice of appointment is received from the nominating Unitholder and the written consent to act as a Director is received from that nominated individual at the registered office of the trustee and every removal of such a Director will take effect when the written notice of removal is received from the nominating Unitholder and the written resignation is received from the Director at the registered office of the trustee.[91]

...

BOARD MEETINGS

(a) The Directors must meet quarterly or more frequently as requested by any two Directors. Unless otherwise agreed by a majority of Directors:

1. ...
2. at least seven (7) days' notice must be given to each director of all meetings of the board.

(b) Each notice of meeting must contain, among other things, an agenda specifying in reasonable detail the matters to be disclosed at the relevant meeting and must be accompanied by any relevant papers for discussion at that meeting. Unless otherwise agreed by each of the Directors, a Board meeting may only resolve matters specifically described in the agenda.

...

(d) A quorum for a Board meeting is constituted by the attendance (in person or by alternate) of at least one Director appointed by each unitholder. No business is to be transacted at a Board meeting unless a quorum is present.[92]

...

SPECIAL MAJORITY FOR BOARD DECISIONS

The Trustee may not take any action or pass any resolutions in respect of any of the following matters unless the action or resolution has been approved by a Special Majority of Directors:

(a) ...

(b) (Unitholder debt) a repayment or prepayment of a Unitholder debt;

...

(m) (Legal Proceedings) the commencement or settlement of any legal, arbitration or other proceedings (other than routine debt collection proceedings) which are material in the context of the Business.[93]

...

'Special Majority' means Directors that together hold more than 60% of the total voting rights of all Directors who attend the relevant board meeting or sign the relevant written resolution and who are entitled to vote on the relevant resolution.[94]

65 On 7 December 2016, Mr Alex Collins of Collins & Collins, acting for both TLP Nominees and JPA Finance, sent an email to Mr Efron requesting to substitute JPA Finance for TLP Nominees.[95] A Deed of Cancellation and Transfer of Units was provided to Mr Efron on or about 9 December 2016. Mr Efron had no objections to the substitution of JPA Finance for TLP Nominees on the premise that the substance of the Deed of Cancellation and Transfer remained the same.[96]

66 On 15 December 2016, Mr Efron advised Mr Collins as follows:

As previously advised our client signed the documents previously drafted by you and express posted them by return, which confirmed his acceptance of the proposal.

We confirm that he has no objection to substitution of JPA Finance Pty Ltd for the previous party TLP Nominees Pty Ltd on the basis that the substance of the documentation was advised by you to be the same.

...

Mr Gordon has accepted the offer in writing and we shall use our best endeavours to procure execution of the amended documents as soon as practicable. [97]

67 JPA Finance as lender, Gordon Nominees as borrower, Mr Gordon as guarantor and Queenfield as the trustee, entered into the Deed of Cancellation and Transfer duly executed and exchanged on 2 February 2017.[98]

1. The Lender, the Borrower and the Guarantor are parties to the Loan & Security Deeds.
2. Subject to compliance with the terms hereof, the Trustee consents to the transfer of the Units to the Lender.

1. The parties have agreed, subject to the terms of this Deed, to mutually rescind the Loan & Security Deeds.[99]

69 Subject to conditions precedent, the parties thereto agreed that each of the Loan & Security Deeds were rescinded as at 4pm on the Effective Date and that they each be mutually discharged from all future rights and obligations under the Loan & Security Deeds from that time.[100]

70 The conditions precedent included the transfer of units to JPA Finance by way of:

...

(b) ... a duly executed transfer of Units certificate; and

(c) the Trustee complies with its obligations under clause 3.5.[101]

The Trustee certifies that the Borrower has complied with the terms of the Trust, that the transfer of the Units has been approved and agrees to take all steps and carry out all acts necessary to procure the registration of the Lender as the registered holder of the title to the Units.[102]

72 The Effective Date was defined to mean the business day after the condition precedent were satisfied.[103]

73 JPA Finance Pty Ltd executed a Deed Poll of Accession dated 21 February 2017.[104] The purpose of the deed poll was to confirm compliance with all the terms of the Unitholders Agreement. There was argument about whether the Deed of Accession was in a form required by the Unitholders' Agreement.[105] Gordon Nominees submitted that as it was not a deed there had been no compliance with the requirements of the Unitholders Agreement. However, I was not taken to any authority which supported the proposition that it could not be done unilaterally by Deed Poll. After all, the purpose of the requirement was to obtain the acknowledgement and adherence by the new unit holder of the terms and provisions of the Unitholder's Agreement. A deed poll is a deed which is unilateral. It is executed as a deed. The purpose of using a deed/ deed poll in the circumstances is to avoid the need for consideration and to confirm that it takes effect upon delivery to Queenfield, if not on its execution. After the transfer of the units, the unit holding of Gordon Nominees fell to below 50 units. Pursuant to the Unitholders' agreement, the entitlement to appoint directors fell to one. Accordingly, more than 60 per cent of the total voting rights were controlled by TLP Nominees and JPA Finance Pty Ltd, representing Paolacci interests. In these circumstances the necessary quorum for the 7 March 2017 meeting was achieved as the entitlement of Gordon Nominees to appoint more than one director no longer subsisted. Accordingly, the resolution to appoint solicitors to require repayment of the two loans was not attended with any impediment.

74 At about the same time as entry into of the Deed of Cancellation and Transfer of Units the appropriate parties also executed a Call Option Deed.[106] The gravamen of that deed was to provide Gordon Nominees the opportunity to repurchase the 20 units transferred, pursuant to the Deed of Cancellation and Transfer of Units. The price was $2.3 million plus any amount paid by way of stamp duty on the transfer to JPA Finance. The option was open to be exercised at any time during the Call Option period until 4.00pm on the Call Option expiry date. The Call Option period commenced on a date 24 months after the execution of the deed. Accordingly it is open to exercise the option at any time from the period of February 2019 to 30 June 2020 being the Call Option expiry date.[107]

75 The plaintiffs' submitted that Queenfield, in effect, ought not be permitted to exercise its rights under the Unitholders' Agreement given that Gordon Nominees was now in a position to tender the option price to JPA Finance or simply to repay the loan to TLP Nominees. I do not accept that submission as, given that the period for exercise of the option, JPA Finance is under no obligation to accept any tender until February 2019 at the earliest.

76 I am satisfied that there is a genuine dispute as to the existence of the debts the subject of the statutory demands. The dispute identified by the plaintiffs is not so devoid of plausibility that no further investigation is required.

77 On the issue of whether there was authority to serve the demands, I reject the submissions of the plaintiffs as to the validity of the resolutions. Given my previous comment about the time devoted to this issue, I will reduce the costs to which the plaintiffs might have been entitled.

1. The statutory demand dated 11 August 2017 and served on Gordon Nominees is set aside.

2. The statutory demand dated 11 August 2017 and served upon Gordon Finance is set aside.

3. The defendant pay half of the plaintiffs' cost of and incidental of the application including reserved costs.

[1] Gordon Nominees Pty Ltd (ACN 004 707 617) v Queenfield Pty Ltd (ACN 060 482 644), S CI 2017 03526.

[2] Plaintiffs' Affidavit of Moishe Gordon, affirmed 1 September 2017, exhibit 'MG-3' ('First Gordon Affidavit').

[3] Gordon Finance Pty Ltd (ACN 006 407 272) v Queenfield Pty Ltd (ACN 060 482 644), S CI 2017 03525.

[4] First Gordon Affidavit, exhibit 'MG-3'.

[5] First Gordon Affidavit, exhibit 'MG-1'.

[8] Defendant, Affidavit of Raffaelina Paolacci sworn 21 September 2017, exhibit 'RL-6', ('Affidavit of R Paolacci').

[14] Affidavit of R Paolacci, exhibit 'RL-3'.

[16] Plaintiff, Affidavit of Moishe Gordon, affirmed 9 October 2017, [35] ('Second Gordon Affidavit').

[17] Affidavit of R Paolacci, exhibit 'RL-3'.

[18] Second Gordon Affidavit, [35].

[21] Second Gordon Affidavit, exhibit 'MG-17'.

[22] First Gordon Affidavit, exhibit 'MG-11'.

[25] Affidavit R Paolacci, [21] and exhibit 'RL-4'. This is only a letter of demand for Gordon Finance, not Gordon Nominees, although the affidavit refers to Gordon Nominees.

[26] First Gordon Affidavit, [21] and [23]; Second Gordon Affidavit, exhibit 'MG-21'; Affidavit of R Paolacci, [42], exhibit 'RL-7' and 'RL-10'.

[28] Affidavit of Michael Langmaid sworn 18 October 2017, exhibit 'ML-2' ('Langmaid Affidavit').

[29] Affidavit of R Paolacci, exhibit 'RL-8'.

[30] Ibid exhibit 'RL-12' (emphasis added).

[31] Ibid exhibit 'RL-13' (original emphasis).

[33] Langmaid Affidavit, [12]-[15]; Second Gordon Affidavit, [44].

[34] Affidavit of R Paolacci, exhibit 'RL-15'.

[36] Plaintiffs' Written Submissions, 23 October 2017, [6].

[37] [2016] NSWCA 330; (2016) 117 ACSR 495 ('Ligon 158').

[38] Plaintiffs' Further Written Submissions, 27 October 2017, [15].

[42] Outline of Submissions for the Defendant, 20 October 2017 [6].

[43] Affidavit of R Paolacci, exhibit 'RL-3'.

[45] Outline of Submissions for the Defendant, 20 October 2017 [54].

[46] [2015] VSCA 330 ('Malec').

[47] Ibid [47]-[51] (citations omitted).

[48] (1994) 12 ASCR 785, 787; see Plaintiffs' Written Submissions, 23 October 2017, [25].

[49] Eyota, 787; see also Plaintiffs' Written Submissions, 23 October 2017, [25].

[51] [2017] VSC 741 ('Shot One').

[54] Second Gordon Affidavit, [34]-[35].

[55] [2014] VSCA 92.

[57] [2016] NSWCA 330; (2016) 117 ACSR 495.

[58] [2013] NSWCA 344; (2013) 85 NSWLR 601.

[59] Ligon 158, 498 (emphasis added).

[60] Ligon 158, 497 [5]-[6] (citations omitted).

[62] Ligon 158, 508, [73] (emphasis added).

[67] (2017) 125 ACSR 212.

[68] Ibid 224 [47]-[50] (citations omitted).

[70] [2001] VSCA 89; (2001) 19 ACLC 1270.

[72] Langmaid Affidavit [6]; Affidavit of John Paolacci, sworn 17 October 2017, [31] ('Affidavit of J Paolacci'). Mr Langmaid in his affidavit sworn 18 October 2017 attests to sending an email to Helen Williams on 14 March 2016 attaching copies of Queenfield's tax return and financial report for the year ending 30 June 2015. However, I also note that in Mr Paolacci's affidavit sworn 17 October 2017, it states that the financials for the year ending 30 June 2015 were emailed to Mr Gordon on 25 August 2015; together with a request as to whether tax returns should be completed and lodged. Nothing turns upon the disparity in dates as each date is after the entry of the Sale of Units Deed.

[73] Affidavit R Paolacci, exhibit 'RL-17'; Affidavit of J Paolacci [17].

[74] Affidavit of R Paolacci, exhibit 'RL-3'.

[76] Affidavit of J Paolacci, exhibit 'JP-3'.

[77] See, Creata (2017) 125 ACSR 212, 222 [38]-[46] (per Barrett AJA).

[78] Affidavit of R Paolacci, exhibit 'RL-17'; First Gordon Affidavit, exhibit 'MG-11'.

[79] (1994) 14 ACSR 250 ('John Holland').

[81] Affidavit of R Paolacci, exhibit 'RL-4'.

[87] Langmaid Affidavit, exhibit 'ML-2'.

[88] See, Fischer v Nemeske Pty Ltd [2016] HCA 11; (2016) 330 ALR 1.

[89] Plaintiffs' Written Submissions, 23 October 2017, [5], [21] and [27].

[90] Affidavit of R Paolacci, exhibit 'RL-6'.

[91] Ibid Unitholders' Agreement, cls 3.3(a)-3.3(c).

[95] First Gordon Affidavit, exhibit 'MG-8'.

[96] Affidavit of R Paolacci, [78]-[79] and exhibit 'RL-19'.

[104] Affidavit of R Paolacci, exhibit 'RL-20'.

[105] Ibid exhibit 'RL6', Unitholders' Agreement, cl 12.1.

[106] Affidavit of R Paolacci, [101] and [130], and exhibit 'RL-40'.