Print Mail Logistics Limited v Warratah Investments Pty Ltd

MARKOVIC J: 1 Pursuant to s 459H or alternatively s 459J of the Corporations Act 2001 (Cth) (Act), the plaintiff, Print Mail Logistics Limited (Print Mail), seeks to set aside a statutory demand dated 9 October 2017 (Demand) served on it by the defendant, Warratah Investments Pty Ltd (Warratah) (Set Aside Application). In the alternative, by interlocutory process filed on 17 January 2018, Print Mail seeks a permanent injunction against Warratah relying on the Demand in proceedings to wind Print Mail up (Injunction Application). 2 Print Mail made the Set Aside Application on two alternate bases. The first concerned whether the affidavit accompanying the Demand met the requirements of s 459E(3) of the Act. The second, which was also the basis for the Injunction Application, concerned whether Warratah should be permitted to rely on the Demand in circumstances where Print Mail alleged that it was frustrating the proposed refinancing of a facility by refusing to assign its securities to the primary borrower's incoming financier and where it had stated that, upon payment of the amount demanded, it would, in disregard of Print Mail's rights of subrogation, release those securities. 3 For the reasons that follow Print Mail has succeeded in establishing the first of the two bases on which it alleges that the Demand should be set aside.

background 4 The parties involved in the transactions at the heart of the issues in the proceeding are: Nigel Benjamin Elias who is a director of Print Mail and the sole director of Print Mail Logistics (International) Pty Ltd (PMLI); Jennifer Joan Hutson who is a director and secretary of Warratah and the sole director of Wellington Capital Pty Ltd (now called Southland Stokers Pty Ltd) (Wellington); Mark John Halle who is also a director of Warratah and the chief financial officer of Wellington; and Wellcap Holdings Pty Ltd which is the ultimate holding company of Warratah and the sole shareholder of Wellington.

Events leading up to service of the Demand 5 PMLI as borrower, Print Mail as guarantor and Maitland Mutual Building Society Limited (MMB) as lender entered into the following agreements: (1) on 5 February 2013 PMLI and MMB entered into a commercial facilities agreement pursuant to which MMB made a facility of $312,000 available to PMLI to assist with the purchase of 11 McRorie Court, Cambridge, Tasmania (Property); (2) on 28 October 2013: (a) PMLI and MMB entered into a commercial facilities agreement pursuant to which MMB made a facility of $132,000 available to PMLI; and (b) Print Mail and MMB entered into a deed of guarantee and indemnity pursuant to the terms of which, among other things, Print Mail guaranteed payment to MMB of the "guaranteed money" which was, in effect, all monies owed to MMB by PMLI at any time; (3) on 28 May 2014 MMB offered a commercial facility to PMLI, which it accepted on 3 July 2014, pursuant to the terms of which MMB made a facility of $438,000 available to PMLI for the purpose of consolidating existing MMB commercial loans (MMB Facility Agreement). Clauses 15(a) and (p) of that agreement provide: You are in default if: (a) you do not pay on time any amount payable under an arrangement with us in the manner required by it; or … (p) you do not, or a guarantor does not, meet all your or their monetary obligations (whether present or future) on time or within any applicable grace period or any of these obligations become, or can be rendered, payable early otherwise that at your or the guarantor's election; or (4) on 25 June 2014 MMB and Print Mail entered into a second deed of guarantee and indemnity in identical terms to the first deed of guarantee and indemnity save that the maximum recoverable amount under the guarantee was increased to $438,000 plus applicable interest, charges and costs (MMB Guarantee). The loan facilities made available by MMB to PMLI were secured by, among other things, a first registered mortgage over the Property in favour of MMB (MMB Mortgage). 6 On 29 July 2015 PMLI and Wellington entered into a secured loan agreement pursuant to the terms of which Wellington agreed to loan $420,000 to PMLI (Wellington Loan). 7 The Wellington Loan was secured by a fixed and floating charge over PMLI and a second ranking mortgage over the Property (Wellington Mortgage). It was also initially guaranteed by Print Mail but on 29 February 2016 Wellington released Print Mail from its guarantee. 8 On 4 August 2015 PMLI, MMB and Wellington entered into a priority deed (Priority Deed) which gave priority to MMB over the Property up to its priority amount plus interest and costs. 9 On or about 4 July 2017 Wellington served a Notice of Sale under s 77 of the Land Titles Act 1980 (Tas) (Land Titles Act) on PMLI in which Wellington asserted that PMLI was in default of its obligations under the Wellington Loan and the Wellington Mortgage because it failed to pay the amount of $420,000 on or before 1 July 2017. 10 On or about 21 July 2017 Wellington commenced proceedings in the Supreme Court of Tasmania seeking an order for possession of the Property. 11 On 22 August 2017 the Supreme Court of Tasmania made an order giving possession of the Property to Wellington. 12 On 18 September 2017 Warratah and MMB entered into a deed of assignment pursuant to the terms of which MMB assigned and transferred to Warratah all of its rights and benefits under or in respect of, among other things, the MMB Mortgage, the MMB Facility Agreement, the MMB Guarantee and the Priority Deed. 13 On 21 September 2017 Warratah served a notice of assignment dated 18 September 2017 on PMLI putting it on notice of the assignment referred to in the preceding paragraph. 14 By letters dated 22 September 2017 Warratah notified PMLI and Print Mail of a default by PMLI under the MMB Facility Agreement and demanded payment of $415,648.41, being the monies owing by PMLI under that facility as borrower and by Print Mail as guarantor. Warratah alleged that PMLI had defaulted under cl 15(p) of the standard terms applicable to the MMB Facility Agreement by failing to meet its monetary obligations to Wellington under the Wellington Loan. According to Mr Elias, PMLI has not defaulted in any payment due to Warratah. 15 On 5 October 2017 Mr Elias, in his capacity as director of PMLI, received an unconditional offer to acquire the Property for $450,000 which was conveyed to Wellington's solicitors, AJ & Co Lawyers Pty Ltd (AJ & Co), by letter dated 5 October 2017 from Whittens & McKeough (Whittens), solicitors for Print Mail. 16 On 9 October 2017 AJ & Co responded to Whittens' letter dated 5 October 2017 noting that Wellington had only been in possession of the Property for five business days, it was considering its options as mortgagee in possession and that its preliminary view was that the true value of the Property was significantly higher than $450,000. 17 On or about 9 October 2017 the Demand, which sought payment of $412,606.37 as monies due and owing pursuant to the MMB Guarantee, and the affidavit accompanying the Demand sworn by Mr Halle on 9 October 2017 (Halle Affidavit) were served by post on Print Mail. 18 By letter dated 25 October 2017 from Whittens to Gadens, solicitors for Warratah, Print Mail invited Warratah to withdraw the Demand. Warratah refused to do so. 19 On 30 October 2017 Print Mail commenced the Set Aside Application and on 17 January 2017 it filed the Injunction Application. At the time of commencement of the Set Aside Application Print Mail filed an affidavit sworn by Mr Elias on 26 October 2017 (First Elias Affidavit). In the First Elias Affidavit, in summary, Mr Elias set out the following as "[r]easons for disputing the genuineness of the alleged debt": (1) Warratah's actions in enforcing the MMB Guarantee to benefit Wellington are unconscionable and in breach of Warratah's obligations under the Land Titles Act to exercise its power of sale "in good faith and having regard to the interests of the mortgagor, encumbrancer and other persons"; (2) the actions taken by companies controlled by Ms Hutson, including the issuing of the Demand, are an attempt to force Print Mail to discharge PMLI's liability under the loan without the benefit of any proceeds from the sale of the Property so that once the MMB Mortgage has been discharged Wellington can exercise its power of sale without having to apply any of the proceeds to Warratah; (3) the Demand is being used by Ms Hutson's companies as a means of "benefitting the interests of [Wellington], to the prejudice of [Print Mail] and, in [Print Mail's] contention, made possible by a continuing breach by [Wellington] of its obligations" under s 78 of the Land Titles Act and s 420A(1) of the Act; (4) accordingly, the Demand has been issued for a collateral purpose or constitutes an abuse of process and as such should be set aside; (5) there is also a genuine dispute as to whether PMLI is in default under the MMB Facility Agreement in circumstances where it is up to date with all payments due to be made by it under that facility; (6) the validity of the notice of assignment is disputed because the purpose of the purported assignment was unconscionable and prejudicial to Print Mail's interest for the reasons already identified; and (7) the Demand is not a complying demand because the affidavit verifying it does not meet the mandatory requirements of s 459E(3) of the Act.

Subsequent correspondence between the parties to the proceeding and with Wellington 20 Commencing on 12 December 2017 the parties engaged in correspondence about, among other things, a potential refinance of the MMB Facility Agreement which had been assigned to Warratah. It is this correspondence which gave rise to the second basis upon which Print Mail seeks to set aside the Demand and the Injunction Application. 21 By letter dated 12 December 2017 Whittens informed Gadens that PMLI had reached an agreement with EM Commercial Finance Pty Ltd (EM Commercial) to refinance its facility with Warratah and that finance was conditional on the assignment to EM Commercial of all security interests that ran with the MMB Facility Agreement and which were now held by Warratah. The letter continued: Please, by return: 1. advise the current payment amount for the loan including all costs incurred in relation to enforcement of the loan; 2. confirm that Warratah will, upon payment of the above amount, execute all necessary documents to give effect to the:·assignment of all Security Interests; and 3. confirm that, pending the above payment, the mortgage and other securities under the loan will be kept alive for the benefit of the incoming financier. Subject to receiving your confirmation, we are instructed to complete the refinance within the next 14 days. 22 On 12 December 2017 Gadens informed Whittens that Warratah would agree to PMLI entering into a refinance agreement with EM Commercial on the basis that the incoming financier would pay Warratah the total amount owing under the MMB Facility Agreement and that, upon receiving payment of that amount, Warratah would release all of its securities. Warratah would not agree to assign its securities to the incoming financier. 23 By letter dated 18 December 2017 Whittens informed Gadens and AJ & Co, among other things, that: 20. More generally, we take this opportunity to invite your client to reconsider the position advocated by your letter dated 12 December 2017. 21. In particular: a. We request you to identify a total payout figure for the loan to PMLI inclusive of all interest and enforcement costs. It seems to us that this is information that your client is obliged to provide even if it intends to try to prevent PMLI from refinancing the loan. b. We request that you confirm your client agrees that, upon payment to it of the full amount either by an incoming financier or by the guarantor, the paying entity would be subrogated to your client's interests under the securities upon payment in full. If your client does not agree with this proposition, please indicate why it does not agree. c. We also seek your client's undertaking that, in the event that it is paid the total payout figure, it will not discharge or release any of its securities in respect of the debt arising under the Secured Loan Agreement and registered mortgage between PMLI and Maitland dated 24 August 2015. 24 On 21 December 2017 Gadens sent two letters to Whittens: (1) in one of those letters, among other things, Gadens informed Whittens that they did not accept the assertion that an assignment of securities to an incoming financier was "conventional and orthodox" or that their client had "blocked [PMLI] from being able to refinance", was "actively trying to 'frustrate a refinancing of the funds borrowed by PMLI'" or that it was "threatening to frustrate the refinance". Gadens noted that their client was agreeable to a refinance of the loan "after which Warratah would release its securities"; and (2) in the other letter, among other things, Gadens informed Whittens of the amount then owing to Warratah and confirmed that upon receipt of that amount "Warratah will release the relevant securities". 25 By letter dated 22 December 2017 to Gadens, Whittens noted that it was "a necessary condition of the refinance that the incoming financier be granted a first ranking mortgage over the property". The letter continued: Please confirm that, subject to payment of the payout figure, your client: (a) will take no step to prevent the incoming financier obtaining a first ranking registered mortgage over the property; and (b) to the extent that any consent of the outgoing first ranking mortgage is required for the incoming financier to obtain a first ranking registered mortgage over the property, will provide any such consent. 26 By letter dated 22 December 2017 Gadens informed Whittens, among other things, that: Provided the full amount owing under the Warratah Agreement is paid in full (whether that amount is paid by PML, EM or another incoming financier), our client will release its securities, including its mortgage over the property. Thereafter, Wellington will be the only remaining mortgagee and whether the incoming financier will be able to obtain a first ranking mortgage is a matter that would need to be negotiated with Wellington. 27 On 7 February 2018 Whittens wrote to AJ & Co relevantly noting that PMLI had made arrangements for the refinance of the MMB Facility Agreement by EM Commercial and that: On 22 December 2017, [Warratah] confirmed that provided the full amount owing under the 2014 Facility Agreement is paid in full (whether that amount is paid by PML, EM or another incoming financier), it would release its securities including its mortgage over the land. Please acknowledge by reply that in that event the incoming financier will have priority over your client, so our client can proceed to finalise the refinancing arrangement. 28 On 8 February 2018 Whittens provided a copy of EM Commercial's offer of finance dated 28 November 2017 to Gadens (EM Proposal). 29 By letter dated 9 February 2018 Gadens informed Whittens that, having regard to the EM Proposal, Warratah was prepared to withdraw the Demand provided that PMLI and PML entered into an agreement pursuant to which: A. PML and PMLI each agree to pay the entire amount owing under the Warratah Loan Agreement within 270 days of the date of the EM Proposal (i.e. by 25 August 2018); B. the terms of the Warratah Loan Agreement shall otherwise remain unaffected, such that: (i) PMLI shall continue making monthly payments of principal and interest to Warratah; (ii) the interest rate under the Warratah Loan Agreement shall remain at 8.29% per annum (being significantly less that the rate of 12.00% per annum proposed by EM); (iii) Warratah will not require any additional securities; (iv) Warratah will not charge any additional fees (hence, PMLI would not be liable to pay a line fee, commitment fee, approval fee, establishment fee, or early termination fee, as would be required by EM); C. all parties shall bear their own costs incurred to date (i.e Warratah will not add its costs to the amount owing under the Warratah Loan Agreement). 30 By email dated 12 February 2018 from Whittens to Gadens PML declined Warratah's offer "as the EM Proposal was made in the context of a broader financing relationship". 31 By letter dated 14 February 2018, after noting that they and Warratah were led to believe that the EM Proposal constituted the entirety of EM Commercial's refinance offer and that it was only conditional on the terms contained in it, Gadens stated: If the context of a broader financing relationship is the reason why EM's proposal is considered more favourable than our client's proposal, then the context of that relationship should be explained and supporting documents should be provided. If we do not receive an explanation supported by documentation, we can only infer that the broader financing relationship is not in fact legitimate impediment to your client accepting the offer contained in our letter dated 9 February 2018, or that EM's offer was illegitimately contrived. Any argument to the effect that "the details of EM's offer are irrelevant, as all that should matter is that Warratah will be repaid" cannot be maintained because: A. the proposal put forth by PML/PMLI to refinance the Warratah loan agreement is not a straightforward repayment proposal, as it is conditional upon Warratah assigning the securities to the proposed incoming financier; B. Warratah confirmed on 12 December 2107 that it will release its securities if it received payment of the total amount owing under the Warratah loan agreement; C. despite this, [Print Mail] has continued to proffer an argument that Warratah is acting improperly and is preventing PMLI from repaying its debt by not agreeing to assign; D. now Warratah has made a genuine offer, which would allow PML/PMLI to repay the debt and which is in all respects seemingly more favourable than EM's proposal (and does not require the securities to be assigned); E. however, that offer has been rejected without sufficient explanation, which indicates to us that your client would rather waste the Court's time and resources than work towards an agreement that is favourable to all of the parties involve. 32 On 16 February 2018 AJ & Co responded to Whittens' letter dated 7 February 2018 (set out above at [27]) refusing the request to give priority over the Property to an incoming financier. 33 On 21 February 2018 Whittens again wrote to AJ & Co including, among other things: The purpose of our letter of 7 February 2018 was not to seek any manner of indulgence from your client but rather to inquire whether your client accepts that an incoming financier who refinances all of the facilities secured by the first mortgage is entitled to be subrogated to the rights of Warratah under its registered mortgage. An alternative possibility is that our client, Print Mail Logistics Ltd, could pay out the total amount claimed to be owing to Warratah as guarantor of PMLI's obligation under the said facilities with the same relevant effect, namely that our client would be subrogated to the rights of Warratah under its first ranking mortgage. Accordingly, please confirm whether your client accepts that if an incoming financier (or alternatively Print Mail Logistics Ltd, as guarantor) were to pay our the debt to Warratah that it would be entitled to be subrogated to the interests of Warratah under its securities and in particular its first ranking registered mortgage over the Property. 34 On 21 February 2018 Whittens made an open offer on behalf of Print Mail to Warratah in the following terms: the Demand be withdrawn and the proceeding be dismissed with no order as to costs; PMLI will refinance the entire amount owing to Warratah "this year" and Print Mail will guarantee its obligations to the incoming financier provided that Warratah keeps the securities alive for the incoming financier; and in the alternative, Print Mail, as guarantor, will pay out the entire amount owing provided Warratah keeps the securities alive for Print Mail. 35 By email dated 22 February 2018 Gadens responded to the offer set out in Whittens' letter dated 21 February 2018. On the presumption that the reference to "keeping the securities alive" meant assigning them to an incoming financier or Print Mail, they noted that they failed to see how what had been proposed was "materially different to" the EM Proposal. The email continued: In this regard, our letters of 12 December 2017 and 20 December 2017 have already made clear that our client: 1. is not concerned about who the incoming financier is (e.g. EM, [Print Mail] or another financier); 2. is agreeable to releasing, but not assigning, its securities. Whereas our client proposed a resolution that seemingly would put [Print Mail] and PMLI in a more favourable position than if they were to refinance with EM (which [Print Mail] and PMLI were prepared to do), your client has put forth an offer which it knows will not be accepted for the reasons stated above. The offer is clearly disingenuous; it does not even contain a proposed repayment date (other than "this year") or any evidence suggesting that PMLI would be capable of refinancing the Warratah debt.

Mr Halle's evidence 36 Mr Halle was cross-examined. 37 Mr Halle acknowledged that as at August 2017, when Wellington obtained the order for possession of the Property, he was aware that Wellington held a second ranking mortgage. He also acknowledged that if Wellington exercised its power of sale it would hold the sale proceeds on trust for the first ranking mortgagee and if Wellington sold the Property all of the money from the purchase would be applied first to discharge the first ranking mortgage. Mr Halle was also aware that the Property is not worth the combined amount owing to Wellington and the amount claimed in the Demand owing to Warratah. 38 Mr Halle knew as at August 2017 that Wellington, as second ranking mortgagee, would not get anything out of a sale of the Property unless it did something else. Thus he and Ms Hutson agreed that they would get Warratah to acquire the loan, mortgage and securities from MMB for approximately $415,000 for the purpose of getting both the MMB facility and the Wellington Loan repaid. The following exchange took place between counsel for Print Mail and Mr Halle: Counsel: I'm asking you whether your intention in August 2017 was to acquire the first ranking mortgage and/or the securities so that you could issue a stat demand - statutory demand on the plaintiff? Mr Halle: The - yes, that's correct. The PML have guaranteed the first mortgage so that was the - from our perspective, the best way to get both facilities paid. Counsel: Yes. So your reasoning was, wasn't it, "If we issue a statutory demand on the plaintiff, the plaintiff will have to pay the amount in full for the first ranking mortgage - - -"? Mr Halle: The first ranking mortgage, yes. Counsel: "- - - and then the second ranking mortgagee can exercise its power of sale against the property"; is that right? Mr Halle: That was one avenue, yes. 39 Mr Halle said that he was acting in the best interests of Warratah and Wellington. He agreed that the effect of recovering the full amount owing on the MMB Mortgage by issuing the Demand was that Wellington would be free to execute against the equity in the Property without having to account to any higher ranking mortgagee, provided there was no incoming first ranking mortgagee. 40 Mr Halle's evidence shifted. While he initially said that Warratah had "not necessarily" been trying to prevent Print Mail from getting the benefit of the securities held by Warratah, he ultimately accepted that the effect of what Warratah was doing deprived Print Mail of the ability to have the benefit of the securities it holds after Print Mail repaid the amount the subject of the Demand. 41 Mr Halle was aware that Warratah owed a duty to hold the MMB Mortgage for Print Mail such that, when it pays the amount owing as guarantor, it can have access to that security. He accepted that his intention was to get both facilities paid; that was being done by issuing the Demand to Print Mail and releasing the securities on payment by Print Mail; and that thereafter the second ranking mortgagee, Wellington, would move in, sell the Property and pay itself the amount it was owed without having to account to any higher ranking mortgagee. Mr Halle said that the effect, though not the intention, of taking those steps was to deprive Print Mail of the ability to have the benefit of the securities. The following exchange took place between counsel for Print Mail and Mr Halle: Counsel: Well, you have sent - you have caused your solicitors to send no less than four or five letters in which you have said you are going to release the securities upon payment, haven't you? Mr Halle: Yes. Counsel: That is a clear indication that you intend to release the securities once my client pays you? Mr Halle: Yes. Counsel: And that is a statement that is totally inconsistent with your obligation to maintain the securities, isn't it? Mr Halle: Yes. 42 Mr Halle accepted that what Warratah was doing was possibly unfair but said that Warratah was doing it to achieve the best possible result for Warratah and Wellington, namely to get the facilities repaid.

warratah's Proposed undertaking 43 It became apparent during the course of the first day of the hearing that Warratah had resiled from the position taken by it in correspondence from its solicitors that it would "release its securities" upon receiving payment of the full amount owing to it. In its written submissions at [31] Warratah said: The plaintiff has misunderstood the defendant's correspondence. It was only proposed that the defendant would release the securities as an alternative to assigning them, as any incoming financier would presumably not want PMLI's property to remain so encumbered when providing a loan. As such, it is not as though the defendant is actively trying to impair the securities. The defendant has just not agreed to assign them. Nor is there any obligation on it to do so. The idea of having the securities remain in place was only raised in the plaintiff's correspondence from 21 February 2018, where the plaintiff raised the idea of "keeping the securities alive". As can be seen from the defendant's response on 22 February 2018, this phrase was thought to mean assigning the securities. The plaintiff never clearly put a proposal to the defendant to payout the debt and have the securities remain as they are without being released. In accordance with usual commercial practice, if the plaintiff paid the defendant the outstanding amount, the defendant would provide the plaintiff with the relevant release documents; what the plaintiff would chose to do with those documents would be a matter for the plaintiff. 44 In the course of oral argument the following exchange took place between the Court and Mr Hall, counsel for Warratah: Mr Hall: … So, in our submission, the request for the assignment, there's just no basis behind that; it's not something that can be required of our client. In relation to the release issue, if I could call it that, there has to be a payment made. It's all contingent on the payment being made. Her Honour: But there has to be a payment made in order to get the benefit of what I will call the "subrogated rights". Mr Hall: Quite so, your Honour. Her Honour: But isn't the issue here that the plaintiff says, "Well, we want - we will make payment, or someone will make payment - an incoming financier - but we want to be sure that those rights will be available." And the response that they seem to have received from your client is, "Well, we're going to discharge these securities", which seems to be inconsistent with keeping the rights alive. Mr Hall: Well - and there are two answers that I can give your Honour to that. The first answer is that we - by that, we mean that we all provide our releases, in relation to those securities, at settlement. So there will be a small settlement. A cheque will be tendered, or payment will be tendered, in relation to the rise. Her Honour: Well, that's not what the letters say, though. Mr Hall: They don't, your Honour. Her Honour: Well, does that mean we're here arguing about nothing? Mr Hall: Well - - - Her Honour: If that position is no longer - I mean, clearly, the correspondence that Mr Rayment took me to says - I may be paraphrasing incorrectly, but my recollection is it says - uses the word either "release" by which - "release" or "discharge", I can't recall - but by which it seemed the clear intent was that there would be a discharge which meant someone was going to sign - I would infer that someone was going to sign a discharge of mortgage and take it along to the Land Titles Office and register it which is quite different to the position now being put which is, if you give me some money, we will give you - we will have a settlement and we will hand over a discharge to you that you can use at some point in the future once you've had the benefit of your rights of subrogation. Mr Hall: Yes, your Honour. Her Honour: Is that what you're putting to me? Mr Hall: That is what I'm putting to you. Her Honour: Well, that's very different to the position in the correspondence. 45 Counsel for Warratah subsequently informed the Court that he had instructions to offer an undertaking but, in the form proposed, that undertaking did not resolve all matters in issue. Accordingly, the hearing proceeded. At the conclusion of what transpired to be the first day of the hearing, the Court made an order that, after first providing a copy to Print Mail, Warratah provide the Court with a copy of any proposed undertaking to the Court and granted liberty to the parties to restore the matter to the list. 46 On 7 March 2018 Warratah provided the Court with a copy of a proposed undertaking in the following terms: Definitions "Loan Facility" means the loan facility between Maitland Mutual Building Society Limited ACN 087 651 983 (Maitland) and Print Mail Logistics (International) Pty Ltd ACN 142 144 830 (PMLI) dated on or about 28 May 2014, which was assigned to the Defendant on or about 18 September 2017 and which is guaranteed by the Plaintiff for the borrower, PMLI. "Securities" means the Guarantee and Indemnity dated 25 June 2014 between Maitland and the Plaintiff, First Registered Mortgage number D133476 dated 30 July 2014 over the land comprised in Certificate of Title Volume 167361, Folio 1, and the General Security Agreement dated 12 February 2013 between Maitland and PMLI, which were assigned to the Defendant on or about 18 September 2017. Undertaking The Defendant by its directors undertakes to the Court that, in the event that the Plaintiff (as guarantor) or a third party on behalf of the Plaintiff as guarantor makes payment in full to the Defendant pursuant to the Statutory Demand dated 9 October 2017 or otherwise pays out in full the Loan Facility, the Defendant will by its directors, officers, servants and employees, upon receipt of that payment: a. provide executed release documents in respect of the Securities to the Plaintiff or the third party payer as the case may be; b. not lodge any such releases with the Tasmanian Land Titles Registry, on the Personal Properties Securities Register or otherwise; and c. otherwise keep alive the Securities.

legislative framework 47 Section 459G of the Act permits a company to apply to the Court to set aside a statutory demand served on it within 21 days after service of the demand and prescribes what the company must do within that 21 day period to comply with s 459G. 48 Print Mail relies on s 459H(1)(a) or (b) and, in the alternative, s 459J(1) of the Act. 49 Section 459H of the Act provides: (1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following: (a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates; (b) that the company has an offsetting claim. (2) The Court must calculate the substantiated amount of the demand in accordance with the formula: Admitted total - Offsetting total … (3) If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand. (4) If the substantiated amount is at least as great as the statutory minimum, the Court may make an order: (a) varying the demand as specified in the order; and (b) declaring the demand to have had effect, as so varied, as from when the demand was served on the company. … (6) This section has effect subject to section 459J. 50 Section 459J of the Act provides: (1) On an application under section 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; or (b) there is some other reason why the demand should be set aside. (2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect. 51 Print Mail alleges that the affidavit which accompanied the Demand does not comply with s 459E which sets out the requirements for a statutory demand and the affidavit which must accompany it unless the demand relies on a judgment debt. Relevantly s 459E(3) provides: (3) Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that: (a) verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and (b) complies with the rules. 52 Rule 5.2 of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules) provides: 5.2 Affidavit accompanying statutory demand (Corporations Act s 459E (3)) - Form 7 For the purposes of subsection 459E(3) of the Corporations Act, the affidavit accompanying a statutory demand relating to a debt, or debts, owed by a company must: (a) be in accordance with Form 7 and state the matters mentioned in that Form; and (b) be made by the creditor or by a person with the authority of the creditor or creditors; and (c) not state a proceeding number, or refer to a Court proceeding, in any heading or title to the affidavit. 53 Form 7 is headed "Affidavit accompanying statutory demand". It is relevantly in the following form: Form 7 - Affidavit accompanying statutory demand (rule 5.2) [Name of creditor(s)] Creditor(s) [Name of debtor company] Debtor company I, [name] of [address and occupation], *say on oath/*affirm [or *make oath and say/*solemnly and sincerely declare and affirm]: … 3 [State the source of the deponent's knowledge of the matters stated in the affidavit in relation to the debt or each of the debts, eg 'I am the person who, on behalf of the creditor(s), had the dealings with the debtor company that gave rise to the debt', 'I have inspected the business records of the creditor in relation to the debtor company's account with the creditor'].

Issues to be resolved 54 As set out at [2] above, two issues are raised by Print Mail for determination. The first, which concerns an alleged deficiency in the Halle Affidavit which accompanied the Demand, was described by Print Mail as the technical issue and only arises on the Set Aside Application. The second, which concerns whether by service of the Demand, Warratah is intentionally acting to impair securities that ought to be available for a guarantor or an incoming financier upon payment of the principal debt, was described by Print Mail as the substantive issue and arises both on the Set Aside Application as a basis to set aside the Demand pursuant to s 459H(1) or s 459J(1)(b) of the Act and on the Injunction Application. 55 Despite the First Elias Affidavit raising as one of the "reasons to dispute the genuineness of the debt claimed" in the Demand whether PMLI is in default under the MMB Facility Agreement which, in turn, raised issues of construction of the MMB Facility Agreement and the validity of the notice of assignment, those issues were not raised or pursued in argument by Print Mail as bases upon which the Demand should be set aside. 56 I will address each issue in turn.

Issue 1: the technical issue 57 This issue turns on the question of whether the Halle Affidavit complies with s 459E(3) of the Act.

Parties' submissions 58 Print Mail submitted that the Demand should be set aside pursuant to s 459J(1)(b) of the Act because it fails to comply with ss 459E(3)(a) and (b) in that, in the Halle Affidavit at [3], Mr Halle does not state the source of his knowledge of the matters stated therein in relation to the debt and in fact states something which is incorrect. It further submitted that Mr Halle admitted candidly in his affidavit sworn on 22 November 2017 (November Affidavit) that, contrary to [3] of the Halle Affidavit, Print Mail does not have an account with Warratah. Print Mail contended that it was not possible to make good an affidavit which did not comply with the Act in the first instance by relying on evidence given after service of the Demand. 59 Print Mail submitted that the simple point was that the affidavit accompanying the Demand had to comply with the mandatory requirements of the Act in order for the Demand to be a complying and valid demand. Print Mail contended that the Halle Affidavit cannot be said to "verify" the matters stated in the Demand, relying as it did on a false statement about a non-existent account. It said that, as the definition of statutory demand in s 9 of the Act includes a demand or a purported demand, it is still competent and appropriate for an order to be made setting aside a non-complying demand. 60 Warratah described Print Mail's complaint as "a minor one". It contended that when the Demand was issued to Print Mail as guarantor, the Halle Affidavit made reference to Print Mail's account with Warratah rather than to PMLI's account with it, given the debt was called up from Print Mail as guarantor. Warratah pointed out that this was addressed in the November Affidavit and submitted that Print Mail understood what was meant in the Halle Affidavit by use of the words "debtor company's account". 61 In oral submissions counsel for Warratah accepted that in order for Print Mail to succeed on this aspect of its argument it would need to satisfy the Court that the Demand should be set aside "for some other reason" pursuant to s 459J(1)(b) of the Act, taking a different stance to that taken by Warratah in its written submission in which it contended that, in order to have the Demand set aside, Print Mail must establish that the alleged defect will cause "substantial injustice". Warratah submitted that, based on the First Elias Affidavit, what in fact was being claimed in the Demand was clear to Print Mail at the time of its receipt. It contended that the fact that the Halle Affidavit was not drawn "sufficiently" did not mean that it was deficient in any significant respect. That is, Warratah submitted that, in circumstances where the meaning of [3] of the Halle Affidavit was apparent to the parties, the defect in it was not of sufficient seriousness to warrant the Court exercising its discretion to set aside the Demand.

Relevant principles 62 In Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746; [1996] NSWSC 199 (Portrait Express) Bryson J considered whether affidavits served by Kodak (Australasia) Pty Limited (Kodak) with its statutory demands were defective such that the demands should be set aside for "some other reason" pursuant to s 459J(1)(b) of the Act. 63 At 752 Bryson J found that the affidavits did not comply with the requirements of the applicable court rule, Pt 80A r 15(1) of the Supreme Court Rules (NSW), in three respects, one of which was that the deponent did not state the source of his knowledge of the matters stated in them concerning the debt. His Honour noted that this part of the plaintiff's case turned on the contention that this constituted "some other reason why the demand should be set aside" within s 459J(1)(b) of the Act. 64 After referring to the decision of McLelland CJ in B & M Quality Constructions Pty Ltd v Buyrite Steel Supplies Pty Ltd (1994) 15 ACSR 433 his Honour said at 752: … The requirements that the deponent state the source of his knowledge and his belief that the matters stated in the affidavit concerning the debts were true and his belief that there was no genuine dispute are in at least the same order of importance as the requirement that the verification be made by a member or officer. The selection of the right person achieves nothing unless the facts required to be verified are actually verified. McLelland CJ in Eq went on at 436 to express these views (line 19 to 29): The defendant's failure to comply with the rules in the manner discussed, for the reasons I have indicated, provides a sufficient "other reason" for the purposes of s 459J(1)(b) why the demand should be set aside. The failure to comply with the rules in respect of the accompanying affidavit is not in my opinion a "defect" within the meaning of s 459J(2) which I think, having regard to subs (1), must be read as a "defect" in the demand itself (and see the definition of "defect" in s 9), and even if it were, the court would not be acting "merely" because of the defect, a phrase which connotes acting merely because there is a defect, without regard to the significance of the defect in the particular circumstances. (cf Zhen Yun (Aust) Pty Ltd v State Bank of SA (1994) 13 ACSR 801 at 803). It will be seen that his Honour's view was that the failure of the affidavit to comply with the rules of court is not a defect in the demand itself and is not protected by s 459J(2). … 65 At 758, in considering whether to exercise the power under s 459J(1)(b) of the Act, Bryson J said that the "dominant consideration" was the need to ensure "the purity of the manner in which creditors follow statutory procedures which are preliminary to litigation and for which verification is required by law". His Honour was unable to disregard the deficiencies in the affidavits and said: … It is not enough that a responsible officer should support a statutory demand by oath or affirmation; the exercise must be carried out in a responsible way, and regard must be paid, with a strictness appropriate for verification, to the need to review the available information and observe whether what is being verified conforms to the information in the creditor's own hands. … 66 Bryson J concluded that, had there been a conscientious review of Kodak's own records, the affidavits which had been made could not have been made. 67 In Re Ege Foods Australia Pty Ltd (2014) 286 FLR 439; [2014] NSWSC 983 Brereton J considered whether an affidavit accompanying a statutory demand which did not comply with s 459E(3) of the Act rendered the demand invalid such that it never took effect for the purposes of s 459F of the Act. As no application had been made to set aside the demand, this issue was raised and considered at the time of the application to wind up the company in insolvency relying on the presumption of insolvency arising from non-compliance with the demand. The affidavit which had accompanied the demand did not verify that the debt was due and payable as required by s 459E(3)(a) and did not contain the statement required by para 5 of Form 7 to the effect that the deponent believed that there was no genuine dispute about the existence or the amount of the debt. His Honour observed that the latter omission was not a requirement stipulated in s 459E(3) itself. 68 At [25] Brereton J said: At the heart of Beralt and of International Materials & Technologies is that a failure to comply with a mandatory requirement of s 459E that adversely affects the ability of the company to make a valid application to set aside the demand is not a mere defect which may render the demand liable to be set aside only if it is productive of substantial injustice, but a non-compliance with a mandatory requirement that deprives the demand of the character of a compliant demand and renders it ineffective. … 69 At [27] his Honour said: Similarly, s 459E(3) stipulates that except in the case of a judgment debt, a demand must be accompanied by an affidavit that verifies that the debt is due and payable by the company. In Hamilhall Pty Ltd (in liq) v A T Phillips Pty Ltd, Branson J expressed the view that while it was not clear that a statutory demand would fail to be a statutory demand if unaccompanied by an affidavit that complies with s 459E(3), a demand that was not accompanied by a compliant affidavit would not have been served as required by s 459E and thus could not give rise to a presumption of insolvency. Her Honour said (at 249): Although it is not necessary for me to decide the point I point out that it is not clear that a statutory demand will fail to be a statutory demand within the meaning of the Corporations Law if it is not accompanied by an affidavit that complies with the requirements of s 459e(3). Section 459e(2) deals explicitly, and one might think comprehensively, with the requirements of a statutory demand. In my view the more likely position is that a statutory demand which is not accompanied by an affidavit which complies with s 459E(3) has not been served as required by s 459E. On this approach a statutory demand which when served is not accompanied by such an affidavit will not support a presumption of insolvency. As its proper service could never be established failure to comply with it could consequently never be established as required by s 459f of the Corporations Law. 70 After referring to the decision in Victorian Workcover Authority v Kay's Pty Ltd (2001) 39 ACSR 281, in which Mahony SM came to a contrary view to Branson J, Brereton J said at [29]-[31]: 29 With great respect, I have come to a different view, and prefer the approach of Branson J. First, in my judgment, the scheme of Pt 5.4 Div 2 is that a statutory demand can only be made in respect of a judgment debt, or a debt that is verified by an accompanying affidavit. A demand's effect depends not only on service, but also on its being accompanied, where required, by a compliant affidavit. The requirement that the demand "must" be accompanied by the affidavit is in the plainest mandatory language. The intent is that a demand can be made only in respect of a judgment debt, or a debt that is verified, and that the serious consequences for a company that flow from service of a s 459E demand should be attracted only where the demand is in respect of a debt that has been established by judgment or is verified. 30 Secondly, I differ in my understanding of what Santow J said in Dolvelle was not "an essential integer": his Honour was referring in this respect to the requirement of exact coincidence of date for verification of the statutory demand, in the context that the affidavit was two days premature. That is far removed from the complete absence of any affidavit that verifies the demand. 31 In my view, therefore, a statutory demand in respect of a debt that is not a judgment debt does not come into effect for the purposes of s 459F unless it is accompanied by an affidavit that complies with s 459E(3). … 71 In Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262 the New South Wales Court of Appeal considered the operation of s 459J(1)(b) of the Act. The applicant contended that a statutory demand should be set aside for "some other reason" because the affidavit accompanying it did not include a statement of the deponent's belief of absence of a genuine dispute about the existence or the amount of the debt. Commencing at [18] Barrett JA (with whom Beazley P and Gleeson JA agreed) considered "the power which s 459J(1)(b) puts at the disposal of the court to set aside a statutory demand for 'some other reason'". After referring to a number of authorities which had considered the ambit of the section, Barrett JA concluded at [24]-[25] as follows: 24 The operation of s 459J(1)(b) is not confined to cases coming within established categories. The section applies whenever there is a need to counter some attempted subversion of the intended operation of Part 5.4. Its purpose was recently described somewhat more broadly. In Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91, the provision was said (at [83]) to be one "which will rarely be employed, but when employed, it will be for the purpose of meeting the demands of justice: Eumina Investments Pty Ltd v Westpac Banking Corp [1998] FCA 824; 84 FCR 454, 458-459." 25 It is thus a remedial provision under which the court may deal with cases not within s 459H or s 459J(1)(a) in a way that is just, having regard to the purpose of the legislation. Furthermore and as the Full Federal Court said in Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (above) at 137, it is unwise to attempt to mark out the limits of the s 459J(1)(b) power.

Consideration 72 As a starting point it is useful to set out the Halle Affidavit in which, omitting formal parts, Mr Halle deposed that: 1. I am a director of the creditor named in the statutory demand, which this affidavit accompanies, relating to the debt owed by Print Mail Logistics Limited ACN 103 116 856. 2. I am authorised by the creditor to make this affidavit on its behalf. 3. I have inspected the business records of the creditor in relation to the debtor company's account with the creditor. 4. The debt of $412,606.37 being the debt mentioned in the statutory demand is due and payable by the debtor company. 5. I believe that there is no genuine dispute about the existence or amount of the debt. (emphasis added) 73 In the November Affidavit Mr Halle provided a further explanation in relation to [3] of the Halle Affidavit. He relevantly said that: 3. On 9 October 2017, I swore an affidavit accompanying the Creditor's Statutory Demand for Payment of Debt dated 9 October 2017, which is the subject of this proceeding (CSD) (Halle 9 October 2017 Affidavit). 4. The CSD was issued to Print Mail Logistics Limited ACN 103 116 856 (PML) in respect of a debt owed to Waratah by PML as a guarantor of the obligations of Print Mail Logistics (International) Pty Ltd 142 144 830 (PMLI). … 6. As PML does not technically have its own account with Warratah, the account to which I was referring in paragraph 3 of the Halle 9 October 2017 Affidavit was the loan account Warratah has in the name of PMLI, which PML guaranteed. I checked that loan account at the time of swearing the Halle 9 October 2017 Affidavit and no payment had been received from PMLI, PML or any other party on account of the debt that is the subject of the [Demand]. 7. PML, as the guarantor of the obligations of PMLI, is required to make payment of the debt into that same account. … 74 At [3] of the Halle Affidavit, Mr Halle said that he had inspected Warratah's records in relation to Print Mail's account with Warratah and at [4] of the Halle Affidavit he said that the amount claimed in the Demand is due and payable by Print Mail. But, as Mr Halle conceded in the November Affidavit, Print Mail does not have an account with Warratah, only PMLI as borrower has a loan account with Warratah. Mr Halle then goes on to explain in the November Affidavit why Print Mail is indebted in the amount claimed in the Demand. That is, he gives a full description of the basis for Print Mail's alleged debts which, presumably, ought to have been included in the Halle Affidavit. But that does not cure the defects in the Halle Affidavit. 75 Mr Halle has admitted that his statement in [3] of the Halle Affidavit was incorrect. No criticism is made of Mr Halle that he intentionally included an incorrect statement in that affidavit. However, that he did has a twofold effect. 76 First, because the statement that Mr Halle inspected Print Mail's account with Warratah is simply incorrect, Mr Halle has verified a matter which is untrue. 77 Secondly, and more critically, the Halle Affidavit does not comply with the Corporations Rules. That is, r 5.2 of the Corporations Rules requires that the affidavit accompanying a statutory demand be in accordance with Form 7 and state the matters mentioned in that form. Form 7 includes a requirement that the deponent state the source of his or her knowledge of the matters stated in the affidavit in relation to the debt. That has not happened because the stated source of Mr Halle's knowledge about the debt simply does not exist. Put another way, a fact that was required to be verified has not been verified in the affidavit. The reference to a source that does not exist means that there was no source of Mr Halle's knowledge included in the Halle Affidavit. 78 Warratah submitted that the deficiency in the Halle Affidavit was not significant and that it was clear, based on the First Elias Affidavit, that Print Mail understood the nature of the debt which was the subject of the Demand. Clearly Print Mail knew that it was a guarantor of the debt owed by PMLI to Warratah. But the issue raised by Print Mail's submission is whether the nature of the non-compliance in the Halle Affidavit is such that the Demand should be set aside pursuant to s 459J(1)(b) of the Act. 79 In support of Warratah's submission that the deficiency was not significant, Warratah referred the Court to Childcare Providers Pty Ltd v Bright Horizons Australia Childcare Pty Ltd (2017) 327 FLR 363; [2017] QSC 307 in which Holmes CJ refused to exercise her discretion pursuant to s 459J(1)(b) of the Act to set aside a statutory demand for "some other reason". It was alleged that the affidavit accompanying the statutory demand did not comply with r 5.2 of the Corporations Rules because it did not identify the source of the deponent's knowledge of the matters stated in relation to the debt as required by Form 7. There the deponent, Mr Zullo, said in relation to the source of his knowledge that he was "the person who signed all the documentation on behalf of the creditor". 80 At [14] Holmes CJ found, on the basis that Mr Zullo was the sole director of the creditor, that the directness of his knowledge was not in doubt nor the sources of it obscure. Further her Honour said that, in context, the documentation referred to by Mr Zullo could only be that relating to the loan. His statements that he was the only director and that he signed the documents seemed to her Honour to be an adequate explanation of his means of knowledge of the debt. At [15] her Honour said: Courts have differed as to whether the operation of s 459(J)(1)(b) is governed by s 459J(2) so that a mere defect will not suffice, but whatever approach is taken, it is accepted that the discretion under s 459J(1)(b) is only to be exercised for "reasons of appropriate seriousness"; "sound or positive ground or good reason"; consistent with the legislative intent of the relevant part of the Corporations Act. In my view, Mr Zullo's affidavit is adequate to meet the requirements of form 7. But even if it could be said that it should have been more expansive about his source of knowledge, that would not convince me, in the circumstances of this case, that it was a good reason for the exercise of the jurisdiction under s 459J(1)(b). (footnotes omitted) 81 I am unable to reach the same conclusion as Holmes CJ in relation to the Halle Affidavit. It is not adequate to meet the requirements of Form 7. Mr Halle's reference to a source that simply does not exist means that there was, in effect, a complete failure to state the source of Mr Halle's knowledge about the debt. Mr Halle is a director of Warratah but, in contrast to the affidavit that was before Holmes CJ, he is not the sole director and there is nothing in the Halle Affidavit to suggest that Mr Halle signed any, let alone "all", relevant documentation in relation to the assignment of the loan from MMB to Warratah or was otherwise aware of Print Mail's role as guarantor of the relevant loan and which could explain his knowledge of the debt the subject of the Demand. 82 Contrary to Warratah's submission, the failure to comply with r 5.2 of the Corporations Rules by referring to an incorrect source and thus failing to include the source of Mr Halle's knowledge in the Halle Affidavit as required by Form 7 is not of minor or no significance. It is not a matter that can be remedied by reference to the November Affidavit. 83 The failure in this case is sufficiently serious for me to exercise my discretion pursuant to s 459J(1)(b) of the Act and make an order setting aside the Demand. As Bryson J said at 757-758 in Portrait Express: … An affidavit which is incorrect has a different and higher order of importance to a demand which is incorrect. There are some deficiencies in procedure which the court should not allow to be successful, whether or not they have any high practical significance in terms of justice between the parties in the instant case. Echoing the expressions of Senior Master Mahony in Scandon at 668, it seems to me that the opportunity ought to exist for the court to register clearly and appropriately the importance of the requirement of verification of demands. I cannot see the requirement of verification, and the responsibilities in relation to it which fall both on the officer swearing the verification and on the creditor as no more than another form to fill in, errors in which the debtor can have put right on application to the court. 84 Mr Halle did not carry out the task of completing the affidavit required to accompany the Demand in a responsible way. The Halle Affidavit failed to include the source of Mr Halle's knowledge about the debt, a matter which should have been apparent on a proper review of the available information to ensure that the verification of the Demand in the affidavit in fact reflected the information known and available to Warratah. 85 Accordingly, the Demand should be set aside pursuant to s 459J(1)(b) of the Act.

Issue 2: the substantive issue 86 Given the conclusion I have reached on the technical issue it is not strictly necessary for me to consider the alternative basis on which Print Mail alleges that the Demand should be set aside. However I do so, albeit briefly, for completeness.

Parties' submissions 87 In summary, Print Mail alleged that Warratah should not be permitted to rely upon the Demand when, at the same time: it is frustrating the refinancing of the MMB Facility Agreement by refusing to assign its securities to PMLI's incoming financier; and in unconscientious disregard of its equitable duties to Print Mail as guarantor, it is unequivocally stating that, upon payment of the amount demanded, it will release its securities thus stripping Print Mail's right of subrogation of any value. 88 Print Mail submitted that Warratah's conduct constitutes unconscionable conduct under s 21 of the Australian Consumer Law (ACL) set out in Sch 2 of the Competition and Consumer Act 2010 (Cth) for which the available remedies include an injunction pursuant to s 232 of the ACL against Warratah releasing the securities upon payment, damages pursuant to s 236 of the ACL, compensation orders pursuant to s 237 of the ACL and an order refusing to enforce the guarantee under s 243(a) of the ACL. 89 Print Mail also submitted that a creditor taking action to release securities which would otherwise be subrogated to it as guarantor is conduct that has been held to give rise to a discharge of the guarantee itself. It contended that, in that event, Warratah would be liable to repay the amount paid by Print Mail, as monies had and received, together with equitable compensation for the loss of the equity in the property in question. 90 Print Mail said that, on either formulation, Warratah's title to sue for the sum the subject of the Demand is impeached and there is a genuine dispute as to Warratah's entitlement to the amount demanded for as long as it proposes to impair the security to which it would, upon payment, be entitled to be subrogated. It contended that the debt is disputed and thus the Demand should be set aside pursuant to s 459H of the Act. 91 In the alternative Print Mail submitted that the Demand had been issued and is being relied on in furtherance of a collateral purpose. It contended that in circumstances where: Print Mail is prepared to pay out the total amount owing to Warratah, provided the existing securities are kept alive for its benefit, and equally PMLI is prepared to refinance the total amount owing subject to the same proviso; Warratah has repeatedly stated an unequivocal intention to release its securities such that Print Mail's right of subrogation would be of no value and Wellington has refused to acknowledge that Print Mail or, alternatively, an incoming financier would be entitled to subrogate to the first ranking mortgage; and Print Mail has expressly alleged that Warratah is acting in furtherance of an abuse of process designed to assist Wellington to the prejudice of Print Mail, an allegation which Warratah has not disputed, the Court should infer that Warratah's conduct is directed towards a collateral and unconscionable purpose, namely, at Print Mail's expense, assisting Wellington to achieve a better level of security than that to which it is entitled. 92 Print Mail submitted that Warratah's true intention is to use the Demand as a means of forcing Print Mail to discharge the loan without it having recourse to the equity in the Property so as to assist the second ranking mortgagee, Wellington. It further submitted that the Court should find that Warratah issued the Demand in circumstances that are entirely unjust and that the Demand should be set aside under s 459J(1)(b) of the Act. 93 Print Mail submitted that if the Court considered, for reasons identified in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 (Graywinter), the relevant facts relied upon to support this ground emerged outside the 21 day period since the Demand was served, the Court has power to, and should, restrain Warratah from relying on a statutory demand that is being used in furtherance of an abuse of process. 94 In relation to Warratah's proposed undertaking, Print Mail submitted that, although it was an improvement on Warratah's threats to release the securities on payment, it was not sufficient to cure the problems with the Demand for the following reasons: first, a demand that has been issued in circumstances which amount to an abuse of process cannot be "cured" retrospectively by providing an undertaking. Print Mail contended that one could not issue a statutory demand for a collateral purpose and then "surgically" remove the taint of that improper purpose by crafting an appropriate undertaking; secondly, the undertaking is "entirely useless" from a practical perspective when one considers the terms of Print Mail's offer of finance from EM Commercial. It contended that, having regard to those terms, the necessary effect of Warratah's refusal to assign the securities is that it will not be able to obtain finance from EM Commercial unless and until it has successfully prosecuted separate proceedings against Warratah and Wellington. It said that the Court should infer that this is the reason why Warratah is refusing to assign the securities and that Warratah wishes to put as many hurdles in the way of a refinance as it can because a refinance will, in effect, require Wellington to account to the incoming financier; and thirdly, if the demand is not set aside one of two very unjust consequences awaits Print Mail while it is prosecuting the Supreme Court proceeding contemplated by the terms of the offer of finance from EM Commercial: either Print Mail will have to pay the whole amount demanded prior to the determination of that proceeding and therefore without the benefit of finance; or, if Print Mail cannot satisfy the Demand without finance, it will be deemed insolvent and face being wound-up unless it incurs the cost of proving solvency in winding up proceedings that might well be determined before the Supreme Court proceeding is resolved. It submitted that both outcomes involve the use of the Demand to apply undue pressure on Print Mail to achieve the ulterior purpose of helping Wellington. 95 Print Mail also submitted that the fact that Warratah has an alternate means of getting paid immediately, provided it agrees to assign its interest in the relevant securities, constitutes a powerful discretionary reason why the Demand should be set aside for "some other reason", or alternatively, why the Injunction Application should succeed. 96 Warratah submitted that there is no genuine dispute about the debt the subject of the Demand. It further submitted that, as Print Mail had effectively acknowledged in its submissions, the primary argument made by it as to why there is a genuine dispute is based on events which occurred after the 21 day period following service of the Demand. 97 While acknowledging that there is a relatively low threshold to establish a genuine dispute, Warratah submitted that there was nothing advanced by Print Mail to demonstrate that there was any dispute that the debt the subject of the Demand is not due and owing or that it is subject to an offsetting claim. It contended that the matters relied on by Print Mail to underpin its argument were simply immaterial to the issue of whether or not there is a genuine dispute about the debt the subject of the Demand. Warratah said that by virtue of the default under the Wellington Loan, Print Mail was also in default of the MMB Facility Agreement and that it was simply exercising its contractual rights when it issued the demands for payment to PMLI and Print Mail and then issued the Demand to Print Mail. 98 Warratah submitted that neither the circumstances nor the law supported Print Mail's alternative argument that the Demand should be set aside "for some other reason" pursuant to s 459J(1)(b) of the Act because it was issued for some collateral purpose and/or amounted to an abuse of process. It contended that: the starting point must be that Print Mail is presently indebted to it by virtue of its default under the Wellington Loan. It is not sufficient for Print Mail to say that PMLI has been making payments pursuant to the MMB Facility Agreement in circumstances where it is in default of the Wellington Loan; similarly Warratah cannot be said to be acting unconscionably by simply enforcing its contractual rights. The terms of the MMB Guarantee require Print Mail to make payment in circumstances where PMLI is in default; and the question of collateral purpose is irrelevant. One of the factors informing Warratah's conduct will be the total recoverability of the amounts owing under the Wellington Loan and MMB Facility Agreement but there is nothing improper about that in circumstances where it is simply enforcing its contractual rights against Print Mail. Warratah and Wellington are motivated to ensure that their corporate group recovers the debt while Print Mail and PMLI are motivated to ensure that they do not repay the entirety of the debts incurred by PMLI. 99 Warratah submitted that the evidence did not support Print Mail's assertion that it had frustrated PMLI from refinancing the MMB Facility Agreement, that it had provided a payout figure and there was nothing preventing PMLI or Print Mail from arranging to pay out the MMB Facility Agreement. 100 Warratah then made the submission recorded at [43] above, the effect of which was, as clarified in oral submissions, to concede that, contrary to the position taken by it in its correspondence, it would not discharge the securities upon payment of the debt by Print Mail but would hand over relevant release documents. 101 Warratah submitted that the right of subrogation arises in equity and that there is no requirement for securities to be assigned for a guarantor's rights to be subrogated. It noted that the position both in law and in equity is only triggered at such point in time as the guarantor pays the debt or performs the relevant duty so that the right of subrogation will only arise after Print Mail or an incoming financier tenders payment. Warratah submitted that it followed that, in equity, in circumstances where a surety such as Print Mail tenders payment, any release of the relevant security by the creditor will result in the surety being credited with the deficiency in reduction of that liability. Warratah observed that, in practical terms, if Print Mail or a third party financier tendered payment then, at settlement, Warratah would provide that party with releases for the securities it held, who would not lodge those releases until such time as the debt owing to it was paid, thereby preserving the priority position of the securities. 102 Warratah contended that, if at a future time there was conduct on its part that impaired the securities, Print Mail would be protected in equity by the principle of subrogation, subject to the other requirements in terms of the granting of equitable relief being satisfied. Warratah submitted that this was a future contingency that had not come to pass and was immaterial to the question of whether there was any genuine dispute about the debt, which there was not.

Consideration 103 There was no dispute between the parties about the principles which govern the right of subrogation. Both parties accepted that the right of subrogation exists to preserve securities for the benefit of a third party or guarantor who pays out the debt of a principal debtor. 104 In Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [9] the High Court recognised that the guarantor's right of subrogation operates in favour of a guarantor as against mortgages that rank lower in priority than the relevant creditor's mortgage. The Court said: What then are the equities where the creditor holds a first mortgage and there are puisne mortgagees? The authorities hold that a second mortgagee cannot complain where the surety utilises by subrogation the security held by the first mortgagee. In Drew v Lockett this was put on the basis that the second mortgagee took its interest with notice and by grant from the equity of redemption enjoyed by the principal debtor in its state remaining after giving full effect to the first mortgage. (footnotes omitted) 105 In Aged Care Services Pty Ltd v Kanning Services Pty Ltd (2013) 86 NSWLR 174; [2013] NSWCA 393, in the context of the issues there raised, Gleeson JA (with whom Meagher and Leeming JJA agreed) set out the principles governing the equitable doctrine of subrogation including at [51]-[54] that: 51 Thirdly, one well recognised area of subrogation is where there has been payment out by a third party of a prior security: see Meagher, Gummow and Lehane's Equity Doctrines and Remedies (4th ed, 2002, Butterworths) at [9-060] to [9-075]. 52 Thus, where a third party has paid off a mortgage, he or she is presumed, unless the contrary appears, to intend that "the mortgage shall be kept alive for his own benefit": see Ghana Commercial Bank v Chandiram [1960] AC 732 at 745; see also Filby v Mortgage Express (No 2) Ltd [2004] EWCA Civ 759 at [53]; Butler v Rice [1910] 2 Ch 277; Porter v Latec Finance (Qld) Pty Ltd (1964) 111 CLR 177 at 202 per Windeyer J, who dissented on the facts. 53 Fourthly, the expression "kept alive" means in this context, that the legal relations between the third party and the debtor are regulated as if the benefit of the security had been assigned to the third party: Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221 at 236F per Lord Hoffmann. 54 In Cochrane v Cochrane (1985) 3 NSWLR 403 at 405, Kearney J accepted that the principle emerging from Ghana Commercial Bank applies, unless it is shown that the circumstances are such as to displace the presumption. His Honour observed that: This principle is based on equity's concern to prevent one party obtaining an advantage at the expense of another which in the circumstances of the case is unconscionable. Hence, there is a common thread running through the relevant cases to the effect that the conscience of the mortgagor should be affected so as to cause the mortgage to be kept alive. This is illustrated in the text book examples first, of a third party not being entitled to a right by way of subrogation where he simply lends the money on an unsecured basis to the mortgagor who then uses such funds to pay off the mortgage; and secondly, of a third party being so entitled where he advances the money to pay out the mortgage on the understanding that security would be provided for such advance upon the mortgage being paid out. (Emphasis added) 106 For the purposes of the MMB Guarantee, the guarantor's right of subrogation is governed by the laws of New South Wales and is relevantly set out in s 3(1) of the Law Reform (Miscellaneous Provisions) Act 1965 (NSW). 107 In any event, given the position taken by Warratah at the hearing, which was contrary to that taken in its earlier correspondence with Print Mail, and the proposed undertaking proffered by Warratah, it is clear that Warratah accepts that, in line with well established authority, if Print Mail pays out the amount owing to Warratah pursuant to the MMB Facility Agreement, Print Mail (or a financier paying on its behalf) is entitled to be subrogated to the securities held by Warratah to secure the amount owing under the MMB Facility Agreement. However, Warratah maintains that it will not, as requested by Print Mail, assign those securities to an incoming financier. 108 The first issue raised by Print Mail's submissions is whether the Demand should be set aside pursuant to s 459H(1) of the Act because there is a genuine dispute about the existence or the amount of the debt the subject of the Demand. Print Mail does not assert that it has an offsetting claim. In my opinion, Print Mail has not established that there is a genuine dispute about the existence or the amount of the debt. 109 Print Mail alleges that Warratah's conduct, in refusing to assign its securities or in stating that it will, upon payment, release its securities thereby stripping Print Mail's right of subrogation of any value, either constitutes unconscionable conduct under s 21 of the ACL or is conduct which would give rise to a discharge of the guarantee and would make Warratah liable to repay the amount paid by Print Mail, as monies had and received, together with equitable compensation. 110 But those claims do not rise to a genuine dispute about the existence or the amount of the debt the subject of the Demand as is required by s 459H(1)(a) of the Act. Firstly, the threat of release of the securities upon tender of payment is no longer an issue between the parties. Secondly, the events which would give rise to the alleged claims have not yet occurred. Thirdly, and in any event, even if made out those claims would sound in damages. As Print Mail submitted, if successful in a claim for breach of s 21 of the ACL, it may be entitled to various remedies including injunctive relief, damages and compensation. Similarly, a successful claim based on Warratah's discharge of securities in disregard of Print Mail's right of subrogation would give rise to a claim for equitable compensation. That is, the claims made by Print Mail do not, in my opinion, amount to a dispute about the amount or existence of the debt. 111 Despite Print Mail originally raising the issue in the First Elias Affidavit, there was ultimately no dispute about the amount the subject of the Demand and the construction of the MMB Facility Agreement. 112 The second question which arises is whether the events which have occurred would amount to "some other reason" within the meaning of s 459J(1)(b) of the Act such that the Demand would be set aside or would result in the Court, in its inherent jurisdiction, restraining Warratah from relying on the Demand because it is being used to further an abuse of process. 113 Print Mail raised as an issue the possibility that the basis upon which it alleges that the Demand should be set aside pursuant to s 459J(1)(b) only emerged after the 21 day period specified in s 459G and accordingly, in the alternative, made the Injunction Application which it submitted, if granted, would have the same effect. 114 In Graywinter Sundberg J observed that s 459G(3) provides that an application is made for the purposes of that section if, within the 21 day period, two things happen: an affidavit supporting the application is filed and copies of the application and affidavit are served. No issue arises about the validity of Print Mail's application in that respect. The issue that Print Mail raises against itself is whether the grounds that underpin its argument that the Demand should be set aside pursuant to s 459J(1)(b) were raised in the First Elias Affidavit. 115 In relation to the content of the affidavit required by s 459G in Graywinter at 459 Sundberg J noted, in the context of an application relying on s 459H(1)(a), that to be a supporting affidavit, the "affidavit must say something that promotes the company's case"; it must advance the company's cause but it need not detail, in admissible form, all of the evidence that supports the contention of a genuine dispute. Rather, that evidence must be available at the hearing of the application to set aside, because that application is for final and not interlocutory relief. 116 In the First Elias Affidavit, which was filed and served within the 21 day period mandated by s 459G(2) of the Act, Mr Elias, among other things, raised the matters summarised at [19] above as the bases upon which the Demand should be set aside. By contrast, the facts giving rise to and the correspondence which crystallised the issues at the heart of Print Mail's argument that the Demand should be set aside pursuant to s 459J(1)(b) of the Act because, in effect, it was issued for a collateral purpose or is an abuse of process, arose after the expiration of the 21 day period following service of the Demand. Those matters were not the subject of any evidence nor canvassed or raised in any way in the First Elias Affidavit. 117 The First Elias Affidavit does not promote or advance in any way Print Mail's case insofar as it alleges that the Demand should be set aside for "some other reason" pursuant to s 459J(1)(b) because its issue and service is an abuse of process in that Warratah was allegedly using the Demand to prevent Print Mail from relying on its right of subrogation vis a vis Warratah so as to give the benefit of all of the equity in the Property to Wellington. To the extent that the First Elias Affidavit raises that the Demand is an abuse of process it relies on other facts unconnected to those now relied on to make out the ground. It follows that Print Mail cannot rely on this ground as a basis to set aside the Demand pursuant to s 459J(1)(b) of the Act. 118 In recognition of this possibility Print Mail made the Injunction Application relying on the same facts and circumstances. However, given the conclusion I have otherwise reached on the Set Aside Application, there is no utility in my considering and I do not propose to consider the Injunction Application.

conclusion 119 I will make an order pursuant to s 459J(1)(b) of the Act setting aside the Demand. As Print Mail has been successful in its application to set aside the Demand, it should have its costs of the proceeding. I will make an order accordingly. I certify that the preceding one hundred and nineteen (119) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.