BARRETT AJA: The plaintiff applies under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand dated 7 March 2016 served on it by the defendant.
The debt or alleged debt to which the statutory demand relates is in the sum of $51,750 and is described as:
"Tax Invoice #10003 dated 25th Feb 2016, Letter of Demand dated 3rd March 2016"
Copies of the tax invoice and the letter of demand were exhibited to the affidavit that accompanied the statutory demand. They make it clear that the sum in question represents $47,045.45 said to be due pursuant to a written agreement between the parties dated 10 February 2016 titled "Mortgage Syndication Agreement" (or "MSA") plus GST of $4,704.55.
The plaintiff relies principally on s 459H(1)(a) of the Corporations Act and the proposition that there is a genuine dispute about the existence of the debt.
[2]
The jurisdiction issue
Before addressing the question of genuine dispute, I must deal with an issue of jurisdiction raised by the defendant. Its contention is that the plaintiff's application does not satisfy the time specification in s 459G and that the court accordingly has no jurisdiction to determine it: David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; 184 CLR 265.
In order to satisfy the requirements of s 459G, an originating process and supporting affidavit must be filed and served within 21 days after service of the statutory demand on the plaintiff. It is common ground in this case that the statutory demand was served by post as allowed by s 109X(1)(a) of the Corporations Act, that posting occurred on 10 March 2016, that the originating process and supporting affidavit were filed and served on 6 April 2016 and that, for such filing and service on 6 April 2016 to be within the relevant period of 21 days, it must be seen that service of the statutory demand occurred on or after 16 March 2016.
The parties accept that s 29 of the Acts Interpretation Act 1901 (Cth) (as applied by s 5C of the Corporations Act) and s 160 of the Evidence Act 1995 (NSW) (as applied by s 79 of the Judiciary Act 1903 (Cth)) combine, in the way discussed by White J in Scope Data Systems Pty Ltd v Goman as Representative of the Partnership BDO Nelson Parkhill [2007] NSWSC 278; 70 NSWLR 176, to produce the result that it must be presumed that delivery of the statutory demand occurred on the fourth business day after posting (that is, on 16 March 2016) unless, in the words of s 160(1), "evidence sufficient to raise doubt about the presumption is adduced" (see also Re Ege Foods Australia Pty Ltd [2014] NSWSC 983; 286 FLR 439 at [15]; Re Watson Road Moss Vale Developments Pty Ltd [2013] NSWSC 783 at [10]).
The defendant contends that, upon any s 459G application, it is for the plaintiff to prove service of the statutory demand and that, unless the plaintiff adduces evidence that such service occurred on a date not more than 21 days before filing and service of the originating process and supporting affidavit, it fails to prove a jurisdictional fact. The defendant further says that the date of receipt of the statutory demand is peculiarly within the knowledge of the plaintiff and that failure of the plaintiff to adduce evidence on that matter raises an inference adverse to it as regards proof of the jurisdictional fact.
It may readily be accepted that the fact of service of the statutory demand is essential to the existence of the s 459G jurisdiction and that the burden of proving all necessary matters, including such service, rests with the plaintiff: see Derma Pharmaceuticals Pty Ltd v HSBC Bank Australia Ltd [2005] SASC 48; (2005) 188 FLR 373 at [28], Five G Pty Ltd v Pinacle Funding Group Pty Ltd [2008] NSWSC 228; 216 FLR 188 at [10]; D B Mahaffy and Associates Pty Ltd v Mahaffy [2010] NSWSC 881 at [39]. In the ordinary course, the filing of the s 459G application itself implies a representation by the plaintiff that it was served with the statutory demand. This is because, as Mandie J observed in Emhill Pty Ltd v Bonsoc Pty Ltd [2004] VSC 322; (2004) 50 ACSR 305, "the plaintiff cannot seek an order pursuant to s 459G(1) of the Act setting aside a statutory demand where it wishes to say that it has not been served with the demand".
It is only if the defendant disputes jurisdiction that the plaintiff faces a need to deal with the question of service of the statutory demand. But in seeking to discharge the burden that then rests upon it with respect to proof of service by post, the plaintiff is entitled simply to rely on the statutory presumption as to the time of receipt unless confronted by what s 160(1) of the Evidence Act describes as "evidence sufficient to raise doubt about the presumption". It is only if the defendant, in questioning jurisdiction, adduces evidence that has some tendency to prove that receipt occurred otherwise than on the fourth business day referred to in s 160(1) that it becomes incumbent upon the plaintiff to adduce evidence. Only then do the factual position and the question of the time of receipt fall to be determined by reference to evidence presented by the parties.
It was submitted on behalf of the defendant that, in the absence of evidence from the plaintiff as to the time of delivery, principles akin to those underlying the decision in Jones v Dunkel [1959] HCA 8; 101 CLR 298 operate adversely to the plaintiff. That cannot be so. Those principles allow an inference already available on the facts to be drawn with greater confidence when a party able to prove the true facts fails to do so. In the present case, the only inference available as to the time of receipt of the statutory demand is that which comes from the s 160(1) presumption, there being no evidence to create doubt of the kind referred to in the section. To the extent that absence of evidence from either side on the subject may be relevant (and I do not think it is), that absence merely leaves intact the inference sourced in the statutory presumption. It does not in any way undermine that inference.
The defendant's submission that the court has no jurisdiction to determine the s 459G application must be rejected. I proceed, therefore, to consider the plaintiff's contentions on the matter of genuine dispute about the existence of the debt.
[3]
The parties' contract
By the MSA, the plaintiff retained the defendant to "facilitate" a loan. The defendant was to seek loan finance for the plaintiff and introduce financiers to the plaintiff, as distinct from itself lending money (although the possibility that it might lend was recognised, albeit in an apparently subsidiary way). The MSA used the "we" and "you" style of drafting, with "we" referring to the defendant and "you" referring to the plaintiff.
Clause 6 provides:
"You appoint us on an exclusive basis for the period of time set out in Item 5 of Schedule A … During that period, you must not ask anyone else to provide the loan that is summarised in Item 3 of Schedule A, or any similar loan, or any loan that is to be secured by any of the Security listed in Item 1 of Schedule A"
Clause 7 provides:
"If you ask anyone else to provide such a loan during the period of time set out in Item 5 of Schedule A, and we discover that you have done so, we can send you a notice that requires you to pay the Entry Fee set out in Item 6 of Schedule A, and our obligations under this MSA end when you ask that other person to provide such a loan."
Item 5 of Schedule A describes the "exclusive period" as:
"30 days, which is extended by a further 30 days unless you give us at least 7 days written notice, before the 30th day …"
The "Entry Fee" is also referred to in clause 15. That clause says that the Entry Fee is payable when the plaintiff receives a letter offering a loan of the relevant description. In that way, the Entry Fee is, in effect, the reward (or part of the reward) that the defendant is to receive for arranging the loan.
The provisions to which I have referred to this point are those in the printed terms of contract. On the cover page, however, appear the following words in handwriting:
"Please refer to the mutually agreed 'Special Conditions' at the back of this document."
The plaintiff says that this notation refers to a letter of 11 February 2016 from its solicitor to the defendant which, after referring to the document headed "Mortgage Syndication Agreement ('MSA') which details the conditions surrounding a Loan Facility agreement ('The Loan') between my client(s) & your organisation, 'Reynolds Private Wealth Pty Ltd ('The Mortgagee')", continues:
"We note that our clients are in agreement of the documentation and will provide back the signed copy by COB 11th February 2016. However, we note that as part of this 'covering letter', we attach our own Special Conditions (noted below) which will take precedence over any conflicting conditions in the 'The Loan' agreement."
The letter then proceeds to set out a number of amendments or proposed amendments. These are framed as requests. One of the requests relates to the "Entry Fee", as follows:
"My client requests that the "Entry Fee" payable be reduced from 3.3% INC GST to 2.3% INC GST. My client is not familiar with what the 'entry fee' refers to and confirms that they'd like you to re-iterate what the payment is relating to?"
I return to the content of the MSA. Item 6 of Schedule A states the amount of the Entry Fee. The printed or typewritten content is
"3.3% (inclusive of GST) Indicative Syndication Fee".
A handwritten alteration deletes "3.3%" and adds "2.3% INC GST - see annexed agreed covering letter".
The MSA is expressed to be a deed. Immediately before execution by the several parties appears the following:
"EXECUTED AS A DEED
Dated: 10th day of February 2016."
The solicitor's letter requesting alterations is dated 11 February 2016.
On the face of things, therefore, the parties apparently executed on 10 February 2016 a deed containing all the printed content to which I have referred, following which, on 11 February 2016 (or later), the reference on the cover page to the "special conditions" in the solicitor's letter of that date was added, as was other handwriting, including that changing "3.3%" to "2.3%" in the description of the Entry Fee and referring to the "agreed covering letter". The date on the deed and the date on the letter seem to make it impossible to resort to the presumption that any visible alteration was made before execution.
[4]
The alleged default
On 24 February 2016, the defendant emailed the plaintiff giving notice of "default" under clause 6 of the MSA. The default was described as follows:
"During our exclusive appointment we have been advised by CEG DIRECT SECURITIES PTY LTD that you have made an application for finance.
Accordingly you have failed to perform or observe your obligations and you are therefore in breach of the abovementioned MSA."
The email went on to refer to clause 7 and to require payment of the sum of $51,750 referred to in Item 6 of Schedule A.
On 25 February 2016, an email was sent to the defendant on behalf of the plaintiff saying:
"Our formerclient have [sic] already advised you of the following;
• that there are other brokers working on this deal;
•You are to work in a non exclusive orientation."
On 26 February 2016, however, the solicitor for the defendant sent to the solicitor for the plaintiff an email headed "Without Prejudice" referring to "two indicative offers of finance" the terms of which were then set out. The email concluded:
"Would you please let us have your client's instructions in respect of the above offers.
Our client continues to reserve its rights in respect of its notice of default under the MSA."
[5]
Genuine dispute - approach
The task of the court in a case alleging genuine dispute within s 459H(1)(a) is confined to deciding whether, in the words of McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787, there is, in relation to the argument that the debt does not exist, "a plausible contention requiring investigation". As McLelland CJ in Eq said, the inquiry "raises much the same sort of considerations as the 'serious question to be tried' criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat". The plaintiff will fail only if its contentions are found to be so devoid of substance that no further investigation is warranted.
[6]
Genuine dispute - first argument
The plaintiff's first argument pays attention to its solicitor's letter of 11 February 2016 and the way in which the MSA was apparently formed.
Before the enactment of the Conveyancing Amendment (Rule in Pigot's Case) Act 2001 (NSW), the rule in Henry Pigot's Case (1614) 11 Co Rep 26(b); 77 ER 1177 may have rendered the MSA (a deed) void because of the alterations to it: see, for example, Helkeast Pty Ltd v Metro Properties (ACT) Pty Ltd [2006] ACTSC 12. But, with that ancient rule no longer operative (Conveyancing Act 1919 (NSW) s 184), a court will seek to give effect to the intention of the parties, with the form of the instrument itself (including the alterations and the way in which they appear to have been made) being central to the inquiry as to intention.
It is in that connection that the plaintiff raises the first of several arguments that there is a genuine dispute about the existence of the debt. The plaintiff says that, looking at the deed and the solicitor's letter together, there is an issue as to whether the provisions in clauses 6 and 7 with respect to payment of the Entry Fee in case of breach of the exclusivity provision in reality formed part of the contract. This is because, in the letter setting out what are said to be the incorporated special conditions, the plaintiff in effect says that it does not understand the nature and purpose of the Entry Fee. It follows, the plaintiff says, that there must be at least doubt whether the shared or mutual intention of the parties extended to the existence of any obligation of the plaintiff to pay the Entry Fee in case of breach of the exclusivity provision.
The counter-argument is that the solicitor's letter was also the source of the request that the percentage in the Entry Fee specification in Item 6 of Schedule A be reduced from 3.3% to 2.3%; and that that alteration was accepted by the defendant, from which it can be inferred that there was agreement on the matter of the fee.
The plaintiff did not, in any of the correspondence following the defendant's demand for payment of $51,750 in consequence of alleged breach of clause 7, advance or foreshadow the argument just described. Nor was any issue of uncertainty as to the terms of the MSA raised in the affidavit supporting the originating process, being the affidavit of Ahmad Yaseen of 6 April 2016. Indeed, that affidavit states quite clearly that it was agreed by the parties that the MSA would include the special conditions in the letter of 11 February 2016.
In that context and since the fact that one party to a commercial contract has, by means of a lawyer's letter, asked the other for information about the content or meaning of the contract cannot conceivably qualify clear contractual language, I am not persuaded that the plaintiff's first argument raises any plausible contention requiring investigation regarding the existence of the plaintiff's indebtedness for the Entry Fee under clause 7.
[7]
Genuine dispute - second argument
The plaintiff's second argument is that, even if clauses 6 and 7 have effect according to their terms, certain events referred to in the limited evidence before the court and relied on by the defendant were not sufficient to crystallise a payment obligation under clause 7. The relevant email correspondence is referred to at [26]-[29] above.
The allegation made by the defendant in that email correspondence is that CEG Direct Securities Pty Ltd advised the defendant during the exclusivity period that the plaintiff had made an application for finance. The event that occurred within the period is thus that a third party informed the defendant that the plaintiff had made an application (or asked) for finance, not that the plaintiff made an application for finance. The plaintiff says that the evidence does not allow a finding that any such application was made within the period, with the result that it cannot be concluded that there was a breach of the exclusivity clause.
The plaintiff's submissions in this respect must be accepted. Under clause 7, an obligation to pay the Entry Fee arose if certain events happened. These included the plaintiff asking a third party to provide a loan during the specified period and the defendant discovering that the plaintiff had done so. The words in the MSA are:
"If you ask anyone else to provide such a loan during the period of time set out in Item 5 of Schedule A, and we discover that you have done so …"
The words "during the period of time" refer back to either "you ask" or "to provide". The provision is therefore concerned with either a situation where the plaintiff's request to a third party is made within the stated period or a situation where the loan the subject of the plaintiff's request to a third party is a loan that is to be provided within the period. The clause is, in that way, ambiguous. On the first reading, the condition is not satisfied if the request made by the plaintiff to a third party is made before the commencement of the specified period, being the date of the making of the MSA. On the second reading, the condition is not satisfied if the plaintiff's request to the third party, whenever made, is a request for a loan that is not to be made within the specified period.
The basis on which the defendant alleged that clause 7 was triggered so as to require the plaintiff to pay the Entry Fee is that, during the specified period, the defendant was informed by a third party that the plaintiff had sought a loan. Thus, the event that happened within the period, according to the defendant, was its being informed by the third party. The precise words used by the defendant were:
"During our exclusive appointment we have been advised by CEG DIRECT SECURITIES PTY LTD that you have made an application for finance."
There is therefore substance to the plaintiff's contention that there is a genuine dispute as to satisfaction of one of the conditions that had to be satisfied in order to crystallise the plaintiff's payment obligation under clause 7. There is a plausible contention requiring investigation on that matter.
I turn now to another but related matter. The plaintiff says that the email of 26 February 2016 indicated that the defendant had foregone any entitlement it had to rely on any breach of the exclusivity clause. Clause 7 says that if the plaintiff asks anyone else to provide such a loan during the relevant period, and the defendant discovers that the plaintiff has done so, the defendant can serve a notice requiring payment of the Entry Fee; also that the defendant's obligations under the MSA end when the plaintiff asks the other person to provide such a loan. The plaintiff says that the defendant, by causing the offers of finance in the 26 February 2016 email to be submitted to it, showed an intention that its obligations under the agreement should not be at an end. Its transmitting of the loan offers was consistent with its obligations continuing.
The proposition on which the plaintiff relies is, in substance, that a party may, by reason of words or conduct, be disentitled to rely on a contractual right. But that proposition is quite unsustainable in the circumstances of this case because of the terms of the email of 26 February 2016. The email is headed "Without Prejudice" and states in clear terms that the defendant "reserves its rights in respect of its notice of default". This aspect does not warrant any finding of genuine dispute.
[8]
Genuine dispute - third argument
The plaintiff's third argument in support of its genuine dispute claim is that the promise in clause 7 of the MSA is unenforceable because it provides for a penalty.
In Paciocco v Australia and New Zealand Banking Group Limited [2016] HCA 28, Kiefel J (French CJ concurring), Gageler J, Keane J and Nettle J all examined in some depth the doctrine of penalty as it applies in Australia today. It is not necessary in a matter of the present kind to examine those judgments in any detail. It is sufficient to note some themes: whether the stipulation for payment can be considered a genuine pre-estimate of the relevant party's probable or possible interest in the performance of the principal obligation; whether it is inserted merely to secure the enjoyment of a collateral object; and whether the stipulation is in the nature of a punishment for non-observance of the principal obligation.
The penalty question must be approached on the footing that, under the MSA, the Entry Fee is principally the defendant's reward for finding finance that matches its client's specifications and thereby performing its principal obligation as broker. It is the reward to the broker for performing the allotted task. The exclusivity provision has the obvious purpose of avoiding the risk to the broker that its client will itself tap some source of finance that the broker could otherwise have presented to the client in performance of its task. Breach of the exclusivity clause is thus, of its nature, something that increases that risk and diminishes the broker's chance of earning the Entry Fee. At the same time, however, the provisions of the MSA are such that such breach by the client also extinguishes the broker's principal obligation to find finance for the client.
Just as the beauty contest candidate in Chaplin v Hicks [1911] 2 KB 786 was awarded damages for breach of contract on the basis that the breach deprived her of a 24 per cent chance of being selected as one of the applicants, here the defendant might be awarded damages for any breach of clause 7 on the bases of some determined percentage chance of receipt of the reward by way of the Entry Fee that had been denied or diminished by the plaintiff's breach.
A possibility of that kind was referred to by the Court of Appeal in R J & M Bezzina Pty Ltd v Saxby Bridge Mortgages Pty Ltd [2004] NSWCA 211, albeit in circumstances that differed in one important way from those of the present case. The finance broking agreement before the Court of Appeal provided for appointment of the broker exclusively and provided that the brokerage fee payable in the ordinary course upon introduction of a lender would also be payable in full if the exclusivity provision was breached and finance was obtained from another source. It was held that the requirement for payment of the full fee in those circumstances did not amount to a penalty. This was because the requirement was not attracted solely by breach of the exclusivity clause. There had to be, in addition, actual obtaining of finance from another source. The fee was not made payable upon a minor breach. It was payable upon entire loss of the opportunity to earn it by introduction of a lender. The penalty argument was for that reason rejected.
Under the MSA, by contrast, breach of the exclusivity clause has two consequences: first, it triggers an obligation of the client to pay the Entry Fee to the broker whether or not the client has obtained finance from the alternative source; and, second, it relieves the broker of any future obligation to provide the service. Independently of these consequences dictated by the contract itself, a breach of the exclusivity clause by the client might ground a claim by the broker for damages commensurate with the degree of probability, or possibility, inherent in the broker's succeeding to earn the Entry Fee had the broker not been denied exclusivity in the seeking of finance for the client. On that basis, the broker would not have, merely by reference to a breach, a claim for damages equal to the whole of the Entry Fee - although such a claim might conceivably be maintainable if the broker had made all necessary preparations and was therefore almost certain to have arranged finance but for the client's breach.
That being so, there is, to my mind, a cogent argument (requiring further investigation) that the provision of the MSA which, upon breach of the exclusivity provision by the client, relieves the broker of its performance obligation and requires the client to pay in full the sum that would have been payable in return for due discharge of that performance obligation does not involve a genuine pre-estimate of the broker's probable or possible interest in the performance of the principal obligation and is in the nature of a punishment for non-observance of the exclusivity obligation.
The plaintiff's argument of genuine dispute on this basis therefore succeeds.
[9]
Conclusion
The plaintiff has succeeded in resisting the challenge to jurisdiction and in showing that there is, on two separate bases, a genuine dispute about the existence of the debt to which the statutory demand relates. The orders are therefore as follows:
Order that the statutory demand dated 7 March 2016 served on the plaintiff by the defendant be set aside.
Order that the defendant pay the plaintiff's costs of the proceedings.
[10]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 12 August 2016
Parties
Applicant/Plaintiff:
Sydney Constructions & Developments Pty Ltd
Respondent/Defendant:
Reynolds Private Wealth Pty Ltd
Legislation Cited (8)
Conveyancing Amendment (Rule in Pigot's Case) Act 2001(NSW)