Zamobay v Bank of Western Australia

COUNSEL : Mr B DeBuse for plaintiffs Mr N Bilinsky for defendant

Darley & Co for plaintiffs SOLICITORS : Henry David York for defendant

• 1 - THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5683/08 ZAMOBAY PTY LIMITED and ANOR v BANK OF WESTERN AUSTRALIA LIMITED

1 HIS HONOUR: This is an application under section 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand dated 22 October 2008 claiming $175,028.95 served by the defendant bank on the plaintiff. The plaintiff seeks to assert an offsetting claim, and also to set aside the demand for the reason that it was not accompanied by an affidavit. Background 2 The plaintiff Company is a guarantor of the liabilities under two facilities with Bank West. One facility was provided to a company Debona Pty Limited and one to Frosso Coumanios. There were also personal guarantees given by three of the family, Frosso, John and Stanley Coumanios. There were three properties over which the Bank took security with cross-collateral security clauses. These were a commercial property owned by Debona Pty Limited at Burwood, a commercial property owned by Frosso at West Wyalong, and a residence owned by him at Clontarf. On 28 February 2006 Debona Pty Limited was wound up at the suit of the Australian Tax Office. On 11 October 2006 the Bank appointed receivers of the West Wyalong property and the Clontarf property. On 22 June 2007 the Bank appointed receivers of the Burwood property. 3 In December 2006 the Bank commenced proceedings in the Supreme Court seeking, inter alia, possession of the West Wyalong and Clontarf properties. 4 There were a number of skirmishes and eventually the matter was compromised by way of a deed dated 4 September 2007. That deed provided for judgment in terms of consent orders. It governed both loans, which is apparent from clause 7.1, and it is in these terms: "7 Acknowledgements about the outstanding amounts and consent to judgement on Frosso outstanding amounts

(a) Customer Outstanding Money as at the date of this document is or exceeds, $2,138,523.67;

(b) Frosso Outstanding Money as at the date of this document is or exceeds, $1,339,376.03;

(c) amounts specified in 7.1 (a) and 7.1 (b) do not include legal fees incurred by the Lender and which form part of the Outstanding Money.

7.2 Each Covenantor consents to judgement being entered against him or her in any proceeding commenced or to be commenced by the lender in respect of:" 5 The deed also provided for the lender to sell all the properties under clause 4.1, which is in these terms: "4 Lender to sell the properties

4.1 The Covenantors agree and acknowledge that the Lender (or any Controller appointed by it) is:

(a) selling and is so entitled to sell the West Wyalong Property under one or more of the Securities; and

(b) selling and is so entitled to sell the Clontarf Property under one or more of the Securities, provided however that such a sale must not occurred earlier than 21 days after the date of this document; and

(c) selling and is so entitled to sell the Burwood Property under one or more of the Securities, provided however that such sale must not occur earlier than a Sale Event.

4.2 Each Covenantor warrants that he or she must and will not do anything to interfere with, delay or in any way impede the Lender (or any controller appointed by it) from selling each and any Property." 6 No point was taken that the Bank was not entitled in the terms of the arrangement between the parties to sell the properties. 7 Importantly, the deed provided in clause 9.3 is as follows: "9.3 Repayment

For the avoidance of doubt, and without in any way limiting the obligations of any Covenantor, each Covenantor must repay to the Lender in full on or before the Sale Event all Outstanding Money (including, without limitation, all principal, amounts in the nature of principal, interest, amounts in the nature of interest, fees and all legal and other costs and expenses and all other money actually or contingently owing or payable by the Customer) to the Lender under or in connection with the Facility Agreements, or if it is not the party named as borrower or customer in relation to the Facility, must ensure that the repayments set out in this clause are made on time.

Any funds paid to the Lender may be applied by the Lender in reduction of such parts of the Outstanding Money (or other liabilities of a Covenantor) as the Lender may determine in its absolute discretion." 8 The last matter noted in this clause, namely the ability to apply funds to any liabilities at its absolute discretion, was probably also reflected in the various security documents. 9 On 10 September 2007 judgment was given in accordance with the agreed terms. They were: "1. The first defendant; give to the plaintiff possession of all the land comprised in certificate of title folio identifier 1/626816 being the land situated at and known as 15A Linkmead Avenue, Clontarf NSW 2093.

Leave to issue a writ of possession in respect of title folio identifier 1/626816 being the land situated at and known as 15A Linkmead Avenue, Clontarf NSW 2093.

The first defendant give to the plaintiff possession of all the land comprised in certificate of title folio identifier 11/303903 being the land situated at and known as 132 Main Road, West Wyalong NSW 2671.

Leave to issue a writ of possession in respect of title folio identifier 11/303903 being the land situated at and known as 132 Main Road, West Wyalong NSW 2671.

Judgement for the plaintiff against the defendants in the sum of $2,138,523.67.

Pursuant to section 101 of the Civil Procedure Act 2005 interest be paid on the judgement obtained by the plaintiff against the defendants at the prescribed rate or at various rates charged by the plaintiff to customers of like accounts (compounded monthly) from the date of judgement on so much of the money as is from time to time unpaid, whichever is higher.

The defendants pay the plaintiff's costs as agreed or assessed.

The orders in paragraphs 1 and 2 are stayed until 25 September 2007." 10 The Bank proceeded to sell the properties; West Wyalong was sold on 17 April 2008, Clontarf on 19 May 2008 and Burwood on 1 July 2008. Offsetting Claims 11 The offsetting claims were in these areas:

1. Alleged failure to achieve a proper rent for the leased commercial properties at West Wyalong and Burwood. 2. Alleged improper exercise of the power of sale in respect of the Burwood property. 3. Failure to account for approximately $20,000 on the sale of the West Wyalong property. 12 I will consider each of these in turn.
2. Alleged failures to achieve proper rent for the commercial properties. 13 The evidence of what Mr Coumanios said he thought was the outstanding rental was rejected and so the basic facts are not available to support this claim. In any event, the claim is against the receivers and managers, not the defendant Bank. Under the securities the receiver is the mortgagor's agent and the mortgagor alone is liable. (See Clauses 14.1 and 15.3 in the relevant memorandum of common provisions.) That is another reason why there can be no offsetting claim in the circumstances.
3. Improper exercise of power of sale in respect of Burwood. 14 The allegations appear in paragraph 29 of Mr Coumanios' affidavit. The particulars refer to a failure to promote the possibility of changes of zoning and some other very general allegations. 15 Paragraph 30 is in these terms: "As a direct result of the conduct and omissions the Burwood commercial premises were sold, using comparable and proportionate calculations for space ratios and height limits, at about $4,000,000 less than is true worth." 16 Although no objection was taken to its reading, it is merely an assertion by a person who describes himself as a cafe and restaurant provider. He has no relevant expertise to form any such opinions, and expresses no basis for the amount of that figure. 17 In Macleay Nominees Pty Limited v Belle Property East Pty Limited [2001] NSWSC 743 Palmer J usefully described a genuine offsetting claim in these terms: "18. In my opinion, a genuine offsetting claim for the purposes of CA s.459H (1) and (2) means a claim on a cause of action advanced in good faith, for an amount claimed in good faith. 'Good faith' means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful. In a claim for a liquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff produces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of s.459H (1) and (2)." 18 There is no particularity in many of the circumstances referred to in paragraph 29 and, given the matters I have adverted to in dealing with paragraph 30, there is really no basis shown as to how this claim arises. In my view no offsetting claim has been illustrated.
4. Sale of West Wyalong and accounting for $20,000. 19 This assertion is revealed in the receiver's affidavit in an exhibit showing the sale price at $181,500 and the Banks affidavit of Mr Hornstra which showed that the sale price was $165,000 in paragraph 36 (a). The explanation is at Tab 21 of Exhibit 1 which shows that the price was $165,000 plus GST of $16,500 making a total sale price of $181,500. There is no offsetting claim demonstrated.
5. The absence of an affidavit in support. 20 The description of the debt claimed in the statutory demand was in these terms:

Judgment debt in the amount of based on $2,138,523.67 judgment made on 6 September 2007 a copy of which is annexed and marked 'A'

Plus interest accrued since the date of $176,291.86 judgment as set out in the summary annexed and marked 'B'

Less payments ` $2,139,786.58 Total Amount $175,028.95" 21 Annexure A referred to in that description was the agreed terms of the judgment which I have set out above and which was attached. Annexure B, which was also attached to the Demand, was a table which set out the interest calculations. It showed various appropriations to this judgment from time to time by the Bank with consequent reduction in the amounts owed. It then calculated the interest at Supreme Court rates as required under the terms of the judgment. 22 There was no affidavit in support. Section 459E (3) of the Act is in these terms: "459E Creditor may serve statutory demand on company

(1) A person may serve on a company a demand relating to:

(a) A single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum; or

(b) 2 or more debts that the company owes to the person, that are due and payable and whose amounts total at least the statutory minimum.

(a) if it relates to a single debt - must specify the debt and its amount; and

(b) if it relates to 2 or more debts - must specify the total of the amounts of the debts; and

(c) must require the company to pay the amount of the debt, or the total of the amounts of the debts, or to secure or compound for that amount or total to the creditor's reasonable satisfaction, within 21 days after the demand is served on the company; and

(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." 23 On the face of the section it was not needed but in reliance on Anderson Formrite v CASC Hire 147 FCR 379 it was suggested that in this case it was necessary. In that case, after referring to relevant discussion papers and some cases, his Honour Siopis J concluded in these terms: "[61] In my view, the foregoing considerations should inform the construction that is to be given to the words "judgment debt" in s 459E(3).

[62] The rationale for exempting a statutory demand for the very sum of a judgment, from the need for verification by an accompanying affidavit is apparent. The judgment speaks for itself as to the amount which is due and payable and, prima facie, also in relation to the absence of a genuine dispute.

[63] However, once the statutory demand is for a sum different from the sum in the judgment, the rationale for the exemption from the verification no longer applies because extraneous events or circumstances have intervened. There is then a need to identify the amount claimed by reference to the extraneous intervening events and circumstances. Further, these intervening events and circumstances are capable of giving rise to disputes as to the amount of an outstanding debt and, also, as to the continued existence of the debt. Thus, it is possible, depending on the nature of any agreement that the debtor and creditor may have reached in relation to the compromise or further payment of the judgment debt, that liability in respect of the judgment debt may have been discharged, to be replaced by a different contractual obligation (see McDermott v Black (1940) 63 CLR 161 at 183-185). In these circumstances, the same considerations which underlie the introduction of the legislative requirement for verification of statutory demands for amounts that were never the subject of a judgment, apply equally to demands for amounts different from the sum in respect of which a judgment was given. It follows, in my view, that a narrow construction should be given to the words "judgment debt" in s 459E(3) of the Act so that the exemption is confined to demands for the very amount in respect of which judgment was obtained, and not for any different amount. 24 It is plain from the affidavits that have been served in these proceedings that since the judgment of about $3,800,000 has been received from the sale of the three properties. These funds have been applied to both outstanding facilities and some funds have been applied to payment of legal costs and receiver's remuneration. 25 It is said that these matters constitute "extraneous events and circumstances which have intervened" between judgment and demand. 26 It also seems clear that the since the sales the Bank has not informed this guarantor of the fact of the sales, the amount of the sales and its appropriation of amounts to the various loan facilities. 27 This particular guarantor did not own any of the properties and did not have the facilities. 28 In Jargon Pty Limited v Good Earth Garden Products Pty Limited [2006] WASC 282 Newnes M was faced with a similar problem. After referring to the passage I have quoted above of Siopis J he said: "39. It is the case, as submitted by counsel for Good Earth, that the facts of the present case are quite different. Counsel argued that that case is distinguishable in that in the present case there were no ' intervening events and circumstances [which] are capable of giving rise to disputes as to the amount of an outstanding debt and, also, as to the continued existence of the debt.' Counsel for Jargon, on the other hand, contended that the decision was authority for the proposition that, whenever the amount demanded was not the very amount for which judgement was obtained, the statutory demand had to be accompanied by a verifying affidavit. 40. I do not consider that in Anderson Formrite Pty Limited v CASC hire Pty limited (supra), Siopis J intended to suggest that in any circumstances where the judgement demanded was different to the amount of the judgements on the statutory demand had to be accompanied by an affidavit. Rather, I understand his Honour to be referring to circumstances where the amount is different and, as in that case, there are intervening events and circumstances that are capable of giving rise to disputes as to the amount of the outstanding debt or as to the continued existence of the debt.

41. In my view, it is not necessary for the demand to be accompanied by an affidavit whenever the amount demanded is different from the amount of the judgement sum. The difference may be obvious and plainly unrelated to any issue as to the amount or existence of the debt. The most obvious example is where payments have been made by the debtor in reduction of the judgements sum and the demand is expressed to be for the remaining balance of the judgement sum.

42. Those situations are to be contrasted with situations where it is not apparent on the face of the statutory demand how the amount demanded has been calculated, such as where the judgement was in a foreign currency and the demand is expressed in Australian dollars at the rate of exchange of the date upon which it has been calculated not apparent.

43. Thus, in Topfelt Pty Limited v State Bank of New South Wales Limited (supra), the applicant contended, among other things, that the statutory demand was defective because it did not state the source or the interest which was claimed as a continuing liability. Lockhart J held that the statutory demand obliged the applicant to make enquiries of various kinds in order to calculate the amount of interest claimed. It thus could not be complied with on its face, and although no substantial injustice was alleged, the deficiencies, which gave rise to uncertainty, constituted reason why the statutory demand should be set aside pursuant to s.459J (1) (b).

44 In MEC Import Sales Pty Limited v Iozzelli SRL (1998) 29 ACSR 229 at 236, it was held that if (which was not decided) it were permissible in a statutory demand to make demand for an amount expressed in Australian dollars in respect of a judgement obtained in a foreign currency, the statutory demand would have to be accompanied by an affidavit proving that the sum demanded was ' due and payable' by explaining and verifying the date and exchange rate of the conversion made. That is because a demand in Australian dollars was not a demand for the judgement debt but a demand for a different sum in another currency. In addition, it required the debtor to make inquiries, which it was not obliged to make, in order to ascertain the sum payable because the conversion date used by the respondent was unknown.

45. In Aldridge Electrical Industries Pty Limited v Mobitec AB [2001] NSWSC 823, a schedule attached to the statutory demand set out both the date and rate by which the Australian dollar equivalent of the Swedish Krone had been calculated. It was held that it was sufficient that the date of conversion and the rate at that date was identified either on the face of the statutory demand or in its accompanying affidavit or schedule. There was then no burden placed on a debtor to make its own enquiries as to whether the sum demanded was a proper representation in Australian dollars of the debt at some date appropriate under the law for conversion and the debtor was not therefore impermissibly burdened with the need to make enquiries outside the materials it held. That was unlike the debtor in Topfelt Pty Limited v State Bank of New South Wales Limited (supra) for whom no interest rate had in fact been specified and on whom fell the onus of calculating the interest.

46. No such difficulties of determining the amount required to be paid to satisfy the debt for which demand was made arise in the present case. The only issue in the present case is the discrepancy between the actual amount of the judgement debt and the lesser amount specified in the statutory demand.

47 It is clear that any minor misstatement of the amount of the debt will not render a statutory demand defective, unless the misstatement will cause substantial injustice within the meaning of s.459J (1) (a) of the Act: see Topfelt Pty Limited v State Bank of New South Wales Limited (supra)." 29 It was the defendant's submission that the words of the section are quite clear and there was no need for the gloss put on them in Anderson Formrite. This is probably true and it may be that the explanation of the difference may more truly be the fact that liability is determined by a judgment and thus the need for an affidavit when that has not occurred. 30 The matter has been referred to in several cases since Jargon. They include Infact Consulting Pty Limited v Kyle House Pty Limited [2007] NSWSC 56; Wylkian Pty Limited CAN 008 624 379 v Australian Capital Territory - BC200610881 [2006] FCA 1815. In neither case was it necessary to address the problem. In the present case there is no need to form a definitive view. This is because in the present case the relationship between the parties is not just governed by the terms of the mortgage and facility agreements. It is also governed by the deed of 4 September 2007. 31 The plaintiffs' complaint that the mortgagee should have allocated more of the funds received to his account rather than the other account cannot stand in the face of the terms of clause 9.3 of the deed. The Bank had an absolute discretion as to how it allocated the moneys. 32 What is more, it did in the Statutory Demand give full details of what it had allocated to the debt and when that had been done. This appears clearly in annexure B. 33 The allocation of amounts received to this particular debt could not be described, in my view, as some "extraneous event or circumstance". Given that the Demand, on its face, by the incorporation of annexure B explained all that was necessary to explain since the judgment, there is no reason to set aside the Demand for some other reason under Section 459J (1) (b). 34 There were complaints about charges being made for receivers fees and solicitors costs. Liability for those is clear and there has been no demonstration that there was any unreasonable fee charged such as to set up a prima facie claim that might be raised in a mortgagor's action for an account. 35 I dismiss the summons with costs. *********

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