Anozira Pty Ltd v Anthony Hunt [2002] ACTSC 76 (2 August 2002)

Last Updated: 5 August 2002

Anozira Pty Limited v Peter Anthony Urquhart Hunt [2002] ACTSC 76 (2 August 2002)

CATCHWORDS

COMPANIES - Statutory demand - application to set aside - genuine dispute - debt arises from deed - claim to set deed aside as unconscionable.

Corporations Act 2001, s 459G, s 459H(1), s 459J, s 728, s 739

Barton v Armstrong [1973] UKPC 2; [1976] AC 104

Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447

Cornick v Brains Master Corporation (1996) 14 ACLC 269

Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40

Eng Mee Yong v Letchumanan [1980] AC 331

Equiticorp Financial Services Ltd (NSW) v Equiticorp Financial Services Ltd (NZ) Ltd (1992) 29 NSWLR 260

Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785

Garcia v National Australia Bank Ltd [1998] HCA 48; (1998) 194 CLR 395

Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621

Pao On v Lau Yiu [1993] UKHL 3; [1979] 3 All ER 65

South Australia v Wall (1980) 24 SASR 189

Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 147 ALR 444

No. SC 301 of 2002

Coram: Master T. Connolly

Supreme Court of the ACT

Date: 2 August 2002

IN THE SUPREME COURT OF THE )

) No. SC 301 of 2002

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: ANOZIRA PTY LTD

Plaintiff

AND: PETER ANTHONY URQUHART HUNT

Defendant

ORDER

Coram: Master T. Connolly

Date: 2 August 2002

Place: Canberra

THE COURT ORDERS THAT:

1. The application is dismissed

2. Plaintiff to pay the Defendant's costs

1. These are two applications by the plaintiff company to set aside a statutory demand pursuant to s 459G of the Corporations Act 2001. There were two creditors statutory demands issued on 6 May 2002, each asserting that the plaintiff company, which has its registered address in Canberra in the Australian Capital Territory, was indebted to Mr Peter Hunt and Mrs Kathleen Hunt. The nature of the debt in each case is the same, being described as a "debt due pursuant to a Deed of Release dated 25 January 2002" between the plaintiff company and the creditor. The deed in the case of Mr Hunt refers to a debt of $90,000 and the deed in the case of Mrs Hunt refers to a debt of $60,000. The deeds of release, duly executed by the parties, were in evidence before me. The issues in both cases, save for the quantum of the debt, were common, and these reasonable are applicable to both applications.

 

2. The application to set aside the statutory demands were lodged on 28 May 2002 within 21 days of service of the statutory demand. The applications were taken out by the company through its Canberra solicitors, and were served on the defendants, who reside in Melbourne. They instructed the Melbourne office of Freehills to act on their behalf, and there were some complications in the filing of affidavits due, it seems, with problems encountered by the Melbourne office in drafting material in accordance with the ACT rules. As the practice of law in Australia is increasingly becoming national efforts are being made by Courts of the Commonwealth, State and Territories to harmonise and unify procedural rules to facilitate national practice, but there remain local requirements. I formed the view that the irregularities went only to matters of form, and on 5 July 2002 ordered that the time for the defendants to serve their notice of appearance and supporting affidavits be extended to 25 June 2002. The matter came on for substantive hearing on 26 July 2002.

 

3. There was an issue raised by the plaintiffs that the creditors original notice of demand was bad because it was not served at the appropriate address. I do not think that this affects the validity of the demand. Where a defect is asserted in the form of the demand, it should only be set aside for this reason if "substantial injustice will be caused unless the demand is set aside" (Corporations Act 2001 s 459J). In this case it is a matter purely of form and not of substance, and I am not satisfied that the alleged defect in the notice is itself a ground to set aside the demand (Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 147 ALR 444)

 

4. It was also asserted that the defendant was not entitled to commence proceedings for enforcement of the deed because they did not comply with a clause in the deed of release relating to civil proceedings. It seems to me that an alternative dispute resolution clause in a deed relating to future proceedings does not derogate from a creditors right to enforce a debt by way of a statutory demand. Authority for the proposition that a statutory demand is not a "proceeding" is to be found in Cornick v Brains Master Corporation (1996) 14 ACLC 269 per Whitlam J.

 

5. A statutory demand may be set aside where a Court is satisfied 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", or that there is an offsetting claim (Corporations Act 2001 s 459H(1)). No issue of an offsetting claim arises in this case. In the usual case a company will be disputing the existence or genuineness of the alleged debt. In the present case, the evidence is that the debt is due in each case pursuant to a deed. The evidence of the deed which is before me would normally then be the end of the matter. The plaintiff company asserts, however, that there is a genuine dispute in that the deed was entered into by reason of coercion, and that the plaintiff company ought have the opportunity to go to court to have the deed set aside as being unconscionable. It is therefore necessary for me to make certain findings of fact in relation to the course of conduct leading to the making of the deed.

 

6. The dispute arises from the float of a public company involved in the development of certain technology. The proposed float was for a company known as E Control. On 7 May 2001 Mr Weston a director of E Control wrote to Mr Hunt enclosing certain information relating to the proposed float. The letter said

"investors have the opportunity to provide loan funds which have the option of being swapped to Convertible Notes for ordinary shares in the listed company at a ratio of 2.5 to 1 i.e.$100,000 loan will convert to 250,000 shares."

A company profile accompanying the letter described the business ventures that it was proposed for E Control particularly in the Chinese market and set out the qualifications and background of those persons behind the project. At page 15 of the company profile it is asserted that early investors in the first fund raising round of $10 million "will receive a 2.5 times equity position".

 

7. On 22 May each defendant lent E Control a sum of money. The loan agreement provided that the defendants had an option to acquire Convertible Notes for ordinary shares at the rate of 40 cents for each $1 share to the value of the loan. This, say the defendants, further indicates the intention that the original venture investors were to receive, in effect, a 2.5 to 1 return on their loan funds.

 

8. After this loan had been made I am satisfied that the Australian Securities and Investment Commission (ASIC), the statutory regulatory authority for corporate affairs in Australia, adopted a policy which prevented the issue of shares with a face value higher than the issue price. This in effect prevented E Control from allowing its early subscribers to obtain the benefit of $1 shares for a price of 40 cents.

 

9. On 15 October 2001 the Hunts each accepted an allocation of shares. The deed of release for Mr Hunt stated

"I the undersigned...hereby acknowledge that I agree to accept an allotment of 150,000 ordinary shares at an issue price of $0.40 per share in Omni Group Limited in full and final settlement of the sum of $60,000 owed to me by E Control Pty Ltd, subject to Omni Group Ltd being the company through which E Control is floated."

 

10. Mr Hunt says that when he signed this he understood that he was to receive 150,000 $1 shares for the issue price of 40 cents per share as set out in the offer. Mr Hunt says that when in December 2001 he received a draft prospectus from Omni Group he became concerned that he did not appear to be receiving a 2.5 times equity position as promised in the letter of 7 May 2001. He says that he telephoned Mr Weston and raised this concern, and he says that Mr Weston told him on 12 December that this was a valid concern, and that it would be addressed. Mr Hunt says that he proposed a variation in the prospectus, but that Mr Weston said that this had already been lodged with ASIC. It is common ground that there had been some delays in obtaining ASIC approval for the prospectus.

 

11. Mr Hunt says that on 20 December he had a conversation with a solicitor, Mr Vereker, who acted for E Control. He says Mr Vereker told him that ASIC had issued stop orders in relation to the float, but that Mr Vereker acknowledged his and his wife's right to receive a return of 2.5 times the original loan. Mr Hunt says that Mr Vereker proposed a scheme which would be guaranteed by Mr Green, the prime mover behind the venture, to repay the full funds by February 2004, but he says he rejected this. He instructed his solicitor, Mr Lustig of Corrs Chambers Westgarth to act for him to try to resolve the matter.

 

12. Mr Lustig filed an affidavit in which he annexes a letter of demand of 8 January 2002. This letter, to the solicitors for Omni Group and E Control asserts that the prospectus incorrectly states the entitlement of the Hunts to shares, and asserts that the error has been conceded by Mr Weston and Mr Green. It asserts that the error represents a misleading or deceptive statement for the purposes of s 728 of the Corporations Act, and that the error would entitle ASIC to issue a stop order under s 739 of the Corporations Act. It asserts an entitlement by the Hunts to either additional shares or a cash contribution, and says:

"We have received unequivocal instructions from our clients that unless we receive written confirmation that the shortfall of shares or cash equivalent will be issued to our clients as contemplated by 5:00 pm on Thursday 10 January 2002 then we will notify the ASIC New South Wales regional office in relation to this without further notice to you and request that ASIC issues a stop order in relation to the prospectus."

 

13. Mr Lustig says that in response to this demand an offer was made to pay or procure the payment to the Hunts of the claimed shortfall of funds in the sum of $150,000 within 14 days of the issue of the 250,000 shares valued at 40 cents each. He says that the Hunts accepted the offer, and the law firm of Verekers, who acted for the present plaintiff, prepared a deed of release. This deed was between the plaintiff Anozira Pty Ltd and the Hunts and Mr Green, and it is this deed which is the basis of the statutory demand.

 

14. The basis for setting aside the statutory demand is the assertion that this deed should be set aside as being unconscionable. Mr Weston says in his affidavit of 18 July that he received the letter of demand from Mr Lustig and discussed it with his solicitor, Mr Vereker and Mr Greene, which discussions "resulted in a decision that led to the execution of the Deed of Release". He says that he was

"well aware that the Defendant's demands were entirely without foundation. Mr Graeme Green told me that rather than risk any further delay in the project which had occupied us for nearly 30 months, that he would authorise the execution of the Deed and personally guarantee the debt."

He does not deny the assertion that he has acknowledged an entitlement to additional funds made by Mr Hunt.

15. This is the evidence on which the plaintiff asserts an entitlement to have the statutory demand set aside.

16. The test to be applied in determining whether there is a genuine dispute for the puposes of s 459G of the Corporations Act has been often stated. In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 McLelland CJ in Eq said at 787

"In my opinion that expression connotes a plausible contention requiring investigation, and 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. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit "however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be"not having "sufficient prima facie plausibility to merit further investigation as to [its] truth" (cf Eng Mee Yong v Letchumanan [1980] AC 331 at 341), or " a patently feeble legal argument or an assertion of facts unsupported by evidence" (cf South Australia v Wall (1980) 24 SASR 189 at 194)"

 

17. The assertion that the letter of demand by Mr Lustig amounted to grounds which would allow a court to set aside the deed on the basis that it is unconscionable is, it seems to me, not the basis of a genuine dispute. I am satisfied from the evidence that the Hunts at all times believed that, on the basis of the original letter of offer, they would become entitled to a return on their investment of 2.5 to 1. In the letter of demand they assert this entitlement, and make what is described as a threat to make a complaint to ASIC. It seems to me that it is not appropriate, as a matter of law or public policy, to regard a complaint to the statutory corporate regulator as inappropriate conduct. The role of ASIC is to act as the regulator, and any investor is entitled to make a complaint to ASIC, which will be investigated or otherwise dealt with according to law and the discretion of the regulator.

 

18. The doctrine of unconscionability has been revived in Australia in recent years in a series of cases following the decision of the High Court in Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447. In that case, and in most of the other reported cases, the facts involve a large and sophisticated commercial entity allegedly taking commercial advantage of a patently weaker party, suffering from some disability in relation to their understanding of English or of commercial practice (cf. Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621, Garcia v National Australia Bank Ltd [1998] HCA 48; (1998) 194 CLR 395). In Amadio Mason J referred at 461 to the

"underlying general principle which may be invoked whenever one party by reasons of some condition or circumstances is placed at a special disadvantage vis a vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created"

19. The deed in this case was, I am satisfied on the evidence, prepared by the solicitor for the plaintiff. Mr Weston says that the decision to enter into the deed was made following discussion between Mr Weston, director of E Control, Mr Green, the principal in the venture whose qualifications and experience in commercial matters have been set out in the documents sent to the Hunts encouraging their original investment, and Mr Vereker, a solicitor. There seems to be no question of inequality of bargaining position on this evidence, or of the plaintiff being under a special disability.

 

 

20. The doctrine of unconscionability may be compared with the doctrine of economic duress, which it seems to me to be more applicable where two sophisticated commercial entities are in dispute. Where it is asserted that a contract should be set aside on the basis of economic duress it is necessary to establish that the defendants have applied illegitimate pressure to induce the plaintiff to enter into the contract or deed. In Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 McHugh JA said at 45 that

"the authorities show that there are two elements in the realm of duress (a) pressure amounting to compulsion of the will of the victim and (b) the illegitimacy of the pressure exerted."

 

 

21. The letter of demand in this case does not, it seems to me, satisfy either part of this test. Nearly all commercial transactions occur under some form of pressure. In Equiticorp Financial Services Ltd (NSW) v Equiticorp Financial Services Ltd (NZ) Ltd (1992) 29 NSWLR 260 Giles J cited with approval the dissenting remarks of Lords Wilberforce and Simon from Barton v Armstrong [1973] UKPC 2; [1976] AC 104 where their Lordships said

"..in life, including the life of commerce and finance, many acts are done under pressure, sometimes overwhelming pressure, so that one can say that the actor had no choice but to act. Absence of choice in this sense does not negate consent in law; for this the pressure must be one of a kind which the law does not regard as legitimate. Thus, out of the various means by which consent may be obtained- advice, persuasion, influence, inducement, representation, commercial pressure- the law has come to select some which it will not accept as a reason for voluntary action: fraud, abuse of relation of confidence, undue influence, duress or coercion." (at 296)

His Honour noted at 297 that

"a consistent theme in the cases is that commercial pressure, even to the point where the party the subject of the pressure is left with little choice but to act as he did, is not of itself sufficient"

and that economic duress "should not be found lightly".

 

22. I note that this judgment has been approved by the Court of Appeal at (1993) 32 NSWLR 50 at 106, 149. Although the remarks of Lords Wilberforce and Simon were in dissent, their test has been endorsed by the unanimous decision of the Privy Council delivered by Lord Scarman in Pao On v Lau Yiu [1993] UKHL 3; [1979] 3 All ER 65 at 78.

 

23. It seems to me that the conduct of the defendants can be described only as putting commercial pressure on the plaintiff, and indeed the affidavit of Mr Weston seems to bear this out where he says that Mr Green

"told me that rather than risk any further delay in the project which had occupied us for nearly to months, that he would authorise the execution of the deed and personally guarantee the debt".

This well describes a commercial decision making process that it was decided by the principals of the company and their solicitor to be in the better interest of the plaintiff company to achieve a commercial settlement with the defendants rather than risk what Mr Green must have assessed to be a real chance of ASIC acting on Mr Hunt's complaint and thus further delaying the float.

24. In relation to the second aspect of the test, I am not satisfied that the pressure claimed, being the threat to report matters to ASIC, is illegitimate or improper. In Barton v Armstrong the claimed threat was of actual violence. As I have stated in paragraph 17, I do not think that a threat of a complaint to the relevant statutory regulatory authority can be seen to amount to an inappropriate form of pressure. Any citizen may complain to ASIC and ASIC will no doubt deal with any complaint on its merits. It is not, in my view, a basis for invoking the doctrine of duress or unconscionability.

25. No evidence was provided from Mr Vereker, the solicitor for the plaintiff company who prepared the deed and advised Mr Weston and Mr Green. There is evidence from Mr Opperman, a solicitor with Freehills, who says that as late as 19 June 2002 he received a telephone call from Mr Fussell, who is now the solicitor for the plaintiff company, which was on an open basis and which said they "intend to pay". Following this communication the plaintiff company's solicitors faxed to Mr Opperman a letter from a Chinese company indicating that a payment would be made in the order of $A1.5 million for the supply of technology. These facts are not denied. The purpose of this communication, I conclude, was to show that funds would be available to make good the promise to pay. This, it seems to me, is inconsistent with the assertion that there was unconscionable pressure on the plaintiff.

26. The quick response to the letter of demand by way of Mr Vereker's drafting of the Deed, and the open offer of settlement conveyed to the defendants by the plaintiff's solicitor referred to above are both inconsistent with a finding of duress. In Pao On v Lan Yiu Lord Scarman said at 78

"In determining whether there was a coercion of will such that there was no true consent, it is material to enquire whether the person alleged to have been coerced did or did not protest; whether, at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open to him such as an adequate legal remedy; whether he was independently advised; and whether after entering the contract he took steps to avoid it."

 

27. Here the plaintiff was independently advised and the deed was prepared by the plaintiff's then solicitors. There is no evidence of any assertion or protest of coercion until Mr Weston's affidavit. The plaintiff's present solicitors made an open offer acknowledging an intention to pay the debt in June 2002 and provided the defendants with evidence of availability of funds. It seems to me that all of these factors go against a finding that there is an arguable case to now set aside the deed on the basis of coercion or duress in this case.

 

28. I am not satisfied, on all of the evidence, that there is a genuine dispute in this case that would justify a setting aside of the statutory demand. The demand is based on a debt acknowledged in the deed, and I am not satisfied that sufficient grounds have been advanced to justify an arguable case that the deed would be capable of being set aside as being unconscionable, or as being entered into under duress.

  

29. The application should be dismissed, with costs.

I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of Master T. Connolly

Associate:

Date: 2 August 2002

Counsel for the Plaintiff: Mr B Salmon QC

Solicitor for the Plaintiff: Wood Fussell

Counsel for the Defendant: Mr B Meagher

Solicitor for the Defendant: Freehills

Date of hearing: 26 July 2002

Date of judgment: 2 August 2002