Coventry Hall Pty Ltd v Howell Developments Pty Ltd (In the matter of Coventry Hall Pty Ltd) [1997] FCA 1327 (7 November 1997)

FEDERAL COURT OF AUSTRALIA

CORPORATIONS - Statutory Demand - Registrar dismissed an application to set aside a demand - Review of Registrar's decision - Whether there was a genuine dispute about the existence of the debt

Corporations Law s 459G

COVENTRY HALL PTY LIMITED v HOWELL DEVELOPMENTS PTY LIMITED

(IN THE MATTER OF COVENTRY HALL PTY LIMITED)

NG 3088 OF 1997

EMMETT J

SYDNEY

7 NOVEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 3088 of 1997

IN THE MATTER OF COVENTRY HALL PTY LIMITED (ACN 001 576 825)

BETWEEN:	COVENTRY HALL PTY LIMITED ACN 001 576 825 Applicant
AND:	HOWELL DEVELOPMENTS PTY LIMITED ACN 073 867 624 Respondent
JUDGE:	EMMETT J
DATE OF ORDER:	7 NOVEMBER 1997
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. the order of the Registrar of 14 October 1997 be set aside.

2. the statutory demand of 8 April 1997 be set aside.

3. the respondent pay the applicant's costs before the Registrar and before me.

4. liberty be reserved to the parties to apply in relation to any matter they wish to raise concerning costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 3088 of 1997

IN THE MATTER OF COVENTRY HALL PTY LIMITED (ACN 001 576 825)

BETWEEN:	COVENTRY HALL PTY LIMITED ACN 001 576 825 Applicant
AND:	HOWELL DEVELOPMENTS PTY LIMITED ACN 073 867 624 Respondent

JUDGE:	EMMETT J
DATE:	7 NOVEMBER 1997
PLACE:	SYDNEY

EX TEMPORE REASONS FOR JUDGMENT

HIS HONOUR: There is before the Court an application for a review under section 35A(5) of the Federal Court of Australia Act 1976 ("the Act"). The application is for the review of a decision of a Registrar dismissing an application to set aside a statutory demand under the Corporations Law. The demand was made by Howell Developments Pty Limited ("Howell"), on Coventry Hall Pty Limited, which carried on business as a real estate agent under the name Raine and Horne ("Raine and Horne"). The demand arises out of arrangements entered into between Raine and Horne and Paul Roch Howell ("Mr Howell") on 28 September 1996.

On that day an agreement was signed which was entitled "Sales Inspection Report and Auction Agency Agreement (and Continuing Agency)". The agreement is a printed form, and was entered into between Mr Howell and Raine and Horne relating to the proposed sale of a property situation at 2 Vicar Street, Coogee. By the agreement, Raine & Horne was to be entitled to a fee of 2 per cent of the sales price. Clause 4(ii) provided that:

The Agent shall be entitled to the amount of the fee specified in clause 3 if during the Continuing Agency Period they effectively introducing [sic] a purchaser who subsequently enters into a binding contract.

Clauses 12 and 13 provided as follows:

12. The fee to which the Agent is entitled shall be due and payable on completion of the sale or upon demand if the sale is not completed owing to the default of the Principal after the parties have entered into a binding contract.

13. It is irrevocably agreed that all moneys that shall be paid by the purchaser as deposit monies shall be:

a) Held by the Agent in their trust account as stake holder pending completion; or

b) Invested by the Agent as stakeholder in an interest bearing account on terms and conditions as agreed upon between the Principal and the purchaser and as notified to the Agent in writing.

The Agent is entitled to deduct their above fee, expenses and charges from such monies on receipt of authorisation from the Purchaser or their Solicitor to account to the Principal or their Solicitor.

While it was intended, apparently, that the property would be sold at auction, that did not occur. Instead, a contract for sale was entered into on 19 November 1996 between Mr Howell as vendor and Howell Developments as purchaser. The contract was in the standard form and provided for a purchase price of $725,000 and a deposit of $36,250. The deposit was apparently paid by or on behalf of Howell Developments to Raine and Horne as provided for in the contract.

On 23 December 1996, Raine and Horne received a communication from Henry Davis York, solicitors, who were acting for Westpac Banking Corporation. Westpac apparently was a mortgagee of the subject property to secure advances which had been made to Mr Howell. The letter was in the following terms:

We confirm that the sale was completed today and we request that you account to us for the deposit as soon as possible.

Would you please draw the cheque in favour of our client Westpac Banking Corporation.

We enclose an authority from Mr Howell in his capacity as a Director of Howell Developments Pty Limited and in his own right...

The document enclosed was in handwriting in the following terms.

Raine and Horne

Cross Street

Double Bay

Dear Sirs

re: 2 Vicar Street, Coogee.

We hereby inform you that the above matter is settled and we authorize payment of the deposit to the Vendor.

Yours Faithfully,

[signature P. Howell]

Howell Developments P/L

23/12/96

Underneath that appeared the following:

Raine and Horne

Cross Street

Double Bay

Dear Sirs

re: Deposit held for 2 Vicar Street Coogee

You are hereby directed to dispense the proceeds of the above to Westpac Banking Corporation, c/o Mr Henry Davis of Henry Davis York, 135 King Street, Sydney,

Yours Faithfully,

[signature P. Howell]

Paul Howell

23/12/96

On receipt of that communication, Raine and Horne appropriated the amount of its commission, $14,500. The balance was paid to Westpac Banking Corporation. Later in the day, Raine and Horne received a further facsimile communication purporting to be from, "Stuart Clough/Paul Howell," saying:

I CONFIRM MY INSTRUCTIONS FROM MR P. HOWELL NOT TO DEDUCT ANY COMMISSION TO RAINE AND HORNE/LAING AND SIMMONS FOR THE SALE OF 2 VICAR STREET. PLEASE HOLD ALL MONIES UNTIL INSTRUCTED OTHERWISE.

YOURS FAITHFULLY,

[signature S. CLOUGH]

I interpose that Laing and Simmons were conjunction agents and they were entitled to part of the commission. It is significant that there was nothing in either of those documents indicating that completion of the sale pursuant to the contract had not occurred.

The statutory demand asserted that Raine and Horne owed Howell Developments the amount of $14,500, being the balance of the deposit paid on the aborted sale of property at 2 Vicar Street Coogee. Following receipt of the demand Raine and Horne moved under section 459G to set aside the demand. The application was supported by an affidavit annexing the various documents concerning the arrangements to which I have referred.

Raine and Horne contends that there is a genuine dispute between Raine and Horne and Howell Developments about the existence or the amount of a debt to which the demand relates and that the Court should accordingly set the demand aside. That application came before the Registrar who decided the matter on 14 October 1997. The crux of the Registrar's decision is to be found in the following passage:

In my opinion if the sale was not completed there is no entitlement under the contract to an agent's commission or fee. The fee was deducted by Raine and Horne under the vendor's authority. That authority appears to have been given without disclosure of the real facts of the settlement. The matter may have been settled to the vendor's satisfaction in that there was no sale, forced or otherwise, of the house. However, this lack of disclosure does not affect the agent's or vendor's rights once known. There is no doubt that arrangements for the purchase were not at arms length. The fact that Westpac made a comment, which is disputed by Mr Howell, that Raine and Horne were entitled to their commission, in my view, cannot alter the fact that a commission under the contract was only payable on completion or if the principle had defaulted and a demand was made by Raine and Horne for that commission.

For those reasons the Registrar concluded that there was no genuine dispute as to the existence or amount of a debt.

It appears that it is contended on behalf of Howell Developments that the contract came to an end in some way and that, notwithstanding the authorities which were signed by Mr Howell, both in his own right and on behalf of Howell Developments, there was no entitlement to commission because the sale was not completed. In oral evidence Mr Howell said that the reason why the sale was not completed was that:

...the purchaser vehicle was unable to complete. So it was not in a position to complete the sale of the property and you had to make some other sort of arrangements is that correct?--- That's correct...

You [Mr Howell] were asked about the reasons for this sale not going ahead and you said that the purchaser company was not able to complete, why was that? Because of the abysmally low sale price, the valuations, etcetera, that I previously held would not be accepted to the purchaser vehicle, therefore it had to raise funds and contribute to provide that settlement and it was unable to do so."

There was no evidence before the Registrar of those matters other than that to which I have referred. In the hearing before me, application was made for an adjournment after the proceedings were well advanced so that evidence as to the circumstances of the termination of the contract could be adduced. I refused that application on the basis that, having regard to the nature of the proceedings, it was inappropriate at this late stage for the respondent to be furnished the opportunity of adducing evidence as to amount of which must have been critical to the issue before the Registrar.

There appear to be two matters stated by the Registrar which may have led to her reach the conclusion which she reached. The first was the proposition that if the sale was not completed, there was no entitlement under the contract to an agent's commission or fee. The second was that the fee was deducted by Raine and Horne under the vendor's authority. As to the first proposition, that appears to me to be a question both of fact and law which would depend upon an analysis of the circumstances in which the contract has come to an end assuming that that be the case. I shall return to that in a moment.

The second matter seems to ignore the question of who was entitled to the deposit. Raine and Horne contends that, under its agency agreement, it became entitled to the commission upon effectively introducing a purchaser who subsequently entered into a binding contract. The evidence establishes that that requirement was satisfied. The question which arises, of course, is whether or not in circumstances where the contract comes to an end for reasons which are not explained the agent is entitled to be paid its commission. The agency agreement deals with the circumstance of completion of the sale and also with the circumstance of non-completion owing to the default of the principal after the parties have entered into a binding contract. It does not deal with the question of payment of the commission where the contract is not completed by reason of default of the purchaser or by reason of consensual rescission.

The contract for sale between Mr Howell and Howell Developments makes provision for the payment of a deposit and also for the destination of the deposit in various contingencies. Under clause 9, if the purchaser does not comply with the contract in an essential respect the vendor can terminate by serving a notice and may then keep or recover the deposit. Under clause 16.4:

On completion the purchaser must...

......................................................................................................................

16.4.2 give the vendor an order signed by the purchaser or the purchaser's solicitor authorising the depositholder to account to the vendor for the deposit.

16.5 On completion, the deposit becomes the vendor's property.

Under clause 19.2:

Normally, if a party exercises a right to rescind expressly given by this contract or any legislation-

19.2.1. the deposit and any other money paid by the purchaser under this contract must be refunded;

The contract does not deal with the contingency of consensual rescission or termination of the contract. That is, presumably, because, if the parties reach agreement on that matter, they would normally reach agreement as to what happens to the deposit.

If the contract came to an end because of the inability of the purchaser, Howell Developments, to complete because it could not raise the purchase price, there are at least two possibilities. One is that the contract was terminated by Mr Howell for default in which case he was entitled to keep the deposit. Alternatively, the contract was terminated consensually with some unknown arrangement as to the intended destination of the deposit. If the former were the case then the deposit belongs to Mr Howell and it is he who would be entitled to require payment of the commission. The dispute as to payment of the commission or entitlement to the commission exists as between Mr Howell and Raine and Horne. He has not made demand. Rather, Howell Developments has made demand.

It seems to me that Howell Developments cannot say unequivocally that it is entitled to the deposit. Certainly as between Raine and Horne and Howell Developments, if the contract had come to an end such that the deposit belonged to Howell Developments, Howell Developments would be entitled to return the whole of the deposit. It is significant, however, that the demand was not made for the return of the deposit but simply for return of part of the deposit. That of itself indicates some acceptance by Howell Developments that the authority was intended to be relied upon by Raine and Horne and that Raine and Horne was being requested by the purchaser, Howell Developments, to pay the whole of the deposit in accordance with the directions of the vendor, Mr Howell.

It seems to me it is at least arguable that it follows from that arrangement that as between Howell Developments and Raine and Horne, Raine and Horne was required to pay the deposit to Mr Howell. Raine & Horne says that it has done what it was obliged to do as between it and Mr Howell. It would follow that there is no obligation on the part of Raine and Horne to account to Howell Developments for any part of the deposit. It may be that there is a genuine dispute between Mr Howell and Raine and Horne as to whether, in the circumstances of the case, Raine and Horne is entitled to a commission. For example, any arrangement between Mr Howell and Howell Developments was not at arm's length. One might have considerable doubts as to whether, in those circumstances, Raine and Horne can in fact establish that it effectively introduced Howell Developments to Mr Howell.

Had a demand been made by Mr Howell for payment of the amount of the commission which was withheld it may be more difficult for Raine and Horne to establish that it is entitled to a commission. However, as between Raine and Horne and Howell Developments I consider that there is a triable issue as to whether or not Howell Developments is entitled to the whole of the deposit. In those circumstances I am disposed to conclude that there is a genuine dispute between Raine and Horne and Howell Developments about the existence of the debt.

An application under section 459G is not the process or procedure whereby the sort of disputes to which I have referred should be resolved. The purpose of division 3 is to ensure that the provisions of division 2 relating to statutory demands which give rise to presumptions of insolvency are not used as a means of putting inappropriate pressure on corporations where there is a real dispute being a dispute which should be resolved in the ordinary way in the courts or by other dispute resolution process. On the hearing of an application it is not appropriate to decide the merits of a dispute. The function of the Court is simply to determine whether the recipient of the demand is asserting a position bona fide. If it is, then the demand should be set aside and normal dispute resolution procedures should be undertaken.

I consider in the circumstances that it is appropriate that an order be made setting aside the demand of 8 April 1997. I order that the statutory amount be set aside; I order the respondent pay the applicant's costs; I reserve the parties liberty to apply in relation to any matter they wish to raise concerning costs. I set aside the orders made by the Registrar and order the respondent to pay the applicant's costs of the proceedings before the Registrar and before me.

I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett

Associate:

Dated: 7 November 1997

Counsel for the Applicant:	J.M. Morris
Solicitor for the Applicant:	Parry Carroll Kanjian
Counsel for the Respondent:	-
Solicitor for the Respondent:	Dennis & Company
Date of Hearing:	7 November 1997
Date of Judgment:	7 November 1997