Old Kiama v Cliffshaw [2009] NSWSC 1349 (7 December 2009)

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Old Kiama v Cliffshaw [2009] NSWSC 1349 (7 December 2009)

Last Updated: 8 December 2009

NEW SOUTH WALES SUPREME COURT

CITATION:
Old Kiama v Cliffshaw [2009] NSWSC 1349


JURISDICTION:
Equity Division

FILE NUMBER(S):
3782/09

HEARING DATE(S):
17/11/09

JUDGMENT DATE:
7 December 2009

PARTIES:
Old Kiama Wharf Company v Cliffshaw Pty Ltd

JUDGMENT OF:
Macready AsJ

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Mr R Freeman for plaintiff
Mr N Cotman SC for defendant

SOLICITORS:
Colbron & Associates Lawyers for plaintiff
Dibbs Barker for defendant


CATCHWORDS:
Corporations Law. Application to set aside statutory demand under s 459G of the Corporations Act. No dispute established. Proceedings dismissed. No matter of principle.

LEGISLATION CITED:



CASES CITED:


TEXTS CITED:


DECISION:
Paragraph 28



JUDGMENT:

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION


Associate Justice Macready

Monday 7 December 2009


3782 of 2009 Old Kiama Wharf Company Pty Ltd v Cliffshaw Pty Ltd

JUDGMENT

1 HIS HONOUR: The plaintiff makes an application under the Corporations Act 2001 (Cth) (‘the Act’) for an order to set aside a statutory demand served on it by the defendant. The statutory demand is dated 30 June 2009 and seeks recovery of a judgment debt entered in favour of the defendant against the plaintiff on 21 March 2007 in the amount of $1,270,257.53.

2 The plaintiff says that there is a genuine dispute as to whether the debt is due and payable as a result of what is described as a forbearance agreement. In the alternative, the plaintiff seeks to set aside the statutory demand under s 459J(1)(b) of the Act for some other reason, namely, unconscionable circumstances which were said to exist in respect of the creation of the debt and its attempted enforcement.

Background

3 In late 2000 the defendant, Cliffshaw Pty Ltd, acquired leases over a property known as “Kiama Wharf” in New South Wales. The defendant carried out renovation work to the existing takeaway premises which included the design and construction of a new restaurant premises.

4 In or about 2001, the then proprietor of the defendant, Mr Garry William Day, had an arrangement with the proprietor of the plaintiff, Christina Jackman, to operate the restaurant business for the plaintiff at the Kiama wharf.

5 By letter dated 23 August 2001, the Department of Lands New South Wales wrote to Mr Day advising him the then leases would expire on 31 July 2009 and that no new leases could be entered into or negotiated prior to the expiry of the lease.

6 The Department of Lands in a letter dated 8 July 2003 reconfirmed its advice to Mr Day that no leases would be entered into or negotiated prior to the expiration of the 31 July 2009 lease, at which time a new lease would be offered by way of public tendering process.

7 In July 2004, Mr Day transferred the leases over the properties to the plaintiff for a sum of $1,060,000. That sum was secured by way of mortgage over the subject leases to the defendant. Thereafter the plaintiff continued to operate the business without Mr Day’s involvement.

8 The leases were due to expire on 31 July, 2009. The plaintiff alleges that Mr Day gave a warranty to Christina Jackman that the plaintiff could proceed to negotiate extensions of the leases with the Department of Lands. Some time after settlement of the sale the plaintiff found out that the Department of Lands had already indicated to the defendant in August 2001 and in July 2003 that no new leases would be entered into or negotiated prior to expiry of the lease and that at that time the lease would be offered by way of a public tendering process.

9 After acquiring the leases in July 2004, the plaintiff made submissions to the Minister of the Lands for the grant of a new 20 year lease to commence on expiry of the existing leases on 31 July 2009.

10 In August 2005, the Minister refused to negotiate and he advised that the leases would be put to public tender as and from 31 July 2009.

11 In early 2006, the Crown Lands policy for marinas and waterfront commercial tenures changed to permit negotiations to take place with existing leaseholders without the need for public tender.

12 On 21 March 2007, the defendant obtained a money judgment against the plaintiff in the sum of $1,270,257.53 which is the basis for the statutory demand. The additional sum of $270,257.53 is interest on the original loan. At that stage the defendant obtained orders for possession of the premises at Kiama Wharf with leave to issue writ of possession.

13 The plaintiff has recently been able to obtain a new 20 year lease with the Department of Lands which will run from the expiry of the existing leases. The new lease is not subject to the mortgage that was granted over the old leases. On the basis that the old leases had almost expired and that the new leases had been granted, the Court granted a permanent stay of the defendant’s orders for possession and the issue of a writ of possession. The judgment therefore remains in force only as to the money amount.

Genuine dispute

14 I have had the benefit of a number of submissions in respect of the principles to be applied and I think the most useful summation of what is a genuine dispute is that given by McLelland CJ in equity in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669. At page 671 his Honour made the following comments respect of the expression "genuine dispute":

"It is, however, necessary to consider the meaning of the expression "genuine dispute" where it occurs in s 450H. 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 24 SASR 189 at 194).

But it does mean that, except in such an extreme case, a Court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments v Commonwealth Bank of Australia 11 ACSR 362 (at 366 and 367) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Pt5.4 of the Corporations Law, and to the terms of Division 3:

‘These matters, taken in combination, suggest that at least in most cases, it is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute.’

In Re Morris Catering (Aust) 11 ACSR 601 at 605 Thomas J said:

‘There is little doubt that Div 3 ... prescribes a formula that requires the Court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the Court will examine the merits or settle the dispute. The specified limits of the Court's examination are the ascertainment of whether there is a 'genuine dispute' and whether there is a 'genuine claim'.

It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it), the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another. The essential task is relatively simple - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).’

I respectfully agree with those statements.”

15 The plaintiff was not specific about the nature of the forbearance agreement but there seemed to be three elements involved. The first involves conversations in March 2007, which appear in paragraph 12 of Christina Jackman’s affidavit of 22 July 2009. She relies on a conversation with Mr Colbron, the plaintiff’s solicitor which was in these terms:

“Colbron: Garry, as you know the company is not in position to pay Cliffshaw out and if tries to refinance or sell then it will raise chickenfeed because the lease has only two and bit years to run. It was always the case that your getting your money was dependent on the new lease. The Lands Department policy has now changed, I have had a number of meetings with them and it looks very promising that a new twenty year lease can be negotiated.

Day: When will that happen?

Colbron: Well, it is a complex and drawn out process but I will keep on building the public interest case but the company also has another problem in that it owes a fair bit of money to the ATO. A lot of that money consists penalties and interest and I am wading through trying to complete returns and get revocation of estimates which have been raised and which are wrong in fact in some cases they have taken the actual quarterly amount payable and raised the estimate as a monthly and not a quarterly estimate. Not being an accountant it is taking me a long time. Since you are a chartered accountant and a tax agent you might want to help. It is your interest because whilst the ATO has been very sympathetic they will not wait forever and if they pull the plug and wind up the company that will sink the chances of getting the pot-of-gold new lease which will solve everyone's problem.

Day: Okay I will help and I will not rock the boat by taking action on the new judgment.”

16 In the period from March 2007 to mid 2008, Mr Day did as he had promised and provided advice and prepared taxation returns for the defendant. Mr Day sent the defendant an invoice in the amount of $2,750 for this work on 12 May 2008.

17 In June 2008, the new 20 year lease was granted. Obviously there were negotiations for what should happen thereafter. The plaintiff relies on a letter of 26 June 2008 as being a forbearance agreement between the parties. That letter was as follows:

“Dear Sir

I refer to my many discussions with your representative Warwick Colbron regarding the new lease for 20 years of the Cargo Ship Building at Kiama.

I am agreeable in principle, subject to meeting Cliffshaw Pty Ltd's lending criteria, to increasing the amount of the mortgage and the mortgage to provide for an additional payment (to be made to the Australian Taxation Office) of around of $760,000 on the basis that:-

(i) The payment of $760,000 if accepted by the ATO is in full and final satisfaction of all primary tax debt in respect of GST, PAYG, income tax & superannuation liability up to and including 31 March 2008. (If the underlying tax debt is greater than $760,000 then this condition may be varied provided the amount which Cliffshaw Pty Ltd has to advance does not exceed $760,000 and the top up to be found by The Old Kiama Wharf Company Pty Ltd does not exceed $70,000.)

(ii) The ATO agrees to waive or remit all interest and penalties or comes to an arrangement with The Old Kiama Wharf Company Pty Ltd for it to pay penalties and interest capped at a maximum of $50,000.

If this arrangement is made with the ATO I will require The Old Kiama Wharf Company Pty Ltd to either execute a variation of the existing mortgage or enter into a new mortgage which would combine the new advance of $760,000 with the amount secured by the existing mortgage.

I would also expect that within say six months of the additional advance The Old Kiama Wharf Company Pty Ltd would arrange re-financing (or the partial sale of the businesses) to enable repayment to Cliffshaw Pty Ltd within six to nine months of at least $1,000,000 and that within 12 months of the new advance The Old Kiama Wharf Company Pty Ltd would arrange for payment of the balance of the mortgage amount to be paid within the period of 12 to 14 months from the date of the further advance. These conditions, would be built into the new mortgage or the variation of mortgage to provide for the minimum payment of $1,000,000 to be paid by the 9 month date (or earlier) and for the balance to be paid by 14 month date or earlier.

Yours faithfully,

Gary William Day”

18 In due course when the plaintiff did not provide a mortgage over the new lease the defendant indicated that the plaintiff did not meet its lending criteria. On this basis it did not advance an additional $760,000 to pay a taxation liability as indicated in that letter. It is also plain that there is no evidence that the three conditions contained in the letter have been fulfilled. First, on the question of the lending criteria there is only evidence of a statement from the defendant that the plaintiff did not meet its lending criteria. There has been no attempt to prove compliance.

19 On the second matter, namely, the resolution of the amount of the taxation liability, there is no evidence of this being achieved in the terms specified. Indeed, given the answer to a notice to produce served on the plaintiff, I should infer that there has been no correspondence on the subject with the Australian Taxation Office. The third condition is plainly that there was to be a mortgage over the new lease and this has not been granted.

20 The attempt to resolve the matter this way was also referred to in a conversation in December 2008 between Mr Colbron and Mr Day in the following terms:

“Colbron: Well we have finalised a deal with the ATO and if you pay them out we will have plenty of time to sell or refinance to get you paid out. We will give you what you have been asking for in the form of a mortgage over the new lease which can then be registered straight away.

Day: Okay I agree. I am going away overseas but I will give you a letter to [give to] the ATO to keep them happy.”

21 The evidence is silent as to the negotiations that took place after that time. However on 13 May 2009 a letter was sent by the defendant to the plaintiff which stated as follows:

“Dear Sir,

Cliffshaw Pty Limited, now requires the following conditions to be met.

I. Payment of $20,000.00 to cover legal fees in respect to the current matter.

2. Execute a replacement ASIC charge over all the unencumbered assets of the company.

3. Execute the mortgage prepared by Dibbs Barker

You have not had the courtesy to respond to the letters 16 March 2009 and 7 April 2009 of which a response is required.

If any of the above conditions are not to be complied with please advise by the close of business Friday 22 May 2009.

22 The mortgage has still not been granted.

23 So far as the genuine dispute based upon the forbearance agreement it seems that in respect of the first forbearance agreement which was the agreement to assist, that that has in fact been carried out. There was no suggestion that there was any refusal to provide that taxation advice and assistance.

24 In respect of the letter of 26 June 2008 it is a draft letter and there are doubts about the circumstance in which it was given. However, assuming that it was given in a way which was binding upon the defendant that letter was conditional and there is no evidence of fulfilment of the conditions. Similarly, the December 2008 conversation was also conditional upon a mortgage being given over the new lease and there has, in fact, been no mortgage given. There have been many negotiations and proposals but that is all.

25 In these circumstances not only is it plain that there is no concluded forbearance agreement, there is no plausible contention that the forbearance agreement existed.

26 I refer to the claim to set aside the demand on the basis of s 459 (J)(1)(b). The first basis for this is what was said to be the misleading statements by Mr Day prior to granting the lease and the plaintiff having expended in excess of $200,000 on improvements to the property, as well as purchasing the lease for $1,060,000 which had only five years to run. The problem with this submission is that these misleading circumstances would have been a complete defence to the action, which resulted in a judgment, but they were not raised at that stage. There is also the fact that the subject matter of the misrepresentation has now been removed, namely, that the plaintiff, as represented, was able to negotiate new leases. There has been no quantified case put forward that there are other money losses incurred in the meantime which might give rise to some off-setting claim. The $200,000 paid was clearly to enable the plaintiff to be in a position to sell the new leases, which is a position it achieved.

27 In these circumstances I do not see that there is any presently existing unconscionability which would incline me to the view that there is some other reason to set aside the demand. The second basis was the forbearance agreement. As there was none this also is not a ground of unconscionability.

28 I dismiss the Originating Process with costs.

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LAST UPDATED:
7 December 2009