The Victorian Supreme Court, per Matthews JR, considered an application to set aside a statutory demand in  Jolimont Heights Pty Ltd v Ryan [2018] VSC 678.

FACTS

Jolimont Heights Pty Ltd (‘JH’), made an application pursuant to s 459G of the Corporations Act 2001 (Cth) (‘Act’) by originating process dated 9 July 2018 to set aside a statutory demand dated 19 June 2018 (‘Statutory Demand’)  [1].

The application was made under s 459H &/or s 459J on the basis:

• there was a genuine dispute as to the existence of the debt
• due to some other reason, being that the Statutory Demand was defective  [2].

In support of its application, JH relied on affidavits sworn by Hugh Ellis and Antony Rutherford while the affidavits in opposition were sworn by Ryan and David Graj [3] & [4].

The Statutory Demand claimed payment of the amount of $337,378.08(‘Debt’) described in the schedule as:

The Company is indebted to William Hugh Ellis (“Ellis”) in the amount of $350,000 (‘the Ellis Debt’). The Ellis Debt is payable at call.Pursuant to a Loan Agreement (“the Loan Agreement”) and an Assignment Agreement (“the Assignment”) both dated 21 September 2015, Ellis assigned to the Creditor [ie Ms Ryan] all his rights, remedies and title in relation to the Ellis Debt, as security for the outstanding loan balance, interest and costs payable by Ellis to the Creditor under the Loan Agreement. A copy of the Loan Agreement and The Assignment is annexed hereto and marked “A”).

Ellis is indebted to the Creditor in the sum of $337,378.08 for the outstanding loan balance and interest under the Loan Agreement, and as a consequence of the Assignment, the Company is also indebted to the Creditor in that amount.

JH’s evidence in support of the application

Ellis deposed that:

• Ryan has been a long-time family friend of him and his wife, Sharon Ellis, for 50 years in his case and approximately 59 years in Ms Ellis’ case [15]
• in relation to the loan to him from  Ryan he stated:

• in  September 2015, he asked Ryan for a loan of $300,000 on a short-term basis.
• Ryan agreed to lend him $300,000.
• he said he would prepare a written loan agreement, which he did and they were ‘Loan Agreement’ and ‘Assignment Agreement’ which were attached to the First Ryan Affidavit as Annexure A (respectively, ‘Loan Agreement’ and ‘Assignment Agreement’, collectively, ‘Loan Documents’) which he signed and sent to Ryan
• on or around 21 September 2015, he spoke with  Ryan by telephone about the Loan Documents, where:
  • she said ‘A written loan agreement is not necessary, I will lend you $300,000 for 60 days’.
  • she did not tell him that interest was required on the loan or that security must be provided.
  • he accepted her offer to lend him $300,000 for 60 days.
  • it was his understanding that the Loan Documents had been rejected by Ms Ryan;
• Ryan transferred $300,000 to his bank account on or around 26 September 2015 (‘Loan’).
• he didn’t repay the Loan within 60 days, but made a payment of $50,000 on or around 7 March 2017;
• at Ryan’s home during a visit to celebrate her birthday, on 18 October 2017 he discussed the outstanding amount & Ryan said ‘Your kids are going to receive an inheritance from me. I don’t need you to repay the loan, I will just reduce what Rhiannon will receive by $250,000’ (‘Alleged Loan Forgiveness’);
• he did not receive a countersigned copy of the Loan Documents until November 2017.
• on or around 9 February 2018, he received a letter from Rotman & Morris attaching another countersigned copy of the Loan Agreement, however the signature for Ryan on the document is different to the one he had received in November 2017.
• he believed the Loan had been forgiven, due to the representation by Ryan on 18 October 2017
• had he known it had not been forgiven he would have called in a loan of approximately $500,000 owed to his family trust, the Twin Gums Trust (‘Trust’), by Rasputen Pty Ltd (‘Rasputen’) in which he also holds an interest.
• Ryan is estopped from resiling from the Alleged Loan Forgiveness as he has relied on that representation to his detriment such that it would be unconscionable for Ms Ryan to resile from it (‘Estoppel Claim’).

On 30 May 2018, Ryan commenced proceedings against Ellis but not JH in the Supreme Court with one of the claims  relating to the Loan and the amount owing.

Ryan deposed:

• in relation to the telephone conversation on or around 21 September 2015  she denied saying that a written loan agreement was not necessary;

• she did not reject the Loan Agreements, instead accepted them and was content with their terms;
• she has signed ‘multiple copies’ of the Loan Documents.

• she did not say any words to Mr Ellis on 18 October 2017 and she has never forgiven the Loan [19]

Relevant terms of the Loan Agreement and the Assignment Agreement

The Loan Agreement provided:

• for a loan of $300,000 from Ms Ryan (the Lender) to Mr Ellis (the Borrower)
• for a term of 60 days,
• with interest payable at 6% for the term, and
• default interest rate of 12% per annum until repayment in full of principal and interest [20].
• the Borrower  agreed to provide  security for the loan [20];
• an Assignment Agreement between Mr Ellis (as assignor) and Ms Ryan (as assignee) [21].

The Court noted the following based on the correspondence put into evidence:

• there was no evidence regarding the Loan in the period after the advance was made on 26 September 2015 until 18 October 2017 when the Loan Forgiveness allegedly occurred [23].
• on 31 January 2018 Ellis received a letter of demand dated 24 January 2018 from Rotman & Morris in relation to the Loan and demanded the repayment of the Loan and accrued interest of around $84,000
• on 6 February 2018 Ellis emailed to Rotman & Morris stating: 
  • The $300,000 loan from Anne Ryan was acknowledged
  • $50,000 has been repaid.
  • he had not seen a version of the loan document signed by Ryan or received any comments from her on the detail of the document he provided
  • he regretted the inability to repay the loan within the 60 day period nominated
  • during family related social meetings with her in August and October 2017, she advised that she no longer required payment of the outstanding balance [25]
• on 15 February 2018 Rotman & Morris emailed Ellis attaching
  • a letter dated 9 February 2018 claiming he was in default and calling on security being the assignment of the debt owed by JH to Mr Ellis
  • the loan agreement
  • the assignment agreement [26]
• Ellis emailed a letter dated 20 February 2018 to Rotman & Morris stating:
  • that he had checked his records and found that in early November 2017 he had received an envelope from Ryan with the Loan Documents
  • the different signatures referred to above
  • without prejudice that having actually been notified of the agreement from Ryan’s being in force and Ryan’s intention of collecting it 27 months after it would have been due
  • it would only be fair and just let alone legal to allow him more time to pay the debt which he intended to do [27].
• on 28 February 2018  Graj emailed Ellis stating that Ellis had not provided any substantive legal arguments in response to Ryan’s demands and that she was entitled to serve a statutory demand on JH [28]
• Ellis emailed Graj on 5 March 2018  stated that his preferred strategy was for Jolimont to have the Company borrow the funds to pay Ellis against the security of its land holding and pay Ryan [29] & he strongly disagreed that he did not have any strong legal argument to prevent or indeed to strike out any statutory demand from Ryan [30].

DECISION

At [7] & [8] the court recited  Section 459G, being a right to set aside a statutory demand, and  Section 459H, regarding and offsetting claim, of the Act.

The Court described the principles as:

• the applicant is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task [9].
• it is not necessary to advance a fully evidenced claim.
• it is not necessary or appropriate for a court to engage in an in-depth examination or determination of the merits of the dispute  because the application is akin to one for an interlocutory injunction
• the applicant must establish there is a ‘plausible contention requiring investigation’ of the existence of either a dispute as to the debt or an offsetting claim.
• the criterion of a ‘genuine’ dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of a dispute be real and not spurious, hypothetical, illusory or misconceived.
• the dispute or offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion and have sufficient facts to exclude the merely fanciful or futile.
• the court should not accept uncritically 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
• the court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence,
• except in extreme cases, the court should not embark upon an inquiry as to the credit of a witness or a deponent
• the applicant will fail if the contentions upon which it seeks to rely  are so devoid of substance that no further investigation is warranted
• the court does not engage in any form of balancing exercise between the strengths of competing contentions

The court, at [32], described the key issues  as:

(a) whether the Loan is governed by the oral agreement made on or around 21 September 2015 as alleged by Mr Ellis (‘Oral Agreement’), or whether it is governed by the Loan Documents;

(b) if the Loan Documents govern the Loan, are they to be read together? Is the Assignment Agreement in the nature of an absolute assignment?

(c) has there been a forgiveness of the Loan?

(d) if the Alleged Loan Forgiveness is ineffective, then does the Estoppel Claim prevent Ryan from recovering the Debt from JH?

Is the Loan governed by the Oral Agreement or the Loan Documents?

JH submitted that:

• there is a factual controversy between Ellis and Ryan regarding the Loan Documents.
• that the Oral Agreement applies, as Ryan rejected the Loan Documents and told Ellis that a written loan agreement was not necessary.
• Ryan’s statements mounted to a counter-offer, which he accepted, and that the terms of the Loan were that it was for $300,000 and was for a term of 60 days.
• there were no terms as to interest or to security for the Loan [33].
• did not receive the signed copies of the Loan Documents from Ms Ryan until November 2017, after the Alleged Loan Forgiveness.
• it was not open to Ryan to ‘accept’ the Loan Documents by signing and returning them over two years later as offers are to be accepted within a reasonable period of time if a time for acceptance is not stated [34].
• if the Oral Agreement applies, then there was no security for the Loan and JH’s debt to  Ellis has not been assigned to Ryan [35].

Ryan submitted that:

• she denied that she told Ellis a written loan agreement was not necessary
• she signed multiple copies of the Loan Documents and returned them to  Ellis at the time in 2015.
• there was no objective evidence to support Ellis’ contention which was highly implausible.
• if she had indeed told Mr Ellis a written agreement was not necessary, then she would have done so in their initial conversation when he told her he would prepare a written agreement, rather than waiting until he had done so [37].
• if Mr Ellis had received the signed Loan Documents in November 2017, he had not dissented from or objected to them until he was contacted by Rotman & Morris which is consistent with his acceptance of its binding effect [38].
• even if she did tell Ellis that a written loan agreement was not necessary and if her statement on 21 September 2015 to Ellis had been a counter-offer there is no evidence as to how Ellis had communicated his acceptance and there was no concluded agreement [39].

The court in considering the evidence stated:

• it was not highly implausible that the Ellis and Ryan agreed that the Loan would be as per the Oral Agreement and did not matter for the application that the better view may be that the Loan Documents apply [40].
• if the Oral Agreement applies, then there was a plausible contention that there was no security for the Loan, meaning that Ryan could not call upon JH’s debt to Ellis [41].
• there was no explanation for how Ryan’s signature differed on the two copies of the Loan Agreement  [42].
• Ellis did not realise until 20 February 2018 that he had received the signed Loan Documents from Ms Ryan in November 2017 [43].
• the factual controversy between Ellis and Ryan as to the status of the Loan Documents would require cross-examination of witnesses & possible forensic evidence of the documents [44].
• if the Oral Agreement did not apply, there is a ‘plausible contention requiring investigation’ into whether if the Loan Documents were not signed and returned in September 2015, it was open to Ms Ryan to accept them and return them in November 2017 [45].

The Loan Documents and the nature of the assignment

JH submitted that:

• if the Loan Documents apply they are to be read together and the assignment of the debt by JH was not an absolute assignment [46].
• the assignment was done by way of charge which means a statutory demand procedure is not the correct mechanism for resolving this dispute [47].

Ryan submitted that

• the Assignment Agreement, by its own terms, is absolute [49] & assigns to Ryan the interests of Ellis in the debt owed to him.
• the Assignment meets the conditions of s 134 of the Property Law Act  and no issue of interpleader arises [50]
• even if there was no been a legal assignment there was been an equitable assignment and which was sufficient for a statutory demand [52]

The Court stated:

• the documents are not interpreted in isolation but are interpreted together, akin to collateral contracts [52]
• there is a plausible contention requiring further investigation as to whether the assignment is absolute or whether it is only by way of charge. As such there is a plausible contention that the Assignment Agreement can only be enforced if the pre-conditions for realising or dealing with the security have arisen [53].
• whether the assignment is a legal one or an equitable one is irrelevant for my purposes, since either can lead to a statutory demand [54].
• the issue is whether Ryan is entitled to rely on the Assignment Agreement  [54]

Has there been a forgiveness of the Loan? If so, what is its effect?

JH submitted that:

• the Loan was forgiven by Ryan which was not implausible since the parties had a personal friendship spanning many decades [55]
• if the Oral Agreement did not apply then as a result of the Alleged Loan Forgiveness, Ryan cannot enforce that security.
• as the assignment was by way of a charge, rather than absolute, then if there is no longer any money owing on the Loan then there is no work for the charge to do [56].

Ryan submitted that:

• the claim about the Alleged Loan Forgiveness was a self-serving bald assertion  without any objective existence, was unrealistic warranting no further investigation, it could not be explained by normal commercial practice,  it ‘beggars belief’ that Ellis would not have documented the Alleged Loan Forgiveness and finally the objective evidence is consistent with Ryan’s case, which is eminently plausible [57].
• Ellis admitted in correspondence that he remained liable to repay the Loan [58]
• the Alleged Loan Forgiveness was ineffective as there was neither valuable consideration nor a deed [59]

The Court stated:

• whether the representation as to the Alleged Loan Forgiveness was made can only be answered at trial.
• while in ordinary circumstances the proposition that a substantial loan had been forgiven in this way may be implausible however as this was not an ordinary commercial relationship means that these are not ordinary circumstances [62].
• there was no attempt made by either party to explain what is undoubtedly a lengthy silence of around two years in respect of the Loan or explain what occurred between the parties so as to turn a long-term family friendship into  an acrimonious dispute [63]
• even if the Loan was not effectively forgiven, there remains an Estoppel Claim [64].
• the context in which the Alleged Debt Acknowledgments it cannot be said that these statements were unequivocal debt acknowledgments rather than attempts to negotiate an outcome [65]

Does the Estoppel Claim prevent recovery of the Debt from JH?

JH submitted that

• on 18 October 2018,  Ryan represented  that the Loan had been forgiven which Ellis had relied upon to his detriment, giving rise to an estoppel claim [66]
• the detriment was that if he had known the Loan had not been forgiven and was to be enforced, he would have called in a loan of approximately $500,000 owed to the Trust by Rasputen [67].

Ryan submitted that:

• there was no objective evidence of the Trust or the loan from the Trust to Rasputen [69]
• on information contained in the Balance Sheet Rasputen was ‘hopelessly insolvent’ [72]
• the only evidence of Rasputen’s financial position is the Balance Sheet, which is now quite out of date.
• once letters of demand were sent he was on notice since that time that repayment of the Loan was being demanded & Ellis could have caused Rasputen to put the Mallacoota Property up for sale earlier [74].
• there was no evidence of the financial position of the Trust [76].

The Court stated that:

• it did not accept the submission that the Court should assume that Rasputen’s liabilities remain as listed on the Balance Sheet [77].
• there simply was not have enough information or evidence to form any sort of view as to the solvency of Rasputen [78].
• while the detriment element of the Estoppel Claim may be described as speculative, the other elements could not be so described.
• while the alleged detriment may be speculative, it was not so implausible, improbable or hypothetical that it meant there was no a genuine dispute [79].

The court found that the combination of the matters raised by JH means that there is a genuine dispute in respect of the Debt and the Statutory Demand should be set aside [81].

ISSUE

The complex and unusual fact situation militated in favour of the application to set aside the statutory demand.  While the court regarded the strength of some of the applicant’s contentions with some wariness the fact that a final determination on those issues would require a hearing and testing of evidence made it likely that the demand would be set aside.  As the analysis makes clear the absence of explanation as to why Ryan went from trusted friend to bitter opponent in multiple proceedings did not assist the respondent.  While it could be argued that that explanation was strictly speaking not necessary on one view, it was likely to be a relevant factor when  the applicant raised the close relationship that existed at the time of the original agreement to lend money.  The case also highlights the difficulty for a respondent when the facts upon which the respondent would rely, being the loan agreement, are far from clear and there is some delay.  The court exercised unsurprising caution in all the circumstances.  The case also highlights the importance of being prepared for a detailed analysis of the law.  Even though the application was interlocutory the respondent needed to address quite detailed allegations brought by the applicant. Conversely the applicant needed to carefully consider the likely arguments relied upon in challenging the enforcement of the loan documents.  In this case those arguments were already addressed in separate Supreme Court proceedings.  Often times there are no collateral proceedings on foot and these arguments need to be considered in detail as part of the process of drafting affidavit material and in submissions.